With a two-year old dispute with franchisees resolved and restaurant profitability up, Jack in the Box is poised to start growing again, CEO Darin Harris told investors Thursday while discussing the San Diego-based quick-service chain’s performance in the fourth quarter, ended Sept. 27.
It was a good quarter. Same-store sales were up by 12.2%, the best performance since 1994, as average checks skyrocketed even as traffic declined.
The company’s net earnings were $37.85 million, or $1.65 per share, compared to $22.1 million, or 86 cents per share in the fourth quarter of 2019, on revenue of $255 million, up from $221.2 million.
Harris, who just joined the chain in June, has been involved since then in negotiating a settlement with the National Jack in the Box Franchise Association, which represents nearly 85% of the approximately 2,000 franchised Jack in the Box restaurants.
The NFA has sued Jack in the Box in late 2018 for, among other things, failure to have a cohesive brand strategy.
The dispute was resolved last week, although terms were not disclosed, which Harris said “clears the path for our existing franchisees to grow, and they’ve expressed that desire to grow.” He said a recent survey of franchisees found that two-thirds of them wanted to expand, and that in fact 27 new restaurants were opened in this fiscal year, “which is more than in the past ten years, despite the pandemic,” he said.
The chain did close 29 underperforming restaurants, however, ending the year with 2,241 restaurants, down from 2,243 at the end of fiscal 2019.
Those restaurants are making more money, however: Although franchisee reports for the fourth quarter aren’t in yet, Harris said that profitability in the third quarter was up by $20.000 per restaurant.
To help spur growth, Jack in the Box has rolled out a new lower-cost prototype with a small footprint and options for drive-thru only locations, Harris said.
He also hired Tim Linderman, former chief development officer for family-dining chain Huddle House, to the newly created position of senior vice president, franchise and corporate development.
“You have an impressive track record of accelerating growth with innovative approaches and fostering exceptional relationships with existing and potential franchisees,” he told Linderman during the call. “We did not previously have a dedicated franchise sales leader at Jack, so we are very excited to bring him on board.”
A search is still underway for a new chief financial officer — “I can tell you we have talked to several great candidates and made tremendous progress in or CFO search,” Harris said — and a chief marketing officer; the latter position has been vacant for two years.
“While our two marketing SVPs have done a fantastic job of splitting the role and putting the customer first during this time, we are looking for a leader to come in and focus on three core areas for the long-term success of the brand,” Harris said.
Those areas are overall brand strategy, evolution to a more digitally enabled experience, and continued strength in product innovation.
That innovation, and response to consumers’ changing needs, were keys to Jack in the Box’s success during the pandemic.
“We have certainly learned a lot about where consumers are headed during this pandemic … The continued importance of digital, the consolidation of transactions to drive higher checks … and the desire for more indulgence,” he said.
Average checks for the quarter were $10.72, compared to $8.50 a year ago. Mobil app and delivery sales were about double what they had been before the pandemic.
Harris said that key drivers of success were the $4.99 bundles that were introduced in 2019, as well as the Tiny Tacos, introduced in January, which have been “highly incremental,” as customers add them to existing orders.
The fourth-quarter relaunching of $3 mozzarella sticks also helped the chain in “meeting our guests’ needs for craveable, snackable and sharable sides,” Harris said. They also were helpful in bolstering average checks, he said.
In mid-August, Jack in the Box brought back its spicy chicken strips, including an upsell of two more strips for $2 more.
To drive mobile ordering, they offered a 10-piece spicy chicken option available only through delivery.
“These upsell strategies are not only easy for our crews to execute, but they enable the guests to get what they want at a great value, and support profitability of these promotions for us and our franchisees,” Harris said.
The chain also made operational improvements in the strips which led to better quality and reducing fryer time, leading to improved customer satisfaction, Harris said.
He said there would be more on the chicken front in 2021.
“Just to give you a kind of peek under the tent, we have a new major product line introduction coming soon. … The team has been working on a new chicken program and we’re eager to see what happens in a few weeks, but the focus is on improved quality, thickness and flavor, and who knows? My hope is we’ll be able to celebrate that by doing a new chicken dance,” Harris said.
Contact Bret Thorn at [email protected]
Follow him on Twitter: @foodwriterdiary