Jack in the Box reported Q1 earnings Wednesday, including a same-store sales increase of 7.8% and, on a two-year basis, 9%. Company-operated restaurants experienced increases in both check and traffic, while franchised restaurants experienced average check growth but a 1.1% decline in traffic. Dawn Hooper, VP, controller and financial reporting, said company-owned transactions were “resoundingly” positive, up 4.9%, driven by improved operating hours and staffing levels.
The headline from the earnings report, however, is the company’s return to positive net new unit growth in Q1, including five net openings for Jack and the Box and one for Del Taco. Building new restaurants is one of the company’s four strategic pillars, and CEO Darin Harris said the company expects to remain positive on net unit growth for the full year.
“We have built our new restaurant pipeline by accelerating existing and new development commitments and approving more sites over the past year than we did in the prior three years,” Harris said during the call, calling it a “turning point” for the company.
As part of that development acceleration, both brands are exploring new “flexible” restaurant prototypes, such as Jack’s drive-thru-only location that opened in Tulsa, Okla., in Q4. Harris said the restaurant is outperforming expectations, with about $50,000 in weekly sales and 20% of sales coming through digital channels. For context, systemwide digital sales are about 10%. Notably, these prototypes cost about 15%-to-20% less to build than traditional restaurants.
Del Taco’s Fresh Flex prototype, which opened more than a year ago in Orlando, has also exceeded sales projections at about $50,000 per week. Harris said the prototype is driving franchisee interest, and the chain has signed 13 development agreements with new franchisees since 2021. A second Fresh Flex location recently opened in the Tampa market, and Del Taco also has a drive-thru-only prototype under construction in New Mexico, expected to open in April.
In Q1, Jack in the Box signed four new development agreements for a total of 36 future restaurants, including agreements for the brand to enter the Florida and Arkansas markets. Harris said the brand has never been in Arkansas and hasn’t had a presence in Florida in over 30 years. Since the company’s development program launched in mid-2021, 72 agreements have been signed for a total of 303 restaurants.
The company is also in the middle of a reimaging program launched last summer. There are currently 589 restaurants signed onto the program, with 47 in the design and permitting phase. Harris said restaurants that have been remodeled in the last two years have yielded a 14% higher net sales lift.
Another strategic focus for the company is to build brand loyalty. To support this effort, Jack brought on a new ad agency, Chiat/Day, and a new media partner, Carat. The company has built a 12-month calendar to balance new products with core items. In Q1, for instance, the company promoted Monster Tacos for Halloween, the Bacon Ultimate Cheeseburger and the new $10 Fan Favs platform.
“The end result … has been a material boost to same-store sales growth and … sequential improvement in traffic and transaction trends,” he said. The company has continued this strategy with the debut of a $5 Jack Pack combo and the launch of a “new and improved” chicken sandwich. The company is also focused on enhancing its beverage offerings, including a new Red Bull-infusion line. And, just this week, Jack in the Box announced a partnership with Mint Mobile and Ryan Reynolds to launch the Mint Mobile Shake – a minty twist on its Oreo shake.
“We'll see exciting news throughout the year in the beverage space for Jack … these shakes and beverages are designed to build average check as part of our strategy, along with trial and new guest acquisition,” Harris said.
Beyond the menu, Q1 was the company’s first full quarter with its new mobile app and web ordering capability. The company’s digital sales now represent more than 10% of the business mix at both brands, from 1% in 2019.
Another focus area for the company is driving operational excellence, and that includes beefing up staffing levels. As a result, franchisees are now within one hour of pre-Covid operating hours. As of Q1, approximately 70% of locations systemwide had their dining rooms open 12 hours or more a day, while just over 96% had dining rooms open for at least five hours a day. Harris said improved staffing levels and operating hours have correlated with same-store sales. Further, the company has added manager and team member certification requirements and is now 93% certified throughout the system. Harris said this has led to improved guest experience scores, speed of service and topline results, adding that the company is only in the third inning of its service improvements.
“We think there’s a lot of upside, and the good news is, we’re seeing speed improve. We’re seeing our alerts go down. Our guest scores are going up from a brand experience standpoint, and we’re consulting our franchisees on how to execute against that,” Harris said.
Jack in the Box is also focused on reducing operational complexity through efforts like changing product builds and expanding an automated fryer test to a second location this year. The company is also learning from its recently acquired Del Taco chain’s use of automated voice AI ordering system. Del Taco expanded its partnership with Presto Automation earlier this year after a 2022 test “exceeded expectations.”
“Technology innovation such as automation and voice AI are a small part of our multi-year technology roadmap,” Harris said. “We continue our plans to replace current systems over the next year so we can turn our attention to more innovative solutions.”
These efforts flow into another pillar of growing restaurant profit. Harris said equipment updates, process improvements and supply chain efficiencies should yield margin benefits and per-restaurant savings. An example of the equipment improvement is the new three-in-one-toaster cheese pumps, currently installed in 50% of the system.
“We now have a clear line of sight, 200 basis points of Jack margin reduction with potential savings of about $50,000 to $55,000 per restaurant, via equipment, process improvement and supply chain synergies, all of which will positively impact the guest experience and quality of our food,” Harris said.
Contact Alicia Kelso at [email protected]
