Earnings Call Transcript - JACK Q4 2024

Operator, Operator

Good day, everyone, and welcome to the Jack's Fourth Quarter and Full Year 2024 Earnings Webcast. At this time, I would like to hand the call over to Mr. Chris Brandon. Please go ahead, sir.

Chris Brandon, Chief Operating Officer

Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our fourth quarter and fiscal year 2024. With me today are Chief Executive Officer, Darin Harris; our Chief Financial Officer, Brian Scott; and our Interim CFO, Dawn Hooper. Following the prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from those expectations because of business risks. We therefore consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC and are also available on our Investor Relations website. And with that, I'd like to turn the call over to our Chief Executive Officer, Darin Harris.

Darin Harris, CEO

Thank you, Chris. In fiscal 2024, we achieved really significant milestones for our company with the largest number of new restaurants opening in over a decade for Jack in the Box, with sustained sales outperformance in new markets. Positive net unit growth at both brands with a growing new restaurant pipeline, progress on brand building initiatives including first and third-party digital, new POS rollout and restaurant reimages, refranchising of Del Taco, now an asset-light business at about 80% franchise owned. And lastly, managing through significant inflation plus the cost pressures from increased minimum wages in California. Entering 2025, I am encouraged by the start to the year and believe strongly in our ability to continue executing on our transformation strategy to deliver results and shareholder value. I am thrilled to report the recent hiring of our new CFO, Lance Tucker, a familiar face to both the restaurant industry and the Jack brand. Lance will be a terrific addition to our leadership team and will get acclimated very quickly with our teams, many of whom worked with Lance in the past and our business. Most importantly, he will take the time to connect with franchisees and build relationships. With that said, let's briefly look back at 2024, particularly the progress and results related to net unit growth, new market openings in digital. Our growth plan several years in the making is beginning to take shape and show results. There were notable macro challenges that emerged during the year and I want to thank our franchisees and restaurant leadership teams for their efforts and dedication in serving our guests and making progress on our key long-term ambitions related to digital sales, unit economics, and new restaurant growth. We battled through a tough environment that brought top-line headwinds to the industry and we are adapting to this new environment to accelerate sales throughout 2025 and beyond. Our investments in modernizing restaurant technology and advancing our digital capabilities are now contributing toward the ambition objectives we shared last January, including becoming a 20% digital business by 2027. We will have nearly 550 Jack in the Box restaurants on our new POS by the end of calendar 2025, all of which include flip kiosk capabilities. I want to extend a huge thanks to our technology teams and franchisees for the tremendous efforts in making this a seamless rollout. Although it is early innings using the new kiosk capabilities, we are experiencing a double-digit increase in average check helped by upsell and menu visibility. We are now starting to test freestanding kiosks and are excited to see how this can drive additional sales and labor efficiencies. New network capability added to all our restaurants this year plus the POS implementation enabled us to begin testing kiosks. We also launched our new iOS Jack app during the fourth quarter with immediate benefits including an improved user experience, speed of ordering, incremental sales and accelerated acquisition of loyalty members. With digital now at over 14%, the combination of the new POS and app for Jack will allow us to dramatically improve our loyalty program to deliver personalized offers and promotions to our growing loyalty guest base. First-party sales continue to grow, higher by 83% year-over-year in quarter four. And third-party now is nearly 70% of our total digital business, continues to grow consistently and was up high single digits. First-party also saw a record-setting sales over the last eight weeks. Our digital investments are leading to incremental sales and a growing loyalty membership, which makes reaching guests more efficient and gives us confidence that digital can make a strong contribution in growing total sales this year. And this progress is expected to continue with the upcoming launch of our app for Android and a new mobile web ordering platform. Now we attacked the macro backdrop aggressively in the fourth quarter, highlighted by our Munchies Under $4 platform, which drove an everyday value message and resulted in increased items per check and year-over-year improvement in average ticket. This will remain a permanent part of our menu and we'll continue to evolve and expand. Our focus on value has continued through the recent LTOs of our Bonus Jack and two for $3 Monster Tacos, which have been successful. Early in the quarter, we saw strong average check supported by our spicy chicken strips and we made news with our Deadpool and Wolverine partnership, which featured many chimneys as a product tie-in. Breakfast improved in the fourth quarter, supported by French toast sticks permanent and LTOs including the chicken and waffle sticks and scrambler sandwiches. We will continue to feature breakfast value in every window, highlighted by our $5 breakfast meals and two for $3 Breakfast Jacks. I'm encouraged to see this daypart moving in the right direction. The late-night daypart continued its streak as our best performer, but followed closely by a much improved dinner daypart. As I stated earlier, I’m pleased with the start to fiscal year 2025. This emphasis on digital, value and innovation helped us exit the fourth quarter with sales and transaction momentum with first quarter to date running at about 1% positive same-store sales. Look for us to continue to reach both the value and premium guest width, innovation, as we currently are executing with our Biscoff shakes and Donut Holes as well as Birria Tiny Tacos and the introduction of our Sourdough Smashed Jack. We will also support both value and breakfast as we have with our $5 meals and Munchies Under $4. We will drive digital via first and third-party offers and aggressive activity. And we will bring back fan favorites as we are currently doing with our Potato Wedges LTO. Shifting to unit growth, our primary initiative to drive long-term shareholder value. We are now at 101 development agreements for 464 restaurant commitments. We signed our first franchise agreement for Chicago in Q4, which will be incremental to our eight company owned locations opening this year. Chicago is also part of our current cloud kitchen test with two locations up and running. But I’m certainly excited to cut the ribbon on our first full restaurant location in the second quarter of this year. This, in addition to our entry into Florida later in 2025, sets us up for a special year for the brand and our teams on the ground are working hard to ensure a terrific first impression of the Jack experience in these two new markets. In addition, we recently signed new franchise agreements to join our growth effort in Mexico, completing six new restaurant commitments to open in two new territories. And just this week, we completed a development agreement to enter Detroit, our second market in Michigan. Restaurant openings and new market performance were both a major highlight in 2024, a year where we increased our gross openings by 50% with 10 more restaurants than prior year and saw sustained momentum of new restaurants in whitespace markets. New restaurants continue to outperform the system in both core territories and new markets. And out of our 30 new restaurants in fiscal 2024, five opened in Salt Lake City and continue to collectively achieve over 90K in weekly AUVs, with three restaurants now open for over a year. Our two Louisville restaurants are averaging nearly 60,000 a week with performance sustaining nicely during our first full year in the market. And our two Chihuahua restaurants in Mexico, while still early, are performing better than expected. Bringing new franchisees into Jack in the Box has been a major focus for our team since the beginning. And we are seeing that focus pay off. We have added 22 new franchisees to the system, the most in our brand's history. We are thrilled to have these new operators join Jack during this key moment for our long-term growth story, which is currently ahead of schedule. While it's still early in our reimage program, we have committed $50 million on a multi-year basis to support the over 1,100 requests for remodels we have received and we are beginning to see some progress. We have now completed 17 of our industrial reimages with 67 in the design and permitting stage and the future of our reimage platform, the Crave design now has 377 sites approved to participate in our capital incentive program. This is a great start and we look forward to providing more updates in the future, including performance from these restaurants, which have historically run around a 15% same-store sales lift. Our margin improvement initiatives continue to roll out and we believe both our franchisee and company owned restaurant level margins will improve. We are also in the process of finalizing our beverage provider contract and believe the new equipment will improve product quality and definitely generate significant cost savings that will benefit restaurant level margins. These initiatives, which include oil management, inventory management and continued equipment implementation will continue to help offset AB1228 and other cost pressures we are facing. In 2025, we will update our organizational structure to be more focused on the guest and their experience with a back-to-basic operational approach through a frictionless digital pickup experience. Our guests expect and we will deliver better speed and accuracy at the drive through. And we will absolutely have an obsession to reduce guest alerts, especially on these digital orders. We believe all of this will lead to a better overall guest satisfaction. And when you couple this with our great tasting food and all day, every day menu variety, it will make the future Jack experience more valuable for our guests. Now, I want to turn to Del Taco. The leadership team there is making progress to transform this business and that's helped by our first brand research study and guest segmentation work in seven years. We will be enhancing the median marketing calendar that aligns to this segmentation work. We will focus on rebuilding the innovation pipeline to support a barbell offering to meet the demands of both the value and premium guests. I’m very excited to report that our new menu initiative launched system wide yesterday. After a successful test demonstrating improved speed, positive feedback from operators and improvements to top and bottom line performance, we look forward to reporting on how this performs throughout the remainder of the year and beyond. The team is working hard towards positioning this brand to compete for the long-term and grab share from the number one player. I've been part of many brand transformation projects in my career and this takes time. But I can see the progress being made. For example, our transactions saw sequential improvement for the first time in several quarters demonstrating that our focus on value may be starting to take shape. I'm optimistic that we will begin to see fundamental improvements in 2025 led by an improved innovation and media calendar, expanding the rollout of freestanding kiosks with 63 now installed and 300 additional planned by the end of 2025, where we have seen a 15% to 20% average check lift from kiosk orders. We will add catering representing a brand new ordering occasion and currently something we have under test. We will evolve the Del Yeah! Rewards Program. And we will focus on scalable cost and margin saving initiatives similar to those up and running at Jack in the Box that will dramatically help the bottom line. I'd also like to note our progress on making Del Taco an asset-light business as we are now at 80% franchised. Our new Del franchisees are very excited about what the future holds, now operating within a category that represents incredible opportunity to grow and gain share. In closing, I'd like to take this opportunity to thank Brian for his time with Jack in the Box and wish him well on his return to his former company and industry. I'd also like to thank Dawn Hooper for stepping up once again to serve as Interim CFO between now and Lance's start in mid-January. I anticipate 2025 to be an outstanding year of progress towards achieving our ambitions and delivering sustained long-term value for our shareholders. I'll take this moment now to turn the call over to Brian.

Brian Scott, CFO

Thanks, Darin, and good afternoon, everyone. I'll begin by reviewing the results of our two brands individually and then provide details on our 2024 consolidated performance and 2025 guidance. Beginning with Jack in the Box, our fourth quarter system same-store sales declined 2.1%, with franchise comps lower by 2% and company owned comps down 2.2%. This result included a decrease in transactions and negative mix partially offset by a 4.8% increase in price. We continue to drive increases in mobile and delivery channels and are excited by the early signs from our kiosk tests at both brands, which will ultimately help drive higher average tickets and restaurant efficiencies. Our ongoing investments in technology and marketing are paying off as we work towards achieving our ambition of 20% of sales through digital channels. Turning to restaurant count, we opened 16 restaurants in the quarter. For the full year, there were 30 Jack restaurant openings, the highest number in over a decade, along with 25 closures, resulting in Jack delivering positive net restaurant growth for the year. We ended the year with 2,191 restaurants. Our development pipeline continues to grow and we are tracking well for another step-up in openings in 2025. An exciting example of expanding pipeline includes our recently announced deals in Chicago and Detroit, which Darin mentioned earlier. Jack restaurant-level margin for the quarter decreased year-over-year by 220 basis points to 18.5%. The margin decrease was mainly driven by the lower same-store sales during a period of increases in wages from California's new minimum wage law along with certain other restaurant-level cost increases. Food and packaging costs as a percentage of company-owned sales declined 50 basis points to 30.3%, driven by price increases exceeding an approximately 2% increase in commodity inflation and an unfavorable sales mix change. Labor cost as a percentage of company-owned sales increased 180 basis points to 32.7%, primarily due to wage inflation of over 14% from implementing AB1228, along with negative sales leverage. Occupancy and other operating costs as a percentage of company-owned sales increased 100 basis points to 18.6%. Franchise-level margin was $70.9 million or 40.4% of franchise revenues compared to $71.1 million or 39.9% a year ago. The dollar decrease was driven by lower franchise same-store sales and lower early termination fees, partly offset by lower IT support costs and higher franchise lease termination income. For Del Taco, system same-store sales declined 3.9%, consisting of company owned comps down 3% and franchise comps down 4.2%. This decline was driven by a decrease in transactions and an unfavorable mix, partially offset by an 8.2% price increase. For the full year, there were 14 restaurant openings and 12 restaurant closures. Del Taco ended the year with a restaurant count of 594. Del Taco restaurant-level margin was 9.3% compared to 14.8% in the prior year. This decrease was primarily driven by transaction declines, inflationary increases in wages and other restaurant operating costs, partially offset by menu price increases and a change in restaurant mix. Food and packaging costs decreased 200 basis points to 25.2%, due primarily to price increases more than offsetting about a 2% commodity inflation. Labor costs increased 430 basis points to 39%, primarily due to approximately 16% wage inflation driven by the new California minimum wage regulation. Occupancy and other costs increased 320 basis points to 26.5%, driven primarily by higher utilities, maintenance, and IT costs. Franchise-level margin was $6 million or 26.5% of franchise revenues compared to $6.3 million or 32.5% in the prior year. The dollar decrease was driven by higher IT expenses, partially offset by increased royalties from refranchising transactions. The margin percentage declined primarily from the additional refranchising and the impact of the pass-through rent and marketing fees. Moving to our consolidated results. SG&A for the fourth quarter was $30 million or 8.6% of revenues as compared to $43.7 million or 11.7% a year ago. The biggest drivers of the decrease were a $6 million benefit from current year gains on the cash surrender value of our company-owned life insurance policies and $3 million lower incentive based compensation as well as decreases in legal, share-based compensation, and other operating expenses. Excluding the net COLI gains along with company-owned marketing expenses, G&A was $26.6 million or 2.2% of total systemwide sales. Consolidated adjusted EBITDA was $65.5 million, down from $68.4 million in the prior year due primarily to the impacts from Del Taco refranchising and the decrease in sales partially offset by the lower G&A. GAAP diluted earnings per share was $1.12 for the quarter compared to $1.08 in the prior year. Operating earnings per share, which includes certain adjustments, was $1.16 for the quarter versus $1.10 in the prior year. Our effective tax rate for the quarter was 29.2%, compared to 33.1% in the prior year quarter. The effective tax rate for such periods differed from the statutory tax rate, primarily due to the impact of non-deductible goodwill related to the sale of company operated restaurants, partially offset by non-taxable COLI gains in both fiscal years. The non-GAAP operating EPS tax rate was 28.1% for the fourth quarter and 27.2% for the full fiscal year. Cash flow from operations for the quarter was $29.6 million and for the full-year was $68.8 million. The full-year operating cash-flow was muted in-part from $50 million of fiscal 2023 income tax payments that were deferred into fiscal '24 as well as a $25 million litigation settlement payment. Our capital expenditures were $29.7 million for the quarter and $115.5 million for the full year and included investments in our technology and digital initiatives, increased development of new company restaurants, and remodeling of existing restaurants. Our capital allocation plan continues to focus first on investing in our long-term strategy including our restaurant growth and technology initiatives, while also returning cash to shareholders through dividends and selective share repurchases. Accordingly, on November 14, our Board of Directors declared a cash dividend of $0.44 per share to be paid on December 30. And during Q4, we repurchased approximately 300,000 shares for $15 million. For the full year, we repurchased approximately 1.1 million shares for $70 million. As of year-end, we had $180 million remaining under our Board authorized share repurchase program. We ended the year with an unrestricted cash balance of $24.7 million. We also had available borrowing capacity of $169.5 million. Our total debt year-end was $1.8 billion with our net-debt to adjusted EBITDA leverage ratio at 5.3 times. Lastly, I'll cover our current outlook for 2025. On a consolidated basis, we are expecting the following. Capital expenditures of $105 million to $115 million, SG&A expenses of $160 million to $170 million, depreciation and amortization of $58 million to $60 million, share repurchases of approximately $20 million, operating EPS tax rate of approximately 27.5%, adjusted EBITDA of $288 million to $303 million, and operating EPS of $5.05 to $5.45. For the Jack in the Box segment, we are expecting the following: same-store sales of flat to up 1%, 35 to 45 gross restaurant openings, and company-owned restaurant level margin of 20% to 22% which reflects the full-year impact of AB-1228 wage increases and assumes low-single digit commodity inflation and franchise level margin of 40% to 41%. For the Del Taco segment, we are expecting the following: same-store sales approximately flat to down 1%, 15 to 20 gross restaurant openings, company-owned restaurant-level margin of 9% to 11% which reflects the full-year impact of AB-1228 wage increases and assumes mid-single-digit commodity inflation and franchise level margin of 25% to 26%. I would like to provide some additional context regarding our guidance. Part of my final efforts here at Jack included the completion of our 2025 budget and a refresh of our top priorities for the coming year. This process established the framework for our fiscal 2025 guidance and our path from this point towards achieving our long-term ambitions. Although we've spoken today about the great progress made last year across multiple strategic initiatives, we also faced some near-term industry headwinds that shaped our expectations for next year. And while we are encouraged by the improved sales trends at Jack to start the year, it is early and our full-year sales guidance reflects some near-term gross margin pressures. This includes about $15 million of additional expense annualizing the impact of California's new minimum wage law. We are also expecting a more historically normalized commodity inflation after experiencing net deflation for our combined brands in fiscal 2024 along with increased utility costs this year and realizing the full-year impact from Del Taco refranchising transactions. On the G&A front, we are proud of the efficiency gains achieved for the Del Taco integration and our ongoing process improvement initiatives. However, G&A is expected to be higher in fiscal 2025 as we lap our prior year $4 million actuarial reserve benefits and reset our incentive compensation accruals to target as well as having increased pre-opening costs for our company-owned restaurants opening in 2025. We remain confident that our investments in digital, new market expansion, restaurant technology, operational improvements and our uniquely craveable menus will drive positive same-store sales over time along with a higher incremental level of profitability. This team has made tremendous progress over the last several years that set the foundation for delivering consistent and meaningful long-term shareholder value. Before we open up the call for questions, I would like to take a moment to express my appreciation of Darin and the entire Jack in the Box team for my time here. The passion and dedication to our brands bleed throughout this organization and I'm excited to watch the company's continued growth and success in the coming years. And with that, operator, please feel free to open the line for Q&A.

Operator, Operator

Thank you. We'll go first to Lauren Silberman from Deutsche Bank.

Lauren Silberman, Analyst

Thank you for the question. So I wanted to ask about quarter-to-date. You said it's running up 1%, which is a pretty meaningful acceleration from the fourth quarter. So can you talk about what's driving that acceleration and the extent that you expect those trends to continue as we move through the quarter? Thank you.

Darin Harris, CEO

Thanks, Lauren. We've had our calendar focused on both innovation and value during this period, and we've observed significant improvement coming out of the fourth quarter and into the first quarter. We're experiencing approximately 1% same-store sales growth at Jack. This growth is largely due to the combination of innovation and premium offerings, along with our continued emphasis on digital initiatives. As you know, we've launched our new app and are preparing to introduce an Android version as well. All these efforts are contributing to a more substantial increase in sales.

Brian Mullan, Analyst

Hey, thank you. Just a question on Del Taco. I just want to ask about the restaurant level margin guide for the year. If we go back to the Investor Day in January, we got to hear a lot from Tom Rose and the opportunity to actually grow these over time. So I know it's a tough consumer environment and you're dealing with AB1228. So my question is really just do you still feel good about the work that has gone on behind the scenes? Maybe what's the right way to think about a normalized margin in that business and what the path is to get to where you want to be?

Darin Harris, CEO

So, Brian, I think the work we're doing, similar to what we did at Jack with financial fundamentals, is effective and ongoing. The discipline Tom has brought to inventory management and other areas has allowed us to manage our profit and loss in food and packaging significantly better, by nearly 2 points compared to the past. The real challenge has been AB1228 and the inflation associated with it, which has increased labor costs by just over 4 points. Additionally, rising electricity costs in California for some of our restaurants have also impacted the profit and loss statement. The key focus here is on driving top-line revenue. If we can increase the top line, I believe the margins will align and everything will improve. Moreover, with the new menu rollout we introduced at Investor Day, we are witnessing significant improvements in our business, both in terms of revenue and profit, and it will be implemented across the system this week, reaching full systemwide availability in the next couple of weeks.

Katherine Griffin, Analyst

Hi. Thank you. This is Katherine Griffin on behalf of Sara. We wanted to ask to what extent would you attribute the softer performance in the quarter to the demand backdrop in California versus your own sort of share loss or relative underperformance? Thank you.

Darin Harris, CEO

I missed the last part of that question.

Katherine Griffin, Analyst

No problem. I'll repeat it. I just wanted to understand to what extent the softer performance in the quarter was due to the broader demand backdrop in California compared to your own share loss and relative underperformance?

Darin Harris, CEO

Yeah, go ahead.

Brian Scott, CFO

Yeah. This is Brian. California has actually performed relatively well for us. If you look at our Q4 performance for Jack, it's in line and not slightly better. As we mentioned in the last quarter, even though we increased prices and experienced some impact on traffic, California remains a strong market for us and has held up well. There has been variation across different regions, influenced by consumer behavior in those markets and some pricing differences with our franchisees. Overall, the price discipline and strategy we've maintained in California has been effective. This situation is largely an industry issue that all QSRs have faced in recent quarters, and we are not immune to that. However, we have been very pleased with our performance in California and feel optimistic about it moving forward.

Darin Harris, CEO

And I'd add to what Brian said. We're also seeing the same. Del Taco, California tends to be the best-performing of the regions. And then also as you think about industry-wide, if you measure industry-wide, all cohorts at all income levels are showing less QSR spend and transactions and that also is age, ethnicity, gender and overall demographics and income levels. So, we know that QSR transactions are softer than they've been historically and we anticipate that improving into 2025.

Brian Bittner, Analyst

Thanks. As it relates to the Jack in the Box brand, it is encouraging to see you continue to make progress on the gross openings and development agreements, but elevation in the closures, they do continue to pressure the net impact of this progress. So, Darin, do you have visibility into the current health of the bottom quintile of stores within that franchise portfolio? And do you have a line-of-sight to these closures subsiding and improving the net impact of the progress you're making on the gross openings?

Darin Harris, CEO

We have been observing that our closures, particularly in Q4, have been accelerated alongside our openings to adapt to the current environment. We are confident in the overall health of our system. When we review our financials and those of our franchisees, we notice they have remained stable year over year. We maintain a positive outlook regarding the system's health. Moving forward, we anticipate closures to align with historical averages, which typically range from 16 to 18 closures a year, or about 1%, representing a more standard industry rate.

Gregory Francfort, Analyst

Hey, thanks. Thanks for the question. My question is just on what the CapEx and just the guidance for next year? Brian, can you maybe break-down how much of that is going to go into new stores versus maintenance CapEx versus investment projects? I'm trying to get maybe how elevated that is versus what it could be in a couple of years. Thanks.

Brian Scott, CFO

Sure, there hasn't been a significant change in our strategy which we've previously discussed. Our main focus continues to be on investing in the current strategy, and we’re starting to see positive results. We talked about digital initiatives, and we’re making strong progress in enhancing our digital presence, but that requires investment. For fiscal 2025, our technology expenditures will be in the $40 million to $45 million range for both digital and restaurant technology, alongside other corporate systems. A major aspect of this will be the rollout of our new point-of-sale system. We aim to have approximately 550 stores equipped with the POS by the end of this calendar year, and we'll work towards implementing the entire system by the end of 2025. I want to clarify that we might have misstated this in our prepared remarks. We are on track with our previous discussions and are making solid progress with the POS implementation, and I'm proud of the teams involved in that. Additionally, we are progressing well with our digital work, including a new iOS version of our app, and there’s more to be done on the Android platform, as well as a new web interface and enhancements to our loyalty program, which is essential for personalized messaging and growth. These are critical investments along with in-restaurant operational improvements. Looking ahead to 2025, we expect to spend over $30 million, likely between $30 million and $40 million, on new restaurant openings, particularly as we expand into markets like Chicago and soon Florida, which involves corporate investments. The remainder of the budget will support various needs, including maintenance, REIT expenses, and reimaging of our corporate restaurants.

Darin Harris, CEO

Brian, I'm going to miss you being in this room. It's great. You flabbergast me how you can get in there and remember to say things like the POS and the rollout that we're going to have completed this year and next year.

Alton Stump, Analyst

Thank you for taking my question. I wanted to ask about the growth of Jack in the Box. Congratulations on the record-high openings and office site development deals. Given the challenging macro environment over the past few quarters, has this had any negative effect on franchisees' willingness to build Jack in the Box locations, or are they adopting a long-term perspective that mitigates any impact on their expenses?

Darin Harris, CEO

I'm glad you asked. We're signing more development agreements than ever before and are enthusiastic about our pipeline. For example, we currently have 18 restaurants under construction, 54 in design and permitting, and 32 sites approved. Our site pipeline is the strongest it has ever been. This year, we've secured 101 development agreements for 464 restaurants, with 51 having already opened. We have a solid pipeline in place. Additionally, we signed 22 new franchisees, and our new markets are performing well. In Salt Lake City, we've opened nine locations, averaging $90,000 in annual unit volume so far. Louisville is also performing well, with eight restaurants coming in at an average of $60,000 in AUV. Other markets like Mexico and Chicago are also contributing to our growth. We believe our development pipeline is gaining the momentum we anticipated. As I mentioned earlier, this year's 30 openings represent the highest gross openings we've achieved since 2012, and we expect to accelerate that further into this year and in 2025. Overall, we are optimistic about our development pipeline, and our franchisees are supportive as we continue to bring in more new franchisees for the future.

Dennis Geiger, Analyst

Great. Thanks, everyone. I wanted to hear more about the Taco refranchising, specifically the feedback you’ve received and how demand is shaping up. Can you provide any updates on the timeline or milestones regarding franchise percentage levels? We're seeing positive progress and securing good agreements tied to those sales. Any additional insights you can share as we look forward to future milestones? Thank you.

Darin Harris, CEO

Yeah. So with Del Taco, we're at about 80% refranchised today and we would call that asset light. We'll continue to refranchise. We have deals and works now for about 13 restaurants. And then what we're going to do is we're going to continue to evaluate how AB1228 has impacted us in topline, how it's being impacted by this kind of restaurant environment. It's because we want to maintain margin and grow margin and make sure we're getting the valuation for these restaurants that they deserve. And so that's where we're going to hold steady to. We still have good demand. We still have deals that we could execute, but we're in a holding pattern right now just so we can make sure we can recapture some of the margin that has been challenged in the environment we've had.

Jon Tower, Analyst

Thank you for the question. Darin, you mentioned a lot about new product developments for fiscal '24 and what’s coming in 2025. I'm interested in how you convey that message while balancing operations and maximizing the return on advertising spending, especially with all the new food news out there. It seems like there's a flurry of activity, and I wonder if it's resonating with consumers. Additionally, have you shared any insights regarding pricing for fiscal '25?

Darin Harris, CEO

In terms of driving sales and communicating with our guests, we are building on the strong work our team has done regarding brand positioning, strategy, and media spending to enhance our reach and create awareness. It's essential to target the right audience at the right time with the appropriate offers. We recognize that while the deals in the marketplace are vital for retaining our guest base, we also need to balance both premium and value offerings. This includes tailoring various offers to different times of day and aggressively investing in digital channels, which have become a regular weekly interaction for many guests. Therefore, it's crucial that we communicate effectively in all the right areas at the right times.

Brian Scott, CFO

Our current forecast for Jack in fiscal '25 is a price increase of about 3% to 4%, while for Del, we are anticipating a 5% to 6% increase. This breakdown includes a rollover of approximately 2% for Jack, suggesting an additional price increase of around 1% to 2% throughout the year. For Del, we expect a rollover of about 3% and an anticipated further increase of 2% to 3%. Much of this is tied to the new menu we are introducing, which includes some price adjustments that make it slightly higher than Jack. However, we are primarily concentrating on strategic price increases for specific items. Overall, we see a more normalized pricing environment that supports our same-store sales guidance.

Logan Reich, Analyst

Good afternoon. Thank you for the question. I want to follow up on franchisee profitability. Gross openings are positive, and it seems like the business is overcoming some challenges. How would you describe franchisee profitability today and what is your outlook for that trend into next year or 2025?

Darin Harris, CEO

I believe the key factor is sales growth. We have effectively implemented programs that assist franchisees in managing their profit and loss statements. Ultimately, it depends on achieving top-line growth, which will benefit us. From the latest data we've received, franchisees are currently experiencing flat profitability compared to last year. With AB1228 continuing into 2025, it is likely to affect the profit and loss statements, similar to how it impacts us. We're observing that a significant portion of the challenges in our guidance stems from AB1228, which amounts to a $15 million impact when annualized for our company restaurants. This is a substantial figure, and franchisees in California will certainly feel the effects unless we can counterbalance it with increased sales growth and improve our cost management.

Brian Scott, CFO

Our franchisees, many of whom are multi-unit owners, have maintained a strong level of profitability, allowing them to manage some of the immediate pressures. We have improved our margins by focusing on key financial fundamentals, and they are working together with us through this situation. Since they own multiple locations, their overall performance remains strong. While top-line sales growth is always preferable for everyone, we are positioned to ensure that this growth translates into bottom-line results. Overall, the system is in a very healthy state.

Alex Slagle, Analyst

Hey, thanks. You talked about a big focus on digital and improving execution and I think back to the basics approach at Jack in '25. So I was wondering if you could expand on that a little bit, add some color on what you're going to be doing differently.

Darin Harris, CEO

The main focus is on how we can enhance the guest experience, and we will structure our efforts around that. We will prioritize programs that are scalable and return to the fundamentals, particularly in frictionless digital, as we understand that is the direction of the business. Since 2019, this has been the only segment of the QSR industry that has experienced growth. As we continue to invest in our digital and marketing technology infrastructure, we also need to focus on the restaurant level to ensure an exceptional experience for our guests. Additionally, we aim to improve accuracy in both our digital operations and at the drive-thru, which will help us minimize alerts. This is an area where our guests have indicated we can enhance our performance, and we are committed to addressing it in 2025. The entire organization is aligned in this effort.

Brian Scott, CFO

The new app, the enhancements to our loyalty program, and the new point-of-sale system are the foundation of what Darin just described. The teams have done an exceptional job executing these initiatives, and we are already seeing progress reflected in the growth of our first-party performance in the fourth quarter, which has continued into the beginning of 2025. Much of this success can be attributed to the new app, while our marketing team has effectively optimized our digital channels, resulting in increased transactions for both first and third-party. We anticipate this trend will persist throughout the year.

Andrew Charles, Analyst

Great. Thanks. Darin, it's good to hear you've seen sales improved to the high end of your 2025 same-store sales guidance range. But with your largest competitor set to release a bazooka of value deals in early calendar 2025, what needs to be done to profitably protect traffic as you anticipate commodity inflation to pick-up? And Brian, if I could just squeeze in a quick follow-up, can you quantify the impact quarter-to-date from your largest competitors who take the challenges? I just presumably had some benefit for you for the Jack brand. Maybe said differently, did quarter-to-date accelerate after October 22nd?

Darin Harris, CEO

So, Andrew, I believe the best approach is to remain distinctly Jack and concentrate on our brand identity and what sets us apart. We achieve this through our daily activities, emphasizing innovation, quality, and value while enhancing our digital capabilities, which we are already working on. Currently, digital sales account for about 14% to 16% of our total, and there is significant room for growth since we are lagging behind the industry in terms of investment. We are making rapid advancements that are benefiting our business, and we plan to keep progressing in this area. For instance, our loyalty program users have increased, showing a growth rate of 107%. We recognize the potential in this area, and we will keep striving to improve our business model. In regard to the second part of your question, Brian, would you like to address what was asked about McDonald's?

Brian Scott, CFO

We were already observing improvements in the Jack trends prior to that. It's clear that everyone gained some market share due to their challenges. However, we were fortunate that the actions we took in the latter half of '24 were already starting to show results as we moved through the fourth quarter, and that trend was beginning to gain momentum into the first quarter. While it seems everyone likely gained some ground, we do not consider that the main reason for our positive start to the year. This is why we're being somewhat cautious with our full-year guidance, as it remains uncertain how significant that impact was and how it will affect the industry. Nevertheless, we were already feeling optimistic about the trends we were witnessing before that event occurred.

Christine Cho, Analyst

Yeah. Thank you for taking the question. So could we talk a little bit more about value? So could you talk about how value mix trended this quarter and how you're thinking about the balance of the promoted value versus everyday value in your menu? Are there any modifications that need to be made given the changing competitive dynamics and returns on the value promotions?

Darin Harris, CEO

Yeah. So as an example, during Q4, our Munchies Under $4 that we've talked about, it was the first full-quarter in action and we saw about 120 basis points improvement in trends for that value component of our menu. And so we're excited about what the Munchies Under $4 has done for our business model. It also led to addition to check, which we haven't seen for a period of time and add-on. And so we'll continue to focus on growing our Munchies Under $4 business. And then what we saw with our digital performing offers, our $5 breakfast and our two-for-$3 or two-for-$5 really helped us during the quarter.

Brian Harbour, Analyst

Thank you. Good afternoon, everyone. I have a question about some factors that contribute to your guidance for next year. Have you factored in any refranchising beyond the 13 you mentioned? Are there any general and administrative savings expected from that? It seems like there might not be at this stage. Additionally, what influences your assumptions regarding repurchases compared to what you did in 2024?

Brian Scott, CFO

This is Brian. We do not have any plans to close more than the 13 restaurants we expect to shut down soon for next year's guidance. We typically don't provide additional details because it's difficult to predict the scale and timing of such actions. As Darin mentioned earlier, we probably won't see many more closures this year unless a strong opportunity arises, as we want to ensure we get good value for our high-quality restaurants. Regarding share repurchases, we're prioritizing our operating cash flow and how we invest it. The investments we've discussed through our capital expenditures are our top priority because we expect a good return from those, followed by our dividend. We're currently estimating a comfortable amount of free cash flow for repurchases, and we will adjust this throughout the year. However, our main focus for long-term shareholder value is on investing in our strategy, which has led us to make some trade-offs regarding repurchases. I want to clarify a couple of points that weren’t part of our guidance. We are assuming about $80 million in interest expenses for the year, and regarding preopening costs, we were at about $2.5 million in fiscal '24. With the anticipated increase in new restaurant openings, we expect that figure to rise to around $5 million. This should help provide clearer context for your models in relation to our guidance.

Drew North, Analyst

Thanks for taking the question. It's a bit of a follow up on John's question earlier. Was hoping you could share some of the metrics on the Jack comps performance for Q4. I know you mentioned the perspective on pricing in the prepared remarks, but where did traffic and mix shake out for the quarter? And then the follow up being, how are you thinking about the cadence of traffic embedded in your guidance for 2025? And if there's any notable quarterly volatility to be aware of?

Darin Harris, CEO

Trends were basically flat from quarter to quarter. The mix improved slightly, but prices were lower than in the previous quarter.

Brian Scott, CFO

Traffic was down about 5%, but it did improve slightly from the third quarter. You can work back the difference between the price and same-store sales, which will be a combination of traffic and mix.

Operator, Operator

And everyone, that is the last question today. That does conclude our question-and-answer session. That also does conclude our conference. Thank you all for your participation. You may now disconnect.

Darin Harris, CEO

Thank you all.