Jack in the Box Inc. (NASDAQ:JACK) Q4 2022 Earnings Call Transcript

Jack in the Box Inc. (NASDAQ:JACK) Q4 2022 Earnings Call Transcript November 22, 2022

Jack in the Box Inc. misses on earnings expectations. Reported EPS is $1.33 EPS, expectations were $1.36.

Operator: Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jack Fourth Quarter and Full Year 2022 Earnings Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. It’s now my pleasure to turn today’s call over to Chris Brandon, Vice President of Investor Relations.

Chris Brandon: Thanks, Operator, and good morning, everyone. We appreciate you joining today’s conference call highlighting results from our fourth quarter and fiscal year 2022. With me today are Chief Executive Officer, Darin Harris; and Chief Financial Officer, Tim Mullany. Following their 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 today’s 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 these expectations because of business risks. We, therefore, consider the safe harbor statement in today’s 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 available on our Investor Relations website. And with that, I’d like to turn it over to our Chief Executive Officer, Darin Harris.

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Darin Harris: Thanks, Chris, and good morning, everyone. Before I recap our fourth quarter and full year, I want to take a moment during the season of Thanksgiving to say how thankful I am to our restaurant operators, franchisees and team members across both Jack in the Box and Del Taco. For the last couple of years, they have put their energy, passion and hard into doing what they do every day in our restaurants, which is serve others, and for this, I am extremely grateful. Our people and culture is what creates momentum for Jack in the Box and Del Taco, and despite the challenges everyone in the industry is facing with staffing and inflation, they come to work wanting to make a difference for others and our future. Their dedication and tenacity and executing against our four strategic pillars has allowed us to finish 2022 on a high note.

I am extremely proud of our team and have great confidence as we move into 2023. And my confidence primarily relates to four key areas where regardless of the challenging margin environment we are delivering. First, the reliability and consistency of our topline performance and fundamental strength and place to carry this momentum forward. Both brands delivered excellent one-year and two-year same-store sales and showed very encouraging trends thus far in Q1. We are also encouraged by our ongoing ability to balance the value equation, given the strength of our loyal fan base along with product innovation, our wide menu offering and an ability to communicate our brand differences effectively to our guests, we believe there is potential to take additional price, while driving transactions.

Second, we have been doing the tough work over the last couple of years of preparing for growth, optimizing our portfolio and building a pipeline of new restaurants. This included closing select underperforming restaurants and the refranchising of two of our four evolving markets, which puts them in the hands of experienced operators, adds incremental development agreements and removes them from our restaurant-level margin. This effort puts us in a position for positive net unit growth next year, which has been a high priority for this team and we are poised to deliver in 2023. This, plus our exciting future with Del Taco and the entry of two brand new markets next year, is a milestone achievement for our company and our franchisees, one that we will build upon over the next several years.

And third, we have made tremendous progress evolving into a more innovative and relevant digital-focused business. We are now a formidable competitor within the digital landscape with enhanced data capturing capabilities, be our growing loyalty platform and our newly updated e-commerce app and new mobile website. These new capabilities will bring a more personalized, seamless experience to guests, while improving upsell and targeted offers. But the guest experience opportunities goes beyond just e-commerce and we are committed to making restaurant level tech investments for 2023, including a new point-of-sale system. These investments will be the foundation to modernize Jack in the Box for years to come. POS is the heart of any technology investment, enabling us to set the stage for future applications, software and tools like digital menu boards, AI and personalized in-store ordering.

All of this supports enhanced operational capabilities, such as automation, to drive a more consistent guest experience and higher store level margins. And lastly, 2022 was a big year of progress related to operations. We have a line of sight into removing 200 basis points from our store level model through financial fundamentals, equipment and training. And all metrics related to training, alerts, speed of service, they are all trending in the right direction and directly supporting a better guest experience and topline performance. And we will discuss this in further detail within our operations and restaurant profits pillars. All of these initiatives and investments are critical to building momentum for growth and our desire to create returns so strong that current and potential franchisees can’t wait to build new restaurants.

Let me take a moment to level set. The inflationary environment from 2022 and into 2023 remains challenging. Just like our peers, we are not able to fully overcome the last two years of inflation on food, paper, labor and electricity with just price alone. But make no mistake, our core business is strong and we are executing on our strategy despite the headwinds. The investments we are making in digital technology transformation, reimages and new restaurants are critical for us to accomplish our long-term goals, compete and grow. As we shift towards becoming a growth oriented company, we understand there have been an abundance of moving parts within the business and the operating models since new management began the process of transforming the business.

The overhaul of our strategy, plus an acquisition along the way, has likely made it difficult to model the business precisely and consistently, and we understand that. Please note that part of our objective in addition to driving the unit growth and topline results is progress towards simplifying our business and streamlining the various elements that shape our earnings model. This will be a priority for us in the coming quarters as we continued to gain traction with our strategy. Until we reach that stage, we will communicate it specifically and detailed as we are able as we did in this morning’s release, which we believe will be helpful. In summary, the investments we are making and what this team has executed to advance our business is taking shape.

It will be a big year for our new company and the two growth-minded challenger brands that represented. Turning to the fourth quarter. We benefited greatly from an improvement in operating hours, dining room openings, promotion on daypart performance and a continued focus on product innovation and digital. Of course, double-digit commodity and labor inflation, aggressive competition around promotions and value, and a challenging staffing environment have made these some of the most challenging operating conditions we have ever seen. But times like this when our people and culture experience and the relationships we have within the organization enable us to excel. Let’s now review our Q4 and full year performance, as well as our ongoing execution plans within the framework of our four strategic pillars.

Beginning with brand loyalty. The guiding force behind our marketing is our crave strategy, making the brand more cultural, relevant, authentic, visible, easy and distinctive. During the fourth quarter, we debut our first creative work with our new advertising agency, ChiatDay, which featured Mark Hamill, a former Jack employee back in the €˜70s. This inaugural campaign generated national buzz for our brand. And campaigns like this drive results, but also demonstrate our focus on Jack being fun and culturally relevant, whether it would be bringing back our app remain Monster Tacos during Halloween or launching our Pineapple Express on 420. Seeking out these moments is something you can expect us to continue in 2023. We have made big strides in updating guest touch points with a more modern Jack Spin, including our new web and app ordering experience, updated menu boards, team member uniforms, packaging, and of course, our new restaurant design for the future.

In fact, a drive-thru and walk-only prototype debuted in Tulsa, Oklahoma during quarter four. 2022 was also another notable year for Jack doing what it does best, rolling out craveable, innovative menu items. Highlights included the debut of new shakes, it focus on group snacking and actions around our hook-and-build strategy, which is working. We continue to see upsell and higher average check beyond just price and closed the year with sequential improvement in traffic trends. Innovation, upsell and add-on items continue to be a focus for us to deliver steady topline performance and store level profitability. We refocused on breakfast in Q4, promoting our French Toast Sticks as both a standalone item and as part of our breakfast platters. This significantly boosted our breakfast daypart and gives me confidence that by continuing to communicate and innovate, we can take breakfast share as customers return to their more typical work day routines.

We also brought back our fan favorite Spicy Chicken Strips which contributed to average check through premium pricing and upsell opportunities. We are fortunate to have an extensive product heritage spanning many decades that we can leverage, which energizes our fan base and encourages frequency. You saw this in 2022 with French Toast Sticks, Popcorn Chicken, and more recently, Monster Tacos and our Bonus Jack burgers. Expect this strategy to remain a part of our promotional calendars in 2023 and beyond. Of course, we are not only looking backward for product ideas, we have over 500 items in our innovation pipeline that we are developing, testing and when ready, planning for future launches. I’d like to wrap this pillar by focusing further on our digital progress, an efforts to optimize direct commerce channels, while driving our customer loyalty and frequency.

We are making considerable headway, highlighted by the recent launch of our newly designed ordering app, as well as web ordering, a first for the brand. We believe this platform will help us not only attract incremental e-commerce guests, but also help us create a more seamless personalized relationship with our loyal guests while optimizing our capability to retarget lapsed users. These platforms are simple and easy to use and allow our guests to save payment methods, favorite locations, orders, and earn loyalty points toward the simple redemption of free menu favorites. The ability to view and interact with our variety of fill menu makes digital a great fit for Jack, creating an ideal avenue for incremental upsell through hook-and-build. Digital sales grew over 32% in 2022, achieving over $400 million for the year and now represents over 10% of our business, while the Jack Pack Rewards program still in its infancy continues to grow membership, particularly after we recently rolled the program out to our drive-thru and in-store guests in quarter three.

With Jack and Del Taco digital now representing over $500 million in sales, we will continue to invest in our digital technology capability, plus benefit from the scale and resources of two brands, and ultimately, enable us to move faster and use more data effectively to drive sales at both brands. Shifting to our second pillar, driving operational excellence. We continue to stay focused on three core areas, building the capability of our people, simplifying the guest and team member journey and protecting four-wall margins within our restaurants. Our staffing initiatives have proved highly effective at company-owned restaurants, which are now at pre-COVID staffing and operating levels and have been a key driver of our topline results. We also continue to work daily with franchisees to implement these same best practices and as a system we are making great progress.

The new training platform we rolled out a year ago has proven to result in improved operations. Our manager and team member training certifications are at record levels, easily surpassing the goals we laid out at the beginning of the year. This is translating directly to the guest experience. Our service alerts are lower than they have been in over five years, and for the first time in several quarters, we saw a year-over-year improvement in speed of service, sequentially improving by 8 seconds versus Q3. We believe this service level improvement correlated directly to our topline results with plenty of continued upside across our system. Lastly, we are using technology more than ever before to simplify the experience for both our guests and team members.

We are testing initiatives that we believe will have a realistic and positive long-term impact on our business at the store level. We are seeing encouraging results from our fully up and running automated fire station in partnership with Miso Robotics and Del Taco is also testing automated voice AI ordering with an improved upsell rate. Opportunities like this have brought to life our need to invest in upgraded and updated point-of-sale and store-level technology platform system-wide to ensure initiatives that can improve labor, service levels or profitability can be achieved and that’s exactly what we are doing. And at another Southern California restaurant, we have installed food lockers for third-party delivery and takeout. We believe this will enhance speed and the guest experience related to digital orders, particularly at late night when our dining rooms are often closed.

The operations team is doing a tremendous job making progress on opportunities to be more efficient at the restaurant level, while providing a better guest experience and we look forward to giving more updates throughout 2023. Our third pillar, growing restaurant profits is predicated upon executing financial fundamentals to constantly improve our four-wall economic model, something we are highly focused on in today’s inflationary environment. Restaurant level EBITDA is and always will be a top focus for our management team. I am very pleased to see the progress being made by our margin task force, particularly collaboration between franchisees, company operators and leadership. We have made progress on the more immediate opportunities that could help increased company margins by 200 basis points, which can easily translate into our franchise locations.

The opportunities are derived from efficiencies and process, equipment and technology. By the end of fiscal 2023, many of our financial fundamentals initiatives will take hold and will assist in reducing complexity and drive efficiencies against cost pressures. A few examples include standardized product builds, resulting in $2,900 in savings per restaurant and making it easier for our team members to execute. Cheese pumps, it results in $7,500 in savings per restaurant due to less intensive prep and reduced waste. Hydro-Rents, an example that results in $5,000 savings per restaurant due to reduced labor and waste, while also benefiting from significantly lower downtime of our shake machines. A three-in-one toaster, which will improve speed of service due to faster times.

Plus, we have made a few specification changes that enhanced product quality, while reducing cost. These are just a few of the initiatives the team is working on to make our systems more efficient, while improving restaurant level profitability. Pricing is obviously a key part of mitigating inflationary impacts and we have leveraged our pricing power across key categories and core items effectively. We have created a pricing discipline internally that didn’t exist in the past where we use more sophisticated analytical tools, competitive benchmarking and provide best practices to our franchisees. This discipline identifies pricing opportunities by store, channel and market, while also keeping value at the center. We have numerous margin driving initiatives in our arsenal and have a commitment toward a discipline in finding innovative ways to improve restaurant level margin in the long-term, and by creating an even more robust restaurant level ROI, our franchisees will want to open more restaurants, which segues nicely to our fourth and final pillar, expanding Jack’s reach.

Beginning with our reimage program, which is garnering solid participation from our franchisees since the official launch this past summer. There are currently 366 reimaged forms submitted by franchise owners and 13 have been approved to begin construction of the program. Within these, we will be testing our brand new image, which we are calling craved. Thus far, we are pleased to see traffic-led sales gains at reimage locations. The team have spent the past two years building a foundation for positive net unit growth, which we anticipate reaching in fiscal 2023. Development agreements and restaurant commitments are now beginning to translate into openings, of which we expect 25 to 30 in 2023 and this is only the beginning. As of fiscal year-end 2022, we have 68 signed development agreements for a total of 267 restaurants, of which 22 have already opened, leaving 245 remaining for future development.

Site approvals are higher in the past 18 months than were in the previous 30 months combined, and we approved nine sites in Q4 alone. Between franchise development and a solid new company-owned restaurant pipeline, we are now delivering results against this all important unit growth strategy. We are thrilled to be entering two new markets in 2023, Salt Lake City and Louisville. Franchisees will open in Salt Lake City during the January, February timeframe and company-owned restaurants will follow shortly thereafter. This is a wagon wheel territory with proximity to core markets and very high demand for the brand. I am encouraged by the blend of company and franchise resources hard at work to ensure a successful market opening. Later in the fiscal year, we will enter Louisville, a true whitespace territory as part of our new approach to new market openings, which will help us maximize field and support resources.

Our intention in these new markets is to cultivate significant brand awareness from day one and make a positive lasting first impression of the Jack experience. Brand acceptance early on sets the stage for further market penetration over time and we look forward to providing updates along the way after we cut the ribbon on these restaurants. Fiscal 2023 will be a pivotal year for this all important pillar between our outlook on gross openings, two very exciting new market entries and the expectation of positive net unit growth for full year 2023, it’s fair to say the hard work preparing for growth is coming to fruition. Shifting gears to Del Taco, which has now been operating in our new company for two full quarters and had another excellent quarter.

Q4 again demonstrated highly relevant brand positioning and execution of the barbell menu strategy, highlighted by the category-leading 20 Under $2 value platform, a focus on our signature Del Taco and the launch of Epic Tortas, a premium sandwich platform with three flavors. We are also pleased to see an increased level of combo meal offerings, helping beverage sales which we believe to be a key store level profitability opportunity for the brand. These all helped deliver quality and relative value to meet guest demand. On unit growth, the attractive new Fresh Flex prototype is providing a catalyst for future system growth and helped drive 11 new development agreements with new franchisees committing to 79 units across 12 states. After Q4, on October 14th, we also signed a five-store agreement for Tampa, Florida.

The first Fresh Flex restaurant opened about a year ago in Orlando and is performing extremely well, with the second recently opening in Tampa. This will be the first Del Taco in the Tampa market and we are obviously excited about this next step of expansion in Florida. Finally, the Del Yeah! Rewards program, just launched last year and continues to grow, giving Del Taco the ability to better target guests and drive average spend and frequency. We are pleased with the growth and awareness in members in year one and we will provide more details around the program throughout 2023. Before turning the call to Tim, I’d like to touch briefly on the California FAST Act, as we worked with our franchise restaurant and retail association partners in the fight against this onerous regulation.

We are supportive of the current referendum effort and hope to see it come to realization shortly. Our intention is to remain competitive on wage rates and pay our people competitively as we have for years. However, we hope to see this on the ballot in 2024, leading to revisions of the law to ease the pressure it puts on small business franchisees and the California restaurant industry or see it get defeated altogether. We will keep you posted on these efforts and we think our California and National Restaurant Association, as well as our franchise and retail association partners for their continued efforts. Let me conclude by reiterating how pleased I am with our support center team members and franchisees, who navigated through macroeconomic pressures in 2022, controlled what they could and help prime us for topline results and the unit growth outlook that is tremendously encouraging.

I am confident that even in the face of continued margin pressures, we can build on this momentum greatly in 2023 and improve upon it in 2024. This is an exciting time for us and I am looking forward to a transformative year for both Jack in the Box and Del Taco. Thank you again for joining the call today, and now, I will turn it over to Tim.

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Tim Mullany: Thanks, Darin. I will begin with a quarterly review for both of our brands, followed by some commentary on our consolidated results and capital allocation. I will then close with details on our annual guidance for fiscal 2023, which is also detailed in this morning’s earnings release. Starting with Jack in the Box. System-wide sales, when excluding the 53rd week in prior year, increased 4.1%. Quarterly same-store sales growth was 4%, consisting of positive company-owned comps of 11.4% and franchise comps of 3.2%, helped by sequentially improving trends in both average check and traffic. We are seeing this positive momentum continue into the first few weeks of Q1 2023. All product categories and dayparts demonstrated positive sales, with dinner and late night showing notable growth as we improved operating hours and build traction with our redesigned munching meal platform.

We view the munching meal platform as a real differentiator, helping simplify operations and guests ordering during a daypart we believe Jack can dominate in a normalized environment. As Darin mentioned, we also experienced significant improvement in the breakfast daypart led by our French Toast Sticks promotion. While price increases of 10.4% in the quarter and just over 8% for the full year certainly played a role in our comp performance, there were other favorable trends within the quarter. These included sequential improvements in system transactions and mix improvement. This success was an encouraging sign that our hook-and-build and barbell strategies are proving to be highly effective tools in driving mix and transaction growth in an inflationary environment.

We also saw transaction frequency increase sequentially during Q4, a positive sign that we are earning increased loyalty and trial within our customer base. And we were able to hold on to our value consumers with transactions under $7 remaining flat versus Q3 even as pricing increased. Our proven barbell strategy balances value and premium offerings. During Q4, core premium menu items, including the Ultimate Cheeseburger and Bacon Ultimate Cheeseburger, as well as value items, such as chicken nuggets, tacos and mini churros contributed to sales growth. And as we have long stated, we will continue to innovate while benefiting from the return of fan favorites as we did with French Toast Sticks and Spicy Chicken Strips. Restaurants with open dining rooms at quarter end made up roughly 60% of the system, which was up from 55% in Q3.

Our company-owned stores continue to outpace franchise locations in this regard and we have put greater emphasis on franchise locations taking advantage of the notable sales lift that open dining rooms provide. We will continue this effort until the system is where it needs to be. Turning to restaurant count. During the quarter, there were seven Jack openings and 33 closings, resulting in a year end restaurant count of 2,181. Closures were driven by our evolving markets, which I will speak to shortly, as well as the St. Louis market which saw 10 closures as now completed the bankruptcy process. The full year saw 17 openings and 54 closures, resulting in significant progress towards resetting and optimizing our system-wide restaurant portfolio.

We are pleased with this progress in addition to the strength of our development pipeline, both leading to our much anticipated positive net unit growth outlook for fiscal 2023. With respect to Jack restaurant level margin, commodity, wage inflation and the impact of our temporary evolving markets remained headwinds on performance. So we performed well against our most recent guidance with a 16.4% annual result, including 16.2% during the fourth quarter, and excluding the evolving markets, our restaurant level margin was 19.5%. Regarding the evolving markets, as we have previously announced, we worked with one of our best operators to refranchise seven Oregon restaurants and closed the remaining six in that market during Q4. The transaction also included refranchising six stores in Southern California.

With respect to Nashville, we have completed the sale of four locations and we are thrilled to welcome a new franchisee to the Jack system, who acquired two company stores in Q4 and will add two more in Q1. The plan also included closing four Nashville restaurants, which took place in Q4. This same franchisee has signed development agreements for seven stores in Baton Rouge, 16 in the Carolinas and 14 in the Nashville market. In total, the completion of both the Oregon and Nashville evolving market refranchising transactions produced development agreements for 42 new restaurants. We are encouraged to have now made significant progress refranchising two of these four markets before the close of 2022 and are actively pursuing opportunities for the remaining two markets.

Food and packaging as a percentage of company-owned sales in the period was up 1.6% versus the prior year, primarily due to commodity inflation of 14.9%, as well as unfavorable sales mix that was partially offset by menu price increases. The inflation we have experienced is across nearly all categories except for pork, with the greatest impact seen in sauces, oil, poultry, cheese, dairy and beef. For the full year, commodity inflation was 14.4%. However, we saw quarterly deceleration from Q3. Labor as a percentage of company-owned sales in the period was up 1.2%, due largely to wage inflation of 11.3% compared to the prior year. This was partially offset by price increases and lower incentive compensation. Given the tightness in the labor market and in order to attract and retain team members, we executed a substantial wage increase beginning in Q2 of this past year, which has resulted in an acceleration of recovering lost operating hours in the back half of 2022.

In Q4, about 70% of the restaurants system-wide operated at reduced operating hours, flat when compared to Q3, but down from 80% in Q2. Franchise level margin came in at 42.4% or $74.6 million and a $1.1 million increase compared to the prior year. Excluding the impact from the 53rd week last year, franchise level margin increased $4.9 million, helped in part by strong sales and higher early termination penalties. When backing out the impact of the St. Louis area of franchisee bankruptcy, franchise level margin would have been 42.7% for the quarter, 130 basis points higher than the prior year of 41.4%. Turning now to the Del Taco segment. System-wide sales were up 4.2%, while same-store sales rose 5.2%, consisting of a company-owned same-store sales increase of 4.1% and a franchise same-store sales increase of 6.4%, with positive results across all major geographies.

The difference in same-store sales performance was primarily due to pricing the successful launch of our Epic Tortas platform, strong performance from non-core markets and success from menu initiatives, such as the 20 Under $2 platform. We even gave our Del Yeah! Rewards members early access to all three varieties of the Epic Tortas a day before the official launch in an effort to continue to grow awareness of our loyalty and digital offerings. During the quarter, the two for quick combo meal platform provided a significant contribution towards sales by moving the $5 and $5.50 price points to $6. The 20 Under $2 menu, which launched in Q2 to help preserve and drive value, also contributed a notable sales lift with the Chicken Roller refresh.

When combined with Tortas launch, we saw terrific check and transaction performance in the final five weeks of the quarter. Daypart performance was positive across all dayparts and was led by the late snack and graveyard dayparts, which over index on delivery sales and also benefited from the expansion of our operating hours. Dine-in, delivery, mobile and carryout continue to grow this quarter, contributing to topline sales. Operating hours shifted from being a minor headwind to a minor tailwind in Q4, as we began to lap the impact from the staffing shortage in 2021. In fact, by the end of the quarter, average operating hours were higher than 2021, and when compared to pre-COVID 2019, we narrowed the gap to roughly one hour. Substantially, all dining rooms remain open and have been met with increased demand as dining room sales represent over 5.5% of total sales in Q4.

There were three Del Taco closings during Q4, of which one was company and two were franchise locations. The Del Taco restaurant count was 591 with one Del Taco opening and eight closings since the beginning of the fiscal year. Del Taco restaurant level margin was 15.9%. The variance to the prior year was due primarily to pressure from commodities and other operating costs. Company-owned pricing for the quarter was 11.5%. The P&L was well managed during the quarter in light of food, labor and energy pressures, with labor and related costs showing modest leverage during the quarter. Franchise level margin came in at $5.2 million or 42.5%, an increase of 0.3% from a year ago. This modest increase was mostly due to higher franchise royalties. Lastly, you likely saw our announcement last month regarding our partnership with Cypress Group on refranchising Del Taco.

This process is already underway with current Jack franchisees, as well as new and existing Del Taco franchisees. As we transition to an asset-light business model, we will benefit from mitigating exposure to macroeconomic pressures, while also generating incremental development agreements throughout the process. This growth opportunity provides for a more robust development pipeline and a more efficient G&A structure. Shifting now to our consolidated results. Consolidated SG&A was $37.5 million. Excluding advertising, G&A was $27.8 million, $11.5 million higher than the prior year. The driver of the increase was incentive compensation, net COLI losses in the period versus a modest gain in the prior year and Del Taco which added $8.6 million.

Consolidated adjusted EBITDA was $77.9 million, up from $74.3 million in the prior year, due primarily to higher franchise level margin, offset by higher G&A and advertising. Del Taco contributed $10.6 million to our Q4 results this year, while the 53rd week impact contributed $5.6 million to Q4 last year. Consolidated GAAP EPS came in at $2.17, compared to $1.80 in the prior year. Operating earnings per share, which includes certain adjustments came in at $1.33 for the quarter versus $1.73 in the prior year. The decline in operating earnings per share was primarily attributable to the $0.12 negative impact of the 53rd week in 2021, lower restaurant level margin and higher interest expense. Throughout 2022, we experienced, as well as many in our industry, unprecedented inflation across most areas of our business, which had a significant impact on our results.

That said, we are cautiously optimistic that these pressures will begin to subside in 2023 and have less impact on our results going forward. Moving to capital allocation. In the fourth quarter, we repurchased $25 million in shares as part of our ongoing share repurchase program. As we enter FY 2023, we will evaluate further share repurchases, given the tenuous macroeconomic outlook, as well as fulfilling our obligations to pay the previous discussed legal settlement at Del Taco. Having said that, we fully intend to be active with respect to share repurchases this year and beyond. And in addition to paying down debt and continuing to invest in the growth of the business, we plan to execute up to $50 million in share repurchases in 2023. Lastly, we paid $1.76 per share in cash dividends for a total of $37.2 million in fiscal 2022.

This demonstrates our continued intent and ability to return excess cash to shareholders, while balancing this commitment with the importance of investing in the future of our brands. In closing, I’d like to review the company-wide and segment guidance we provided in our earnings release earlier this morning, reflecting our current expectations for the fiscal year ending October 1, 2023. Our company-wide guidance affecting both Jack and Del Taco includes the following full year 2023. CapEx and other investments guidance of $75 million to $90 million, inclusive of capital expenditures and franchise tenant improvement allowances and incentives. SG&A guidance of $160 million to $170 million, this excludes net COLI gains and losses, and now includes selling and advertising expense.

Keep in mind that not all of our synergies from Del Taco are direct reductions to SG&A expense and appear in other areas within the P&L and margins. These include restaurant level margin, franchise level margin, cost mitigation, purchasing, reduced commodity inflation, marketing activity and spend, and the synergies will not be fully realized until we completely integrate both businesses. Fiscal 2023 company-owned commodity guidance up 9% to 11% versus 2022. In fiscal year 2023, company-owned wage rate guidance up 3% to 6% versus 2022. I would like to spend an extra few minutes discussing real estate sales and Del Taco refranchising to flush out the impact these transactions will have on our P&L once completed. First, real estate sales of franchisees, mechanically when we execute a real estate sale on a franchise property, we will see a reduction in rental revenue, partially offset by a modest reduction in occupancy expense.

However, given recent attractiveness in cap rates, we were able to negotiate valuations that created accretive transactions and unlock greater value to the business. Also, a quick note on Del Taco refranchising. We will assess deal opportunities patiently to ensure we maximize development potential, as well as transaction value and provide updates throughout 2023. And lastly, we are providing fiscal year 2023 operating EPS guidance of $5.25 to $5.65, which includes some unique and one-time items of note, including an $0.08 negative impact associated with the reduction in rental revenue from real estate sales and a $0.22 negative impact associated with the store level technology investments. Note also that this excludes any dilutive impact from refranchising Del Taco restaurants and we will provide updates throughout the year as this initiative progresses.

Let’s shift to our brand segment guidance measures for full year 2023 starting with Jack in the Box. First, we are pleased to report that Jack in the Box expects positive net unit growth in 2023, led by 25 to 30 expected gross openings. For Del Taco, we anticipate eight to 12 openings in 2023. Full year 2023 same-store sales for both Jack in the Box and Del Taco are both expected to be around low-single digits. As was the case last year, we may provide more specific numbers at a later time when the full year picture and economic environment becomes clearer. Due to the continued unique operating environment, we are again providing annual restaurant level margin guidance. For Jack in the Box, restaurant level margin is expected to be 18% to 20%, which includes high single-digit price increases.

While we have made meaningful progress on our evolving markets, we still estimate a roughly 125 basis point impact from those temporary markets in 2023 until restaurants are refranchised, improved or closed. For Del Taco restaurant level margin, we expect it to be 14% to 16%, which also includes a high single-digit price increase. We are also providing franchise level margin guidance for 2023. Jack in the Box franchise level margin is expected to be around 40% to 41%, which includes the rollout of a new upgraded POS system in all restaurants, as well as other store level technology platforms to support operations, e-commerce and P&L management. Note that these investments are estimated to have a $0.22 impact on fiscal year 2023 operating EPS.

On the Del Taco side, franchise level margin is expected to be around 41%. Let me conclude by saying how grateful we are for our team members and franchisees across Jack and Del Taco for all that they have done on our behalf during this challenging year. We are making tremendous progress across our strategic pillars and are well on our way to unlocking the combined power of our two brands. We are excited and greatly optimistic as we enter 2023. We look forward to seeing many of you at the ICR conference in January. And with that, we would be happy to take some questions. Operator, please feel free to open the line for Q&A.

Q&A Session

Operator: Your first question comes from the line of Brian Bittner with Oppenheimer & Company. Your line is open.

Brian Bittner: Thank you. And thanks for all the details and disclosures that you have included in the forward outlook. It is certainly appreciated on our side. I am going to sneak in two questions. Just first on the sales, the comps showcase strong momentum in the fourth quarter kind of sustaining the — their trend from the third quarter and you said that that momentum has sustained into 1Q. Does that just mean that the one year trends have sustained from what you saw in 3Q and 1Q. So that’s my question on sales. And my question — second question is on the earnings guidance, and I think, the shortfall in the headline EPS guidance that you guys have provided relative to the analyst community and hence the pressure on the stock today, I think, it’s primarily driven by corporate expenses, not really core fundamentals, those look really strong, but corporate spend within the SG&A line, as well as the tech spend in that franchise line.

So can you just unpack what’s going on in the corporate expense side a little bit better, so we can understand the drivers of these accelerating expenses and we can better digest what’s going on there and the stickiness around them past 2023? Thank you.

Darin Harris: Brian, I love the question and I appreciate it. Let me start with fundamentals and same-store sales, because I think that will set us up into the discussion around SG&A. So, first and foremost, our same-store sales and what we are doing to drive it, it’s working. Traffic is improving sequentially, and as we said, moving into Q1, same-store sales of Jack is running in the mid-single digits and we are having good success at Del Taco. So we feel really good about the things that we are doing to drive sales, our hook-and-build, our innovation, our digital, what we are doing with value and our marketing messaging is helping improve traffic sequentially and drive same-store sales. So fundamentally, our same-store sales are moving forward.

Operationally, what we have been doing over the last two years, focusing on implementing a new training system along with our guest experience review, which drive standards. What’s happening is our ops metrics are all improving substantially. So we have seen through our — the most certified employees and managers that we have had in history, that’s led to speed improvements, staffing and turnover improvements, alerts are at their lowest levels since I have joined the company. So all those metrics are leading to same-store sales as well. Del is doing a good job of managing labor. Our LM part, our LM is improving. And then the last fundamental I will talk about that’s also improving that we highlighted was development. If you look at DAs, our development agreements are increasing, the sites in process we have approved are increasing, net unit growth and having growth across both brands and then reimages and people participating.

So the fundamental underlying business is performing extremely well, but we have some things that are creating some challenges. And I think the question was around SG&A and I will touch on three areas. Margins, as you know, all of our peers are going to be experiencing this situation where our 40 year high inflation is impacting margins and it’s carrying over from 2022 and 2023, and we just can’t take enough price to cover all of it. So we have to execute in different ways and improve, and do things across the menu to try to improve those margins. Next is, we are making a clear investment in technology for future growth and efficiency in G&A and that’s whether it be POS, whether it be enterprise, whether it be digital technology to drive topline, those things will pay off in future years.