Jack in the Box Inc. (NASDAQ:JACK), the parent company of the iconic Jack in the Box and Del Taco restaurant brands, reported its fiscal second quarter 2024 results, showcasing its ability to navigate industry headwinds while executing on its long-term strategic initiatives.

Financials

For the full fiscal year 2023, the company reported annual net income of $130,826,000, annual revenue of $1,692,306,000, annual operating cash flow of $215,006,000, and annual free cash flow of $140,052,000.

In the second quarter of 2024, the company reported consolidated revenues of $365.3 million, down 7.7% year-over-year, missing analyst expectations by 1.2%. This decline was primarily driven by a 36.4% decrease in Del Taco company-operated restaurant sales, partially offset by a 3.6% increase in Jack in the Box company-operated restaurant sales.

On the earnings front, the company reported GAAP diluted earnings per share of $1.26, compared to $1.27 in the prior year period. Adjusted for certain items, the company's operating earnings per share was $1.46, versus $1.47 a year ago.

Despite the challenging sales environment, the company's margins and earnings performance exceeded expectations. Jack in the Box's restaurant-level margin expanded by 220 basis points to 23.6%, driven by lower commodity costs and price increases. Del Taco's franchise-level margin also increased, up to $6.1 million or 28.9% of franchise revenues, compared to $5.1 million or 37.3% last year.

Darin Harris, Jack in the Box's Chief Executive Officer, commented, "I am proud of the execution by our Jack and Del Taco teams, delivering better-than-expected earnings and margin performance while navigating through increasing macro headwinds, pressure on low-income consumers and the implementation of California's minimum wage legislation."

Business Overview

Founded in 1951, Jack in the Box Inc. operates and franchises two distinct quick-service restaurant brands - Jack in the Box and Del Taco. As of the end of the second quarter, the company operated and franchised 2,195 Jack in the Box restaurants, primarily in the western and southern United States, and 595 Del Taco restaurants across 16 states.

The company derives revenue from retail sales at company-operated restaurants, as well as rental revenue, royalties, franchise fees, and contributions for advertising and other services from franchisees. This diversified revenue stream provides stability and flexibility as the company navigates the evolving industry landscape.

Jack in the Box Brand Performance

Jack in the Box's system same-store sales declined 2.5% in the quarter, with company-operated comps down 0.6% and franchise comps down 2.6%. This performance was impacted by a delay in the launch of the successful Smashed Jack burger, which the company estimates cost the brand around 100 basis points in the quarter.

However, the company noted that Jack in the Box's quarter-to-date same-store sales trends have improved, running about 1% below the prior year, with company-operated restaurants actually posting positive comps since March. Darin Harris expressed optimism about the brand's ability to regain positive system-wide sales in the back half of the year, citing favorable comparisons and several upcoming initiatives.

These initiatives include the launch of the "Munchies under $4" value platform, the return of the popular Chick-n-Tater Melt item with a partnership with Ice Cube, the system-wide rollout of wings, and the permanent addition of French toast sticks to the breakfast menu. The company believes these efforts, combined with continued digital growth and the successful Smashed Jack, will drive improved performance.

Jack in the Box's restaurant-level margin expanded by 220 basis points to 23.6% in the quarter, benefiting from lower commodity costs and price increases. The brand's franchise-level margin, however, declined to $71.7 million or 40.4% of franchise revenues, down from $73.9 million or 41.2% a year ago, due to the sales decline and resulting decrease in royalty and rent revenue.

Del Taco Brand Performance

Del Taco's system same-store sales declined 1.4% in the quarter, with company-operated comps down 1.8% and franchise comps down 1.1%. The brand's restaurant-level margin was 16.8%, compared to 17.3% in the prior year, impacted by increased labor, utilities, and technology support costs, partially offset by menu price increases and commodity deflation.

The company refranchised 13 Del Taco restaurants during the quarter and has an agreement in place to refranchise an additional 27 restaurants in the third quarter. These refranchising efforts, along with new restaurant openings in Utah, Alabama, Florida, and California, have contributed to the brand's progress.

Looking ahead, Del Taco plans to launch premium menu innovations, including the return of Birria and the introduction of Al Pastor, coupled with a revised media strategy to drive brand awareness. The company remains confident in Del Taco's ability to improve sales and profitability under its new leadership team.

Consolidated Performance and Guidance

On a consolidated basis, the company's SG&A expenses declined to $37.5 million or 10.3% of revenues, compared to $39.4 million or 10% a year ago. This was primarily due to lower incentive-based compensation and advertising expenses, partially offset by higher share-based compensation and legal costs.

Adjusted EBITDA for the quarter was $75.7 million, down from $80.6 million in the prior year, due to the impacts from Del Taco refranchising and the decrease in sales.

For the full fiscal year 2024, the company is guiding for adjusted EBITDA of $325 million to $330 million, operating earnings per share of $6.25 to $6.40, and depreciation and amortization expense of $60 million to $62 million.

At the segment level, the company expects Jack in the Box same-store sales growth to be flat to low single digits, with a company-owned restaurant-level margin of 22% to 23%. For Del Taco, the company anticipates same-store sales growth of flat to low single digits and a franchise-level margin of 27% to 29%.

Liquidity

As of the end of the second quarter, the company had $49.0 million in cash and restricted cash, and available borrowing capacity of $175.5 million under its variable funding notes and credit facility. Total debt outstanding was $1.7 billion, and the net debt to adjusted EBITDA leverage ratio was 5.2x.

During the quarter, the company repurchased approximately 200,000 shares of its common stock for $15 million, and the Board of Directors declared a cash dividend of $0.44 per share to be paid on June 25.

The company remains focused on strategic capital allocation, investing in technology and digital initiatives, as well as new restaurant development and remodeling efforts, to drive long-term growth and shareholder value.

Risks and Challenges

While navigating the current macroeconomic headwinds and industry challenges, Jack in the Box is executing on its long-term strategic priorities. The company's focus on value offerings, digital growth, and operational efficiency is positioning it to weather the storm and emerge stronger.

Key risks include continued pressure on low-income consumers, labor inflation, and the potential for further supply chain disruptions. However, the company's diversified revenue streams, strong brand positioning, and disciplined capital allocation provide a solid foundation for weathering these challenges.

Conclusion

Overall, Jack in the Box's second quarter performance demonstrates its ability to adapt to the evolving industry landscape while making progress on its long-term goals. With a robust pipeline of initiatives and a commitment to driving shareholder value, the company appears well-positioned for the future.