Good day everyone and thank you for standing by. Welcome to the Jack in the Box Fourth Quarter Fiscal 2021 Earnings Conference Call. My name is Peter and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management from Jack in the Box will conduct a question-and-answer session and the conference participants will be given instructions at that time. As a reminder, this conference is being recorded. A replay of the call will be available on Jack in the Box corporate website starting today. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations. Please go ahead.

Thanks, Peter and good morning, everyone. We appreciate you joining today's discussion, highlighting our fourth quarter and full year 2021 results. Joining us today are Chief Executive Officer, Darin Harris; and Chief Financial Officer, Tim Mullany. Following their prepared remarks, we are happy to take some questions from our sell-side coverage analysts. During our prepared remarks and the Q&A portion of today's call, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today's earnings release which is available on the Investor Relations website at jackinthebox.com. We may also make forward-looking statements that reflect managements' current expectations for the future which are based on current information and judgments. Actual results may differ materially from these expectations based on risks to the business. The Safe Harbor statement in today's news release and the cautionary statement in the company's most recent 10-K are considered a part of today's discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC and are also available on the Investor Relations section of our website. A few brief housekeeping items before we get started. First, a quick review of our 2022 guidance updates included in this morning's earnings release. 2022 SG&A of $92 million to $97 million. This excludes net COLI gains and losses and now includes selling and advertising expense. 2022 commodity outlook up 6% to 7% compared to 2021 and 2022 labor cost outlook, up 8% to 10% compared to 2021. And as we previously stated during last quarter's earnings, 2022 CapEx and other investments of $65 million to $75 million which includes both capital expenditures and franchise tenant improvement allowances and incentives. Our 3-year to 5-year outlook related to comps, unit growth and system-wide sales metrics which all factor into that outlook beginning this year remains the same as previously stated. Also this morning, for additional visibility, we provided a company-owned store funding outlook for 2022 and 2023, as well as due to the unique operating environment expected to continue next year, a onetime restaurant-level margin outlook for 2022. Tim will speak to this further in his prepared remarks. Lastly, please make sure to mark your calendars for our management and franchisee Q&A event open to investors and the general public via webcast with sell-side coverage analysts, welcome to join and ask questions of the group. The event will take place on Tuesday, December 14 at 2:00 P.M. Eastern Time, 11 A.M. Pacific. And we look forward to virtually seeing you there. And with that detail out of the way, let's get started. I will now turn the call Over to our Chief Financial Officer, Tim Mullany.

Thanks, Chris and good morning, everyone. We're excited to discuss our fourth quarter and full year results with you today. Our solid fourth quarter top line results demonstrate the progress we're making against our strategic plan, putting us on a clear path to deliver best-in-class unit economics for our franchisees and achieve the long-term growth targets that we laid out at our Investor Day. We remain as focused as ever on getting our fundamentals in place to achieve these goals. Overall, our franchisees and operators, particularly our restaurant managers, continue to drive solid financial performance in Q4, leading to a diluted EPS of $1.80 or a 9.8% increase from the prior year. In a few moments, I'll provide more detail on the components of these earnings. We achieved system-wide sales growth of 8.6% as compared to Q4 2020 and same-store sales growth of 12.3% on a 2-year basis. Breaking down our Q4 positive comp of 0.1%, our franchise business increased 0.6%, while our company-operated stores were down 4.4%. The difference was primarily due to franchisees taking more aggressive action on price increases faster than company-owned locations as well as franchisees demonstrating greater success with hourly worker hiring and retention. Our performance this quarter was heavily driven by price, while average check held constant. I'd like to provide some further detail on how labor and the current operating environment impacted our same-store sales for the quarter. We conservatively estimate that limited operating hours due to staffing challenges negatively impacted our comp by roughly 3%. Also, supply chain challenges driven by labor issues within distribution channels impacted our comps negatively by an additional 1%. While we don't typically provide quarter-to-date trends, within this unique top line environment, we wanted to note that we are seeing a very good start to Q1. And…

Thank you, Tim and good morning, everyone. As I look back at our quarter four and full fiscal year results, I am extremely proud of the ability of this brand to remain strong in our performance during these interesting times. The energy and perseverance of our restaurant staff and our franchise operators excelled during a challenging time in our industry. I'm truly grateful for the unwavering strength and agility with which our team members and company and franchise restaurants operate. This, in large part, thanks to them that we continue to see growth in sales and progress within our four strategic pillars. While our industry does have headwinds, we are laser-focused on mitigating their impact while we remain disciplined and centered on the long-term health of the business and our strategy. Now, diving into the results for the fourth quarter. We are pleased to report positive same-store sales for the quarter and a strong 12.3% comp on a 2-year basis as we navigated nicely through a unique and volatile top line environment within the industry. While we generated most of our sales from ticket, we remain focused on driving a balance of traffic and average check for the long term. I am confident that we are well positioned to achieve this objective as our operating environment normalizes given our proven ability to offer both craveable food and value to customers that are seeking it. We are very fortunate to be a brand known for variety which enables us to be agile with our promotional calendar and navigate the supply challenges many are facing in the industry. On the unit count front, we continued our process to selectively close stores as we optimize our footprint and position Jack for more profitable unit growth. We expect to close less stores in 2022…

[Operator Instructions] And your first question will come from Andrew Charles. You may ask your question.

Thanks, guys. Sorry to violate the one rule off the bat -- one question off the bat but just a quick clarification because I'm getting some investor impounds. Is the low double-digit to your comps they've disclosed for 1Q quarter-to-date. Is that in line with the 12.3% that you saw in 4Q? Or is 1Q perhaps tracking somewhere a little bit above or a little bit below that level? And then, just my main question was on pricing. Darin, you expressed your confidence in the ability for the brand to take an elevated level of price. But just given the industry is running the highest percentage of pricing in the last 30 years. Can you just be a little bit more specific around your confidence that consumers can digest mid-to-high single-digit price in 2022? I recognize that you'll continue to innovate around add-ons and snacking items to help promote value. But of course, you still need to drive traffic with premium items at compelling price points to help make those margins.

Yes. I'll answer the second question first and then I'll turn it to Tim. One is if we look over the data from last year, we took less price than others in the industry. That's one of the points that gives me clarity about our ability to take price. And then in our test that we're taking related to price, we're seeing upside opportunity in our core menu, where historically, we took a lot of our price in our promotional menu. So the data suggests that we have opportunity with price. It's how fast can we take it to overcome some of the margin pressure. And Tim, any -- can you answer that one?

Yes. On the first one, as we reported, just first in Q4, we reported a 12.3% 2-year stack. And what we're saying is in the first weeks, we are trending at a low double-digit 2-year stack which is consistent with Q4 performance with comps in -- single year comps in the low to mid-single-digit range.

Okay, got it. Consistent with that 12.3%. Okay, got it. Thank you very much.

Thank you, Andrew.

And your next question will come from Lauren Silberman. Your line is open.

Thank you so much. I wanted to ask about the development commitments, the 111 new site. What markets are those units in? Anything you can expand there, whether there was new or existing franchisees or any additional color that could be helpful. And then what's your visibility into the timing of the opening of those locations? Thank you.

Yes, Lauren, we -- our focus, as we rolled out our franchise development program was in the back half of the year. And we initially went to our existing base of franchisees and said, that's who we want to give the first opportunity for growth and we're still working through that pipeline of interest. So most of the franchise agreements were in existing markets. Outside of what I would say, some new areas of -- the new area which was Salt Lake City that we've talked about on previous calls and we've had two agreements signed in Salt Lake City which will help us expand into an adjacent market, what we've called our wagon wheel approach. So we're excited about the company investing along franchisees in Salt Lake City, as an example, to grow. The rest came from existing markets. And from a standpoint of timing, we're building a pipeline that is fueling the next two years of growth. So by the time we sign, by the time they find real estate and open, it's pretty consistent with what we've talked about on these calls that it takes about 24 months to really start to see those openings come to fruition.

Thank you.

Your next question will come from John Glass. Your line is open.

Yes. Hi guys, this is Brian on for John. Maybe just one on the supply chain challenges. If you could provide more detail on that. Was it kind of specific items where availability was low? And I guess, are you getting past those issues? And what have you been doing to kind of get over that hurdle?

Yes. Unfortunately, we had a challenge with one of our large DCs where they had a staff walk out. And so for about 8 to 12 weeks of the quarter, we were working tirelessly with our franchisees to make sure that we could supply our existing restaurants. So we definitely felt that was the biggest challenge during the quarter which we think is a onetime event, not a thing that is normal. It's related to this whole environment we're in. And with that, both our partner at the DC and us, we learned about ways to mitigate that for the future. and we've put multiple layers of protection in place, so we didn't have to go through that challenge again. But it was definitely something we didn't anticipate and now we're prepared for beyond the shadow it out.

Yes. And Brian, just to add to that. I mean, obviously, the industry is undergoing supply chain pressures and challenges. As Darin noted, we're just given the breadth of our menu, the flexibility of our menu, we're able to handle this in a much more advantageous way than a lot of our peer set. And a lot of the pressure here in the quarter was really driven by this distribution challenge more so than, call it, a product challenge. So high level, as we look proactively to face this particular headwind, our primary strategy is to build capacity and increase specification flexibility. So there's a couple of things that we're really doing head-on to address that. One is that, we're increasing the use of our reverse auction system more so than traditionally. And what this does is it allows us to much more -- much quickly -- much faster -- have much faster RFP cycle time as we evaluate opportunities. And then secondly, we implemented a new technology that provides automation and allows us to more efficiently manage spec compliance. So as there is -- let's say, pressure on a certain product that we're getting -- we're having challenges getting, we're able to evaluate alternate suppliers and new production line approvals much faster to get that supply back into the system. So we've had great success with that. And point being, we're taking some pretty aggressive action on supply chain overall.

Thank you.

Your next question will come from Jeff Farmer. Your line is open.

Great, thank you. Your mid-to-high single-digit menu price guidance for 2022 is in line or sits just below that level of commodity and wage rate inflation that you pointed to for the year. So I guess my question is, you're guiding to a 400 basis point restaurant level margin sort of pressure level. You mentioned the acquisition of franchise restaurants as one of the pressure points there. But again, the main question here is given that your menu pricing is not too far off from the inflation you're seeing on both commodity and wage rates, why are you seeing almost a 400 -- why do you expect to see almost a 400 basis point headwind on the restaurant level margin?

Yes. So there's primarily two things here. One is, as you rightly noted that there's -- the acquisition of certain markets that have depressed margins that we're bringing in to the restaurant level margin. So it's having a depressive effect. Also, outside of pricing, restricted hours are a component that goes into that as well. So until we start seeing a loosening of the labor market, we're including that in the calculus of our comp forecasting and margin forecasting. So there's an effect being driven just by reduced labor hours. And just on that point, while we're there, just to point out how we're attacking that as well. We're hoping that there's upside with a few things we're putting in place certainly in the company stores is we've had successful experiences with using mobile and app-based application portals. That allows us to speed up the processing and selection of employees in lieu of having our restaurant managers take time out of their day to review applicants. As you can imagine, the application process is ramping up much more so than pre-COVID so this tool has been effective and efficient for us. Two, we're actively utilizing social media and online channels to get greater impression and reach so we're really casting our net wide in the hopes of attracting employees into the stores or restaurant workers into the stores. And then, we've also been successful in utilizing shift differential pay. So we're trying to attract and retain employees, particularly in our late night day parts to have greater success in fully staffing our restaurants. So, as we use these three levers in the future, we're hoping that to the point that you're making, we're able to have greater success in closing that margin gap.

Yes. And let me add one thing to that, Tim. And we implemented daily pay as well. And with the premium differential pay, we have not -- we are in process of rolling across all company restaurants but where we did, we saw a 25% increase in operating hours and we're starting not only to see it stabilize but improve. And during the quarter, our staffing was impacted most in the Northwest and the Midwest and least impacted in California and Texas. So we're seeing some light of -- and some improvement in that -- specifically in our late night hour challenge with staffing.

And your next question will come from Brian Mullan. Your line is open.

Hey, thank you. Just a question on company-owned store development. Looks like over the next two years, targeting anywhere from 12 to 20 units, it's good to see. When you think about the targeted AUVs for those stores, should we be thinking about the current overall system-wide average which is kind in that high $1.8 million, $1.9 million range? Or should we be thinking about kind of the current AUVs of your company-owned store base which are for some of your highest volume units?

Yes. I would think that the former is what you would be evaluating. Some of our -- the recent performance of our -- of the units that we opened in 2018 and 2019.

Yes. And as we talked about in December, we'll provide overall details around our economic model and how those have improved over the last year.

Yes. And really the best, I think, referenced for this is to go the Investor Day materials. We scope out what the unit economic models are in that as well as our drive-through only unit economics and what the AUVs are for each of those formats.

Our 2018 and '19 openings were averaging $1.8 million and $2.1 million in AUV.

And your next question will come from Nick [ph]. Your line is open.

Thank you. Going back to the unit development question, the sort of low end of 1%. If we think about that for '22, are we talking about growth? Or are we talking about net development?

That's gross units that we're opening, new locations.

Got it. And in terms of the geographies where you plan to open the stores over the next couple of years? Is it kind of even between sort of California, Texas and some of the less penetrated markets? Is it more concentrated in the less penetrated markets?

It's definitely in -- for sure, California and Texas, we still have plenty of opportunity but we've seen expansion in a lot of underpenetrated markets and some where we're seeing signing of development agreements in those markets. So it's across geographies within our existing footprint. And then with some company store development, we will proceed into one or two new markets, if you consider Salt Lake City, a new market and one other market.

Got it. And then, just can you update us on where we are with remodels. What percent of the system is remodeled now? What percent of company-owned units are remodeled? What the remodel cadence going forward is going to look like?

Yes. So just high level, we know we've got 400 and change locations that could use refresh remodels. We're really going to pace out how this goes. We've slided [ph] -- last quarter, we discussed having roughly $20 million of annual capital sort of earmarked for these remodel refreshes. And like I said, we're going to ensure that there are guardrails in place. So we don't go meaningfully beyond that on an annual basis. And really, it's more or less a first come first serve type approach with our franchise system. But generally speaking, we're evaluating these on a one-off basis. So there's various programs in place that they can choose from and it's going to be site specific. So we'll look at the need, we'll look at the term of the lease, the term of the franchise agreement, ensure that an ROI is appropriate and that they don't select a remodel package that doesn't provide something that surpasses a return hurdle rate associated with that and then move forward that way. But this is, again, this will be the first year that we're rolling this out. So we'll be cautious in how we deploy our capital.

Thank you very much.

Your next question will come from Zachary of Frankfurt. Your line is open.

Hey, hi. It's Gregory. The -- just one question. You guys have talked a lot about the pipeline for franchise stores in the next couple of years. Can you maybe talk about what that might look like from a gross opening perspective in '22, I would imagine the pipeline as you work with franchisees is pretty well built for what you know is going to open in '22 and roughly what that number could look like.

Yes. So look, I think the point we're trying to -- what we really want to get across here is the scale of new sign-ups that's happened, this company in a long time, hasn't had a robust pipeline in place. Actually, they haven't had much of a pipeline at all. And in the last two quarters, we ramped up to three digits of units of restaurants committed to open. So I think we're developing a tangible -- we're able to tangibly demonstrate that we're following up on our growth strategy that we laid out on Investor Day. And we -- which was to say that we want to get to where we plan on getting to a 4% net unit growth run rate by 2025. And the pipeline that Darin mentioned puts us well on pace to achieve that. So we're pleased with the performance that Tim Linderman and the development team have had so far. And we're excited that the franchisees are on board with us and very equally as excited as we are to get growth going.

All right, thanks.

Our next question will come from Jared Garber. Your line is open.

Hi, thanks for taking the question. Kind of wanted to tie a couple of threads together here but we have a record franchisee free cash flow in, I guess, 2020 and 2021. But obviously, next year in '22, the margin outlook would suggest that the cost environment is going to materially pressure those restaurant level margins not only for the company stores but franchisees. But at the same time, you're developing this increasing pipeline for development demand. So can you just walk through? And I guess maybe we'll hear about this a little bit more in a few weeks but what those conversations are like with franchisees now and how they're thinking about managing through the cost environment in the somewhat near term, hopefully and maybe what's underlying some of the longer-term unit growth pipeline developments?

Yes. I think there's a few things here. The conversation we're having with our franchisees are really critical around our pricing discipline and how do we take price on our core menu. And so that's been a lot of the discussion. And it's been healthy dialogue and people not only learning from the company and the data that we're generating but from each other and the moves that are being made around the country. So that's a key component of it. And it's been that spirit of partnership. Beyond that, we've presented to our franchisees our strategy around financial fundamentals and where we find opportunity within process and technology to remove cost from the model. So there's a lot of encouraging bridge of how we can take additional points or improve additional points in labor. So the franchisees are healthy. Their cash flow is healthy. They've expressed their desire to reinvest in the brand because we know these headwinds are a period in time and that we've shown that through pricing and through margin improvement initiatives that we can overcome some of the challenges that we're facing in the short-term environment.

And just one quick follow-up. I'm not sure if you gave this earlier but any mix on the franchisees that are signing up that incremental development demand. Can you remind us of the mix there between current and new franchisees?

Yes. It's -- all of the numbers are existing franchisees because our first priority in the process was to -- and we still have other existing franchisees interested in developing. We're only about six months into this program. And we gave kind of a window of first opportunity to our existing base. So the numbers we've reported are only our existing franchisees and we're not finished yet with their level of interest. We're still working through market by market, territory by territory. We've mapped every market in the country; we've put data around it. So franchisees can go out and explore with our real estate team where they would like to grow. And so we're only through a small portion of the process with existing franchisees. As I mentioned, we've launched our marketing for new. We have a good pipeline and we're in process of kind of working through what existing franchisees want first and then we'll start to sign up new franchisees.

Great, thanks.

And your next question will come from Jim Sanderson. Your line is open.

Hey, thanks for the question. Just wanted to talk about some of the technology you're investing in and how that could potentially improve labor productivity going forward but also if there's an opportunity to have franchisees participate in that investment potentially with some sort of technology fee that they would pay on a per store basis?

Yes. Go ahead, Tim.

Yes. A couple of things that we're actively working on and excited about that would help in-store labor is -- there's -- we're working on robotics, particularly at the fry station, we'll have a test underway shortly here and we're optimistic about what that has for us in the long term. We're also looking at automated drink machines as far as pulling labor out of the system as well as self-cleaning milkshake machines as well. So these technologies are things that in our analysis could be fairly meaningful when we look at the economic model in the long term and across the system as a whole as far as being able to reduce average -- require an average labor hours per week.

Beyond that, we've also rolled out a software program technology for the restaurants that enable them to help manage labor more effectively and food. And we're at the early stages of actually taking the technology and being able to drive out cost. So all of it enables us to project better from a labor standpoint and it enables us to manage food costs more aggressively. And so, those are tools that the brand has not implemented historically that we now have that can really help improve our restaurant level economics. We also -- like I said, I mentioned on the -- in my early comments that we've invested in a team in op services that their entire focus is how do we improve restaurant-level economics through process systems and technology. And so they've got a bridge built in a plan to figure out how we can remove two points at a minimum from the P&L. So that being said, we also -- as you know, we've recently hired a new CIO, Doug Cook, who has brought some ideas to the table and how we can continue to improve through AI tools and drive cost out of our system. But also, I think your question was also about tech fees. We charge that today. We have the ability to increase that over time. but we would have to sit down with our partners, our franchisees and help them see the road map and participate in that journey with us and we've been doing that accordingly. We've showed them our tech road map and have started bringing them along in the process to where we're taking technology.

[Operator Instructions] Our next question will come from Chris Carril.

Hi, good morning. So, just as a follow-up on pricing. Can you talk a little bit more about how and when the anticipated mid-to-high single-digit pricing gets phased in? Sounds like franchisees have already begun to take more pricing but any additional detail on the pacing of pricing actions at the company-owned restaurants would be helpful.

Yes. So we're fully cognizant of how price is being taken across the industry today. We've got a lot of dry powder built up given that we've had sort of moderate price increases in 2021 for company stores, as an example, for the -- for 2021, we took roughly 3.5% on price with only 3.9% coming in the fourth quarter. So the typical cadence would be roughly the opportunities that we've historically taken to increase our prices. We're likely looking to see how we can accelerate that pacing in 2022 and we're also actively evaluating how much we can take within the various sensitivity bands that we have for the consumer. So this is something that's clearly a top priority for the company. We understand that the margin pressures and headwinds we have and we understand our ability to mitigate those by taking price. And again, that we have dry powder to do that. So we're actively evaluating that acceleration.

Thanks.

And your next question will come from Jake Bartlett. Your line is open.

Great. Thanks for taking the questions. My question is on the margin guidance for the restaurant level margin guidance. And I'm hoping you can give us a little more detail on how much of those acquisitions, the 20 stores you acquired are pressuring the margins. And it sounded like the other part of it is potentially negative company same-store sales and there's a big differential in the fourth quarter between company and the franchise. But I also look at the company footprint is more Californian and you mentioned that California is not seeing the sort of hours and the labor pressures, I think that you cited more the Midwest and the Northwest. So one is why is the company same-store sales being so pressured, if in California, not seen the impact there? And then just digging in a little bit more into how those acquisitions impact margins.

Yes. I'll let Tim answer some of it. But one of the things to keep in mind is the acquisitions that we made are outside of California and Texas, they're in Oregon, Kansas City and Oklahoma. So those are areas that were outside that kind of core and it's pretty meaningful the number of stores that we bought in those markets.

Yes, absolutely. So for those units, ballpark, we're looking at about 130 basis points of margin pressure due specifically to that.

The other thing we've been able to do in the meantime since the quarter is we've been in a process of renegotiating leases with some of our Oregon stores that we will see improved flow through as a result.

Great. And maybe just a detail on why the company same-store sales is underperforming so much given it seems like they did have less of the hour pressure?

Yes. So well, there's two things. Typically, the franchisees certainly have, again, been more aggressive and have moved faster in taking price. So that's been significant. They've also taken a different approach and had different success with retaining hourly workers and staffing their stores and then perhaps more nimble on that in Q4. And then also, as you mentioned, there's geographic disparities between where our company stores are located and the franchisees as a whole. And then lastly, I would say, for company performance, the late night mix versus what the franchisee late night mix also has some degree of impact as well.

Great. Thanks a lot.

Our next question will come from Gregory Francfort. Your line is open.

Okay. Just one follow-up. I think you guys have -- on the debt side of things hasn't come up in a while. I think you guys have a make whole early next year. Can you just remind us how you're thinking about leverage and debt? And if you were to increase your current kind of total debt amount, how you would think about potentially using those proceeds? Thanks.

Yes. Just as -- so we bought $70 million towards share repurchases in Q4. For the year 2021 fiscal year, we repurchased $200 million which we believe was a healthy share repurchase program relative to our history. We just received Board authorization for another incremental $200 million which expires in 2023. So we have the ability to continue in an opportunistic manner, share repurchases that we feel gives the best TSR back to our shareholders. And obviously, it also allows us to deploy capital, whether it's organic capital or debt capital to ROI-driven opportunities within our business. I mean we talked a lot about technology investment today inside the four walls. So we'll be focusing on that. in addition to any other way that we can help grow the overall business like company store development or remodel refresh programs for franchisees.

Can you just remind us what the targeted leverage is for the business right now?

Yes. So we gave a range of 4x to 5.5x. So we'll look to obviously stay within that band and maintain flex for our long-term strategy.

Thank you.

And this concludes today's Q&A. I'll now hand it back over to Darin Harris for the closing remarks.

Thank you all again for joining today. We will see you on December 14 for our franchisee event, and we look forward to speaking with you in February to discuss our first quarter 2022 results.