For Jack in the Box, last quarter demonstrated how the company can perform when conditions stabilize.
While hardly perfect, the owner of the Jack in the Box and Del Taco brands reported that more of its dining rooms were open, late-night hours returned, and product shortages were nonexistent. “For the first time in several quarters,” CFO Tim Mullany told investors on Wednesday, “we were pleased to not experience any meaningful product supply disruptions or shortages during Q3.”
The result was improving sales. Jack in the Box, the company’s 2,200-unit flagship, reported a 0.6% decline in same-store sales, but that was on top of 10.2% growth in the same period a year ago. Same-store sales are 70 basis points higher than they were three years ago, and sales accelerated toward the end of the period. The results bested company expectations.
At Del Taco, the 600-unit concept Jack in the Box bought earlier this year, same-store sales rose 3.5%, on top of 7.1% growth a year ago. Sales are up “mid-single digits” above where they were in 2019.
More to the point, the company said sales at its brands improved toward the end of the company’s fiscal third quarter, which ended July 10.
“With the steady improvement of operating hours, open dining rooms and continued focus on marketing and product innovation, we saw a ramp-up of sales performance exiting Q3, which gives us a favorable sales trajectory heading into the fourth quarter,” CEO Darin Harris told analysts on Wednesday.
The sales results were higher than expected, sending the value of Jack in the Box’s shares 8% higher on Wednesday.
“We’re really confident with both brands and what we’re seeing,” Harris told analysts. “What gives me the most confidence beyond the execution of our strategy and innovation strategy is that we still have upside from a standpoint of improving our staffing and continuing to open dining rooms.”
To be sure, the company faced a number of challenges in the period. Restaurant-level margins at company-operated Jack in the Box restaurants, totaling 172, were 15.8%. The company noted that those margins were 19.3% excluding recently acquired underperforming restaurants in Oregon, Kansas City, Oklahoma and Nashville, restaurants the company expects to eventually sell to franchisees.
Still, the margins were lower, due largely to higher costs. Wage costs rose 13.2% in the quarter as did the cost of utilities, maintenance and repair. Commodity costs rose 16.8%, the company said.
The company is focused on improving profits at its restaurants. It has a “franchisee margin task force” that is trying to improve profits by 200 basis points through processes, equipment and technology, Harris said.
For instance, it is shipping machines that standardize cleaning and sanitation. It is also testing new cheese pumps at 20 locations and is testing automation with Miso Robotics.
Yet Jack in the Box also raised prices on core items to offset higher prices. Harris noted that the higher prices don’t appear to be driving certain customers away.
“We saw a little bit of the weakness, just like the industry, on the lower end of the consumer, below $50,000,” Harris said. “What’s interesting about that is … we actually grew during the quarter at the lowest income level. So we definitely see the opportunity in the middle band of income."
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