Jack in the Box Inc. Reports Third Quarter 2022 Earnings

Jack in the Box same-store sales of -0.6%, +9.6% on a two-year basis

Del Taco same-store sales of +3.5%, +10.6% on a two-year basis⁽¹⁾

Jack in the Box systemwide sales decline of -1.4%, Del Taco systemwide sales growth of +3.3%⁽¹⁾

Jack in the Box now at 62 development agreements for 220 future restaurants

Jack in the Box completes LOI to refranchise Oregon evolving market restaurants, including future development commitments

Management provides updates on share repurchases and previous guidance

Jack in the Box Inc. (NASDAQ: JACK) announced financial results for the Jack in the Box and Del Taco segments in the third quarter, ended July 10, 2022.

“I am very encouraged by the commitment shown by our franchisees, operators and corporate team members as we navigate this challenging and complex operating environment. We have remained steadfast in executing our four strategic pillars by focusing on what we can control,” said Darin Harris, Jack in the Box Chief Executive Officer. “Both Jack and Del Taco demonstrated top-line strength, delivering excellent same-store sales performances on a two-year basis, and sequentially higher sales on a three-year basis. As we navigate through the near-term, we are committed to utilizing the remainder of the year to return cash to shareholders via share buybacks in the fourth quarter, as well as strengthen our foundation to demonstrate unit growth progress beginning in fiscal 2023.”

Jack in the Box Performance

Systemwide sales for the third quarter decreased 1.4%. Same-store sales decreased 0.6% in the third quarter, comprised of a decline in franchise same-store sales of 1.0% and an increase in Company-operated same-store sales of 3.5%. Higher average check, driven mostly by pricing, was more than offset by traffic declines for franchise, and only partially offset by traffic declines for company-operated. The chicken and sides categories performed well, as did the snack and dinner day parts. During the quarter, systemwide sales declined relative to same-store sales due to a one-week shift affecting the calculation of same-store sales related to the 53rd week in 2021. This one-week shift had a more positive impact on same-store sales due to lapping less of the stimulus benefit in its calculation when compared to the fiscal quarter comparison.

As of the third quarter, and since the launch of the development program in mid-2021, the Company currently has 62 signed agreements for a total of 233 restaurants. Under these agreements, 13 restaurants have opened, leaving 220 remaining for future development. Net restaurant count was flat in the third quarter, as the Company both opened and closed three locations. The three restaurant closures included one Company-operated restaurant within an Evolving Market, one franchise location with an early termination and one franchise location with an agreement expiration.

Restaurant-Level Margin⁽²⁾, a non-GAAP measure, was 15.8%, a decline from a year ago driven by increases in food and packaging costs; wage inflation of 13.2%; and increases in utilities and maintenance and repair costs, partially offset by menu price increases. Commodity costs increased in the quarter by approximately 16.8%, primarily due to increases in proteins, sauces, oil and beverages. When removing the temporary Evolving Markets (Oregon, Kansas City, Oklahoma City and Nashville), Restaurant-Level Margin was 19.3% for the quarter. Subsequent to the third quarter, the Company completed a Letter of Intent to refranchise seven restaurants within the Oregon market, with plans to close the remaining company-owned Oregon restaurants thereafter. This would remove all Oregon locations from the Evolving Markets portfolio beginning in Q1 2023. The agreement would also include six Southern California-based company-owned restaurants, which would be refranchised to the same operator, and a commitment to build additional future restaurants.

Franchise-Level Margin⁽²⁾, a non-GAAP measure, was 41.4%, a decline from a year ago, driven by reduced operating hours, lower early termination penalties, and deferrals in connection with a franchisee currently in bankruptcy proceedings. Excluding the impact of this St. Louis-area franchisee's pre-pandemic challenges and 2021 chapter 11 bankruptcy event, Franchise-Level Margin for the third quarter of 2022 would have been would have been 42.2%, compared to 43.3% in the third quarter of 2021.

Del Taco Performance⁽¹⁾

Systemwide sales for the fiscal third quarter increased 3.3% driven by positive results in both franchise and company-operated same-store sales. Same-store sales increased 3.5% in the third quarter, comprised of franchise same-store sales growth of 4.8% and Company-operated same-store sales growth of 2.3%. Sales performance was boosted by the 20 Under $2 value platform, higher average ticket and menu price, partially offset by menu mix and transaction declines. Del Taco had a third quarter net restaurant decrease of five restaurants, comprised of five closures and no openings.

Restaurant-Level Margin, a non-GAAP measure, was 17.6% while Franchise-Level Margin, a non-GAAP measure, was 42.7%.

Company-Wide Performance

Third quarter diluted earnings per share was $1.08. Operating Earnings Per Share ⁽³⁾, a non-GAAP measure, was $1.38 in the third quarter of fiscal 2022 compared with $1.64 in the prior year quarter. Total revenues increased 47.8% to $398.3 million, compared to $269.5 million in the prior year quarter.

Net earnings decreased to $22.9 million for the third quarter of fiscal 2022, compared with $40.0 million for the third quarter of fiscal 2021.

Adjusted EBITDA⁽⁴⁾, a non-GAAP measure, was $73.2 million in the third quarter of fiscal 2022 compared with $79.0 million for the prior year quarter.

SG&A expense for the third quarter, which now includes Del Taco, was $40.1 million, an increase of $18.3 million compared to the prior year quarter, driven primarily by; mark-to-market changes in the cash surrender value of company owned life insurance ("COLI") policies, net of changes in our deferred compensation obligation supported by these policies, resulting in a year-over-year increase of $7.2 million, an increase in advertising expense of $5.1 million and an increase of $8.5 million in other G&A from the acquisition of Del Taco; partially offset by a decrease in litigation matters of $2.1 million.

The effective tax rate for the third quarter of fiscal year 2022 was 28.8% compared to 23.1% in fiscal year 2021. The major components of the year-over-year increase in tax rate, the impacts of which were exacerbated by a decrease in earnings before income taxes, were non-deductible COLI losses in the current year as opposed to non-taxable gains in the prior year, a favorable release of reserve on state tax credits and losses in the prior year, and an increase in non-deductible expenses in the current year.

Capital Allocation

On November 19, 2021, the Board of Directors authorized a $200.0 million stock buy-back program that expires on November 20, 2023. The Company did not repurchase any shares in the third quarter of 2022, but plans to execute $25 million in share repurchases during the fourth quarter of 2022. On August 5, 2022, the Board of Directors declared a cash dividend of 0.44 per common share, to be paid on September 9, 2022, to shareholders of record as of the close of business on August 24, 2022.

Guidance Updates

The following guidance and underlying assumptions reflect the Company’s current expectations for the current fiscal year ending October 2, 2022:

Jack Restaurant Level Margin Guidance for FY 2022

• Overall Jack in the Box Restaurant Level Margin is now expected to be ~16% (previously ~17%), which includes high single-digit price increases
• Jack in the Box Restaurant Level Margin when removing Evolving Markets (Oregon, Kansas City, Oklahoma City and Nashville) is expected to be ~19% (previously ~20%)

Company-wide CapEx & Other Investments Guidance for FY 2022

• Company-wide CapEx & Other Investments Guidance now $50-55 million (previously $75-80 million), due primarily to lower franchise incentive capital deployment toward restaurant reimages

Del Taco Guidance

All guidance and outlook measures related specifically to Del Taco will debut in 2023, and will be disclosed at our Q4/Full-Year 2022 earnings in November.

Conference Call

The Company will host a conference call for analysts and investors on Wednesday, August 10, 2022, beginning at 10:00 a.m. PT (1:00 p.m. ET). The call will be webcast live via the Investors section of the Jack in the Box company website at http://investors.jackinthebox.com. A replay of the call will be available through the Jack in the Box Inc. corporate website for 21 days. The call can be accessed via phone by dialing (888) 330-2455 and using ID 6311841.

About Jack in the Box Inc.

Jack in the Box Inc. (NASDAQ: JACK), founded and headquartered in San Diego, California, is a restaurant company that operates and franchises Jack in the Box^®, one of the nation's largest hamburger chains with more than 2,200 restaurants across 21 states, and Del Taco^®, the second largest Mexican-American QSR chain by units in the U.S. with approximately 600 restaurants across 16 states. For more information on both brands, including franchising opportunities, visit www.jackinthebox.com and www.deltaco.com.

Category: Earnings

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to: the success of new products, marketing initiatives and restaurant remodels and drive-thru enhancements; the impact of competition, unemployment, trends in consumer spending patterns and commodity costs; the company’s ability to achieve and manage its planned growth, which is affected by the availability of a sufficient number of suitable new restaurant sites, the performance of new restaurants, risks relating to expansion into new markets and successful franchise development; the ability to attract, train and retain top-performing personnel, litigation risks; risks associated with disagreements with franchisees; supply chain disruption; food-safety incidents or negative publicity impacting the reputation of the company's brand; increased regulatory and legal complexities, risks associated with the amount and terms of the securitized debt issued by certain of our wholly owned subsidiaries; and stock market volatility. These and other factors are discussed in the company’s annual report on Form 10-K and its periodic reports on Form 10-Q filed with the Securities and Exchange Commission, which are available online at http://investors.jackinthebox.com or in hard copy upon request. The company undertakes no obligation to update or revise any forward-looking statement, whether as the result of new information or otherwise.

JACK IN THE BOX INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.

JACK IN THE BOX INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS

(Unaudited)

To supplement the condensed consolidated financial statements, which are presented in accordance with GAAP, the company uses the following non-GAAP measures: Operating Earnings Per Share, Adjusted EBITDA, Restaurant-Level Margin and Franchise-Level Margin. Management believes that these measurements, when viewed with the company's results of operations in accordance with GAAP and the accompanying reconciliations in the tables below, provide useful information about operating performance and period-over-period changes, and provide additional information that is useful for evaluating the operating performance of the company's core business without regard to potential distortions.

Operating Earnings Per Share

Operating Earnings Per Share represents diluted earnings per share on a GAAP basis excluding acquisition, integration, and restructuring costs; COLI losses (gains), net and gains on the sale of company-operated restaurants. Operating Earnings Per Share should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Operating Earnings Per Share provides investors with a meaningful supplement of the company’s operating performance and period-over-period changes without regard to potential distortions.

Below is a reconciliation of non-GAAP Operating Earnings Per Share to the most directly comparable GAAP measure, diluted earnings per share. Figures may not add due to rounding.

Adjusted EBITDA

Adjusted EBITDA represents net earnings on a GAAP basis excluding income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, other operating expenses (income), net, depreciation and amortization, amortization of favorable and unfavorable leases and subleases, net and the amortization of franchise tenant improvement allowances and other. Adjusted EBITDA should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Adjusted EBITDA is useful to investors to gain an understanding of the factors and trends affecting the company's ongoing cash earnings, from which capital investments are made and debt is serviced.

Below is a reconciliation of non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands).

Restaurant-Level Margin

Restaurant-Level Margin is defined as company restaurant sales less restaurant operating costs (food and packaging, labor, and occupancy costs) and is neither required by, nor presented in accordance with GAAP. Restaurant-Level Margin excludes revenues and expenses of our franchise operations and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, other operating expenses (income), net, gains or losses on the sale of company-operated restaurants, and other costs that are considered normal operating costs. As such, Restaurant-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Restaurant-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Restaurant-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company's core business operating results, as well as a comparison to those of other similar companies. Management utilizes Restaurant-Level Margin as a key performance indicator to evaluate the profitability of company-operated restaurants.

Below is a reconciliation of non-GAAP Restaurant-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):

Franchise-Level Margin

Franchise-Level Margin is defined as franchise revenues less franchise operating costs (occupancy expenses, advertising contributions, and franchise support and other costs) and is neither required by, nor presented in accordance with GAAP. Franchise-Level Margin excludes revenue and expenses of our company-operated restaurants and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, other operating expenses (income), net, and other costs that are considered normal operating costs. As such, Franchise-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Franchise-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Franchise-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company's core business operating results, as well as a comparison to those of other similar companies. Management utilizes Franchise-Level Margin as a key performance indicator to evaluate the profitability of our franchise operations.

Below is a reconciliation of non-GAAP Franchise-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):

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