Jack in the Box Inc. (NASDAQ:JACK) Q4 2023 Earnings Call Transcript

Jack in the Box Inc. (NASDAQ:JACK) Q4 2023 Earnings Call Transcript November 21, 2023

Jack in the Box Inc. misses on earnings expectations. Reported EPS is $1.09 EPS, expectations were $1.15.

Operator: Thank you for standing by, and welcome to the Jack Fourth Quarter and Full Year 2023 Earnings Call. I would now like to welcome, Chris Brandon, Vice President of Investor Relations, to begin the call. Chris, over to you.

Chris Brandon: Thanks, operator, and good afternoon, everyone. We appreciate you joining today’s conference call, highlighting results from our fourth quarter and fiscal year 2023. With me today are Chief Executive Officer, Darin Harris, and for his first earnings call since joining Jack in the Box in early August, our new Chief Financial Officer, Brian Scott. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Dawn Hooper, Jack in the Box’s Senior Vice President and Controller, will also be joining us for the Q&A portion of the call. 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 these 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. The 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 all available on our Investor Relations website. Lastly, I’d like to provide an update on some upcoming conferences and events. We will be attending the Barclays Conference in New York City on Wednesday, November 29th, as well as the Wolfe Research and Truist events during the first week of December.

In addition to the ICR Conference in early January, we also recently announced our 2024 Investor Day, which will take place, Wednesday, January 24th. We hope you will be available to attend our live webcast and for those attending in person, we look forward to hosting you at our restaurant support center headquarters in San Diego. And with that, I would like to turn the call over to our Chief Executive Officer, Darin Harris.

Darin Harris: Thank you, Chris. Before I recap our fourth quarter and full year, I want to take a moment to welcome Brian Scott to Jack in the Box and Del Taco. In just his first couple of months on the job, Brian has proven his ability to get up to speed quickly on both our business and the industry, as well as earn the respect of our team and franchisees. He is an outstanding addition to our leadership team and I am excited for you to get to know Brian more in the coming weeks and months and learn about how he will enhance our strategy and support our growth ambition. During the quarter, I was thrilled to announce the hiring of Tom Rose as the new Brand President of Del Taco, and we look forward to having him participate in our Investor Day in late January.

Tom and I have known each other for over 20 years and we have a deep level of trust. We have shared experiences and backgrounds as former franchisees. Tom’s operational expertise and his ability to connect with franchisees is something that will benefit both brands and our culture greatly. He has already made an impact by advancing our strategic initiatives and identifying new opportunities for operational execution, sales growth, and profitability for Del Taco. We also made some recent and notable changes to the marketing function at Del, highlighted by the addition of Sarah McAloon who will join our Executive Leadership team as Senior VP and Chief Administrative Officer, where she will lead marketing and support the shared services teams.

Sarah was a trusted partner of mine while we worked together to turn around CiCi’s Pizza. I had the pleasure to witness her ability to drive 17 straight quarters of same-store sales growth, clarify the brand position, and connect with franchisees. Part of the new approach will also include increased involvement of Jack’s CMO and Chief Digital Officer, Ryan Ostrom, who will now support Tom and Sarah with the Del Taco brand strategy in addition to his regular role leading Jack’s Marketing and Digital for both brands. Having this type of strategic leadership now supporting Del Taco will immediately accelerate our business and support our combined growth strategy. Shifting to our fourth quarter and full year performance. We achieved several important milestones in 2023, starting with positive net new unit growth, a growing new restaurant pipeline, strong new restaurant sales, fantastic early success in opening two new markets, and significant improvements in franchisee profitability and 4-wall economics.

We also made great progress re-franchising Del Taco restaurants, as we move assertively to an asset-light model. Entering 2024, I am more encouraged than ever that we have the right people and strategy in place to continue driving meaningful results and shareholder value. We continue to strike a good balance between premium value and add-on offers that have strengthened our performance in the last few years. As we look into 2024, we will continue to find the right offers for our guests on a limited budget, especially through our digital offers. While we see strength from our higher income guests, this lower income segment remains pressured and an opportunity for us to find the right value and breakfast offering. Our focus on employing culturally relevant messaging at Jack through fiscal 2023, led us to team up with personalities such as Mark Hamill and Ryan Reynolds earlier in the year, and more recently, Snoop Dogg.

We marked the 10-year anniversary of the Munchie Meal platform by introducing the limited addition, Snoop’s Munchie Meal, a very successful platform that drove sales and generated plenty of positive buzz for the brand. As part of Jack’s Crave marketing strategy, we will continue to focus on relevant partnerships where they make sense, as well as showcasing Jack Box as his own celebrity. And on that note, some of you might have seen last week that Jack Box was included in PEOPLE’s famed Sexiest Man Alive issue. Now with his own inaugural category, which is the Classic Jack Box, he has claimed PEOPLE’s Sexiest Jack Award, becoming the first restaurant mascot to join this prestigious group, thanks to his many loyal fans who launched a petition to get him nominated.

Needless to say, it’s been a lot of fun. During the quarter, we promoted new and returning fan-favorite menu items at Jack, including a Double Bacon Sourdough Jack, Sauced and Loaded Potato Wedges, a Breakfast Taco, updated combinations of the Fan Favs Box, as well as the addition of three new Iced Creamaccinos. We experienced positive sales in all dayparts except breakfast. And while much of the comp growth was price-related, our late-night daypart had its fourth consecutive quarter of positive year-over-year transactions. Breakfast continues to represent an opportunity for us as customer behaviors, promotional rollovers, and aggressive competitive discounting has presented challenges. For 2024, our promotions at Jack will continue to focus on innovation plus beverage and snack attachment to support the hook-and-build strategy, while continuing the success we have had with premium products and balancing it with value messaging to drive frequency.

Jack’s digital orders continue to increase materially, currently at 12% of sales. We will continue to support our restaurants and franchisees to grow their digital business, eventually reaching our next goal of 20%. Digital carryout continued its momentum, surpassing digital delivery growth for the third straight quarter. Our first-party channels, which include app and web ordering, outpaced third-party and rose 36% higher than a year ago. We are gaining traction, which allows us to both capture important guest data and utilize an efficient method of providing compelling offers to guests. Our Jack Pack Rewards program, another avenue to collect data and guest insights, increased membership by 23% versus quarter three and achieved plus 90% growth rate in 2023 versus 2022.

For Del Taco, during the first half of Q4, we promoted Chicken Taco Packs plus Carnivores. And during the last six weeks, we promoted Barbecue Brisket, a premium platform which is well-received by guests for its taste and quality. We were also encouraged by the outperformance of the breakfast daypart. Digital grew to 12% of sales and operating hours improved yet again, but still have more opportunity to regain their pre-COVID levels. New sign-ups for our Del Yeah! Rewards program increased 11% in Q4, ending the year with over 1.6 million members. Sales contribution from the loyalty program continues to improve, increasing 5.8% from the prior quarter. And through our newly launched member engagement features, guests can now redeem faster, with improved point level tears to help retention and frequency.

We have made significant progress on our Crave marketing strategy in 2023. And I’m excited about what the new leadership at Del Taco will bring to aggressively compete in the QSR and Mexican category, while we continue to execute on proven sales fundamentals at Jack. I’m impressed with our operators’ ability to consistently deliver a better and faster guest experience since launching initiatives to support our strategic pillar of driving operational excellence. We have seen notable improvement in staffing our restaurants with the right people, training team members to execute against elevated standards, and simplifying our operating systems. As a result, I was particularly pleased to see that all dayparts improved speed of service with Jack delivering the fifth consecutive quarter of at least 10 seconds of year-over-year improvement.

Service alerts for Jack in the Box also improved compared to Q3 and we were particularly encouraged to see improvement in our digital execution as we prioritize reducing friction for our guests via this channel. We are very close to announcing Jack’s new POS provider, with implementation set to begin shortly and system-wide completion still slated to take place by the end of fiscal 2025. By modernizing our restaurant tech stack, it will facilitate cost savings, improve back-office systems, support automation, and help us achieve our digital objectives. We believe this technology is the center of our ability to deploy applications that can have a meaningful impact on the guest experience and drive increased sales and profitability. Our growth potential correlates to our ability to continue growing restaurant profits, which showed significant improvement in fiscal 2023.

During the quarter, Jack improved restaurant-level margin by 450 basis points compared to last year, extending our trend of margin improvement to four straight quarters. Our initiatives to improve margins are making an impact. We have rolled out 60% of the initiatives which, as you recall, should result in annualized savings of approximately $55,000 per restaurant and 200 basis points of restaurant-level margin improvement at Jack. And on that note, franchisee profitability improved each quarter throughout the entirety of fiscal 2023. Part of the improvement was a result of our enhanced internal pricing competency and capability, initiatives that we will also look to implement on the Del Taco side. Our approach has been surgical and data-driven to enhance profitability and identify areas of opportunity to be competitive.

With that, let me spend a moment on AB1228, which will certainly affect labor competition within the entire restaurant and retail industry in California. We are confident in our ability to manage through this, helped by our unique franchisees scale and decades-long experience operating within the state. We will rely on pricing, margin improvement initiatives, and unique guest loyalty in California where both brands have been beloved for over 60 years. Switching focus to expanding our reach. 2023 was a big year for building our restaurant pipeline, which is critical to our story. Since launching our Jack development program in mid-2021, we have signed a total of 90 agreements for 389 restaurants at Jack. This includes our market entry into Mexico in mid-2024, as well as Florida, Arkansas, Montana, and Wyoming thereafter.

The latter two markets also include Del Taco commitments and were part of re-franchising transactions completed earlier this year. Sentiment for growth remains positive from both existing and new franchisees despite increasing costs, permitting, and construction delays. Let me briefly discuss our two newest Jack markets, Salt Lake City and Louisville, which were the first new market openings at Jack in the Box in over a decade. We view both of them as indicative of how we are approaching development related to prototype design, and building brand awareness before and after entering the market. We have a strong playbook for how to open new markets so that the brand thrives. In fact, I am pleased to report that the four restaurants opened throughout 2023 in Salt Lake and Louisville with our new Crave image prototypes have outperformed expectations.

These four restaurants have averaged over $100,000 in weekly sales per restaurant since opening. While we are already focused on sustaining this performance for the long term, this certainly confirms that our approach to successful new market openings is seeing very strong results. We now have three locations open in Salt Lake City, including a drive-through-only prototype, and plan to have 15 total restaurants by the end of fiscal 2025. We previously discussed our record-setting sales and are seeing sustained performance even with the digital channels and late-night not yet fully activated, as will be the common practice for the first few months of restaurant openings. In Louisville, our first foray into the true whitespace territory in many years, we have one restaurant open, another opening within the next two weeks, and plan to have five total restaurants by the end of fiscal 2025.

I am pleased to report that the restaurant is outperforming our expectations. We also recently announced that an experienced franchisee within our system has already committed to enter Louisville, which will follow a similar strategy in executing a blend of Company-owned and franchise restaurants as we assertively build out the markets. The strength of new restaurant performance isn’t only limited to those two markets. In fact, outside of Salt Lake and Louisville, new restaurants opened in fiscal 2023 average $2 million in AUVs. While new markets are certainly a focus, the outperformance of all new restaurants, including those open in current territories, is key to our overall growth potential. Del Taco development aided by re-franchising, also had a historical year of commitments, generating 138 total in 2023, while closing the year with net positive unit growth led by 14 restaurant openings.

We made outstanding progress toward Del Taco becoming asset-light, re-franchising 111 restaurants last year. There is a clear demand-driven path to re-franchise approximately 120 restaurants over the next three years, which would get Del Taco to over 90% franchised by the end of 2026. We will continue to utilize re-franchising proceeds to create shareholder value via share buybacks, debt reduction, or other high-return investments. To sum up Q4 and fiscal 2023, we had very solid results and I’m proud of our team for how they executed against our strategy and plan for growth. I want to sincerely thank our restaurant-level team members, franchisees, corporate teams at Jack and Del Taco, for helping make this possible. There is still plenty of work to do, but I am more confident than ever in our strategy and the outstanding people we have to help us reach our growth ambition.

I will now turn the call over to Brian.

Brian Scott: Thanks, Darin, and good afternoon, everyone. I am very excited to be part of this outstanding Company and working with such a talented and passionate team. My time here thus far has only enhanced my confidence that we have a tremendous growth opportunity and I look forward to working with Darin and the team to clearly articulate our strategy to deliver meaningful and sustained shareholder value. And I look forward to working with our investment community and seeing some of you at upcoming conferences and events, most notably, ICR and our 2024 Investor Day taking place in late January. I’ll begin by reviewing each of our two brands individually, followed by details in our 2023 consolidated performance and 2024 guidance.

Beginning with Jack in the Box, our fourth quarter system same-store sales growth was 3.9%, consisting of Company-owned comps of 4.4% and franchise comps of 3.8%. This included a 7.6% increase in pricing, partially offset by a decrease in transactions and negative mix due to fewer drink attachments and items per check. Turning to restaurant count, for the full year, there were 20 Jack restaurant openings with 15 closures, resulting in Jack delivering positive net restaurant growth for the first time since 2019. We ended the year with 2,186 restaurants and have started off 2024 strong with six openings since the start of the quarter. There are currently 77 restaurants in the design, permitting, and construction phases, and we anticipate approximately 25 to 35 restaurants to open in fiscal 2024.

Jack restaurant-level margin expanded year-over-year by 450 basis points from 16.2% up to 20.7%, driven by menu price increases as well as a change in the mix of restaurants. This was partially offset by increases in commodities, wage inflation, and utilities. Food and packaging cost as a percentage of Company-owned sales declined 180 basis points to 30.8%, driven by menu price increases and a positive shift in sales mix, partially offset by an increase in ingredient cost. Commodity inflation was 3.4% for the quarter. Labor cost as a percentage of Company-owned sales decreased 200 basis points to 30.9% due to sales leverage and the benefit of re-franchising Oregon and Nashville. This was partially offset by wage inflation of 3.8%. Occupancy and other operating costs as a percentage of Company-owned sales decreased 70 basis points to 17.6%.

Franchise-level margin was $71.1 million or 39.9% of franchise revenues, compared to $74.6 million or 42.4% a year ago. The decrease was mainly driven by fewer early termination fees in the current year, as well as higher franchise costs for technology investments, partially offset by franchise same-store sales growth. Now, turning to Del Taco, system same-store sales declined 1.5%, consisting of Company-owned comps down 1.4%, and franchise comps down 1.5%. This was driven by declines in both transactions and mix, more than offsetting a 6.6% price increase. We anticipated a tough year-over-year comp in the quarter with a heavy media spend in the prior year supporting the Tortas promotion, and that proved to be true. Although this negative trend continued through October, we’ve had meaningful improvement in November with consistently positive comps.

This more recent trend, along with the announced changes to our Del leadership and revised marketing strategy, gives us confidence in our ability to drive positive same-store sales growth this year and unlock sustained long-term growth for the strong brand that serves an expanding market. Del Taco’s average check amount was up year-over-year and the average check number of items per check were down slightly. Staffing improvements resulted in operating hours running above the prior year, with more opportunity remaining on the franchise side running a full hour below pre-COVID levels. For the full year, there were 14 restaurant openings and 13 restaurant closures. Del Taco ended the year with a restaurant count of 592. Del Taco restaurant-level margin was 14.8% compared to 15.9% in the prior year.

Food and packaging costs decreased 220 basis points to 27.2%, due primarily to commodity deflation of 2.2% as well as menu price increases. Labor costs increased 210 basis points to 34.7%, primarily due to 3.4% wage inflation. Occupancy and other costs increased 110 basis points to 23.3%, driven primarily by higher utility and property insurance costs. Franchise-level margin was $6.3 million or 32.5% of franchise revenues, compared to $5.2 million or 42.5% in the prior year. The decrease as a percentage of revenue was driven by the impact of increased pass-through rent and marketing in connection with the re-franchising transactions. Shifting now to our consolidated results. SG&A for the fourth quarter was $43.7 million or 11.7% of revenues, as compared to $37.5 million or 9.3% a year ago.

The biggest drivers of the expense increase were higher incentive compensation and litigation accruals, along with a prior year benefit from the Chicken Settlement. Consolidated adjusted EBITDA was $68.4 million, down from $81.9 million in the prior year, due primarily to the impact of Del Taco re-franchising, higher SG&A, and the lower Jack franchise-level margin. GAAP diluted earnings per share was $1.08 for the quarter compared to $2.17 in the prior year. Operating earnings per share, which includes certain adjustments, was $1.09 for the quarter versus $1.33 in the prior year. Our effective tax rate for the quarter was 33.1% compared to 29.1% in the prior year quarter. The primary drivers of the higher rate was the impact of non-deductible goodwill on the sale of the Company-operated restaurants.

The non-GAAP operating EPS tax rate was 29.7% for the fourth quarter and 27.2% for the fiscal year 2023. During Q4, we repurchased 400,000 shares as part of our ongoing share repurchase program. For the full year, we repurchased 1.1 million shares for $90 million. With the recent expiration of our prior share repurchase authorization, the Board of Directors has authorized a new share repurchase program for up to $250 million of the Company’s common stock. We generated $215 million of operating cash in the fiscal year and ended the year with an unrestricted cash balance of $157.7 million. These amounts were favorably impacted by a federal and state tax payment deadline extension, which shifted fiscal 2023 income tax payments of approximately $50 million into fiscal 2024.

Correspondingly, our uses of cash flow in the first quarter of fiscal year 2024 include the $50 million of tax payments and a $25 million final payment for a previously announced litigation settlement. As of quarter end, we had available borrowing capacity of $175.5 million net of letters of credit. Our total debt at year-end was at $1.75 billion, with our net debt to adjusted EBITDA leverage ratio at 4.6 times. Our capital allocation plan includes investing in our growth strategy and technology initiatives, along with opportunistic share repurchases, while also returning cash to shareholders through dividends. To that end, last week our Board of Directors declared a cash dividend of $0.44 per share to be paid on December 28th, 2023. Lastly, I’ll cover our current outlook for 2024.

On a consolidated basis, we are expecting the following. Capital expenditures and other capitalized investments of $110 million to $120 million, which includes investments in new restaurant openings, our reimage remodel program, franchise TI allowances and incentives, and increased investments in technology initiatives such as our new POS and enhancing our digital platforms. SG&A for the full year of $165 million to $175 million. This SG&A guidance excludes any potential impact from COLI gains or losses and any Del Taco re-franchising that occur in 2024. G&A, which excludes our selling and advertising costs, is expected to be 2.3% to 2.5% of system-wide sales. Company-owned commodity costs are expected to be higher than prior year by 1% to 3%.

Company-owned wage rates are expected to increase by 10% to 12% versus 2023 and are impacted by California’s new minimum wage law, AB1228, effective in April 2024. Excluding the impact of AB1228, we anticipate wage rates will be higher by 3 % to 5%. Depreciation and Amortization is expected to be in the range of $61 million to $63 million. This D&A guidance also excludes the impact of any Del Taco re-franchising that could occur during the year. Our adjusted tax rate is expected to be approximately 27%. We are currently assuming share repurchases during the year of $70 million to $80 million. Adjusted EBITDA for the year is expected to be $325 million to $335 million. And operating EPS is expected to be $6.25 to $6.50 and excludes any dilutive impact from re-franchising Del Taco restaurants.

At the brand level, Jack in the Box expectations include, same-store sales growth in the low-to-mid single-digits, 25 to 35 gross new restaurant openings, with net positive unit growth for the full year. Company-owned restaurant level margin of 21% to 23%. This assumes price increases of 6% to 8% over prior year, which includes additional price take needed to offset the impacts from AB1228. Without the impact of AB1228, we expect price increases of 3% to 4%, and we expect Jack franchise-level margin of 40% to 42%. For Del Taco, we are expecting same-store sales growth in the low-to-mid single digits, gross new restaurant openings of 10 to 15, with net positive unit growth for the full year. Company-owned restaurant level margin of 14% to 16%.

This includes price increases of 6% to 8% over prior year and without the impact of AB1228, price increases would be 4% to 5%. And finally, we expect Del Taco franchise-level margin of 29% to 31%. In summary, we are very pleased to have delivered another quarter of positive performance and made meaningful progress in our strategic pillars. And with that, we’d be happy to take some questions. Operator, please feel free to open up the line for Q&A.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Brian Bittner with Oppenheimer and Company. Please go ahead.

Brian Bittner: Thank you. Good afternoon. I have a question on Jack and Del Taco. So, can I ask two quick ones, and hopefully you can take them. On Jack, your two new markets in Salt Lake and Louisville are trending at over $5 million AUVs, which is very impressive and I guess, surpassing your expectations. So, how does this potentially reshape the near-term strategy on powering into new markets for the Jack in the Box brand? And on Del Taco, the business clearly seems to have hit a soft patch and it’s happening at a time, Darin, where you’re reshaping the management team at Del Taco with trusted partners that you’ve worked with in the past and Tom and Sarah. Can you just unpack these changes a little bit more for us and how quickly you expect these changes could impact brand performance? Thanks.

Darin Harris: Good afternoon, Brian. Good to hear from you. Overall, in Salt Lake City, let me just start there, we’re incredibly happy with the performance in Salt Lake and in Louisville. As we’ve said on the call, we’ve averaged over $100,000 in weekly sales amongst those four restaurants, and on average, they’ve been opened 11 weeks for those four restaurants. So, some open longer than others, but it is over — or outperforming our anticipation. In Salt Lake City, we have 15 locations that we should open by fiscal year ’25. So, we’re aggressively going in and developing the market alongside with two other franchisees. And in Louisville, we’re opening five by fiscal year ’25. And that’s just the start of the pipeline as we’ve recently signed one of our existing franchisees at Jack to partner with us to also develop that market.

And so, what we like is, we’ve put together a specific playbook of how to enter the market, everything from operations, how we’re going to build awareness before and after coming to the market, how we want to ramp up into digital sales and late night sales and without any LTOs. And so, recently one of the first stores that we opened in Salt Lake City that has been one of our highest volumes, we recently turned on digital and overnight sales went up 16%. So, we’re going to pace ourselves into these markets, but we’re very excited about the way we’ve entered it. We are excited about the playbook that we’ve used to enter the markets, and we’re going to continue to look for new opportunities like this. And so, let me transition now to your question on leadership.

Let me talk about our business at Del Taco. We saw it becoming soft in our guidance last year in this fourth quarter. We knew that we were overcoming a Torta promotion late last year, that was — basically we overspent on marketing to promote a new product line. And that marketing carried over into this year. So, we almost doubled the marketing we would normally spend on a window on a new product introduction. So, we knew we had a very tough lap in our comp, so we weren’t surprised by the negative comp. Now, what I would say is, the good news here and then I’ll talk about our leadership team, is that we are now in a place of positive same-store sales and transactions at Del Taco in November. So, we are seeing, with the new product, Birria, the way we’ve entered — the way we’ve lapped now, that double spend in marketing, that we’re having, positive same-store sales and transactions with some of the moves that we’ve made at Del Taco.

Now, I’m excited about the team we’ve put in place at Del Taco. We went through our integration. Tom is a long trusted partner that I’ve known in this industry for years, who comes in and is an operator by heart, rolls up his sleeves and he was one of the — he was at one point, one of the largest KFC franchisees, so he knows this business inside and out. And I called on Tom when I knew this opportunity existed and said, you are the first person, the only person I want in this role. And he accepted, thankfully. And so, I’m confident in his leadership in engaging with franchisees and driving operational performance, fixing the menu that we have at Del Taco to be even more profitable. And then I wanted to partner him with two outstanding marketers, and same thing, a person I have immense trust in, Sarah McAloon, who came from Pizza Hut, and my days at CiCi’s, where we worked together.

I made that call, and she quickly accepted. Again, two calls, and they both accepted. So, I was very grateful and thankful that they did. And partnering Sarah with Tom, a marketer and a great operator, and then putting Ryan in touch with them to help execute what we’ve done at Jack from a brand strategy point, I think we’ve got a really strong team now to focus on sophisticating the Del Taco business, simplifying it, and really driving a marketing calendar that can be effective like we’ve done at Jack. Last thing I would say about it, is the segmentation study, is the first one we’ve done in over five years at Del. So, we’re really starting to understand our customers like we did at Jack. And we think that we have an opportunity to position ourselves with high-quality food in the QSR Mexican space where we can compete effectively.

Brian Bittner: Thank you.

Operator: Our next question comes from the line of Lauren Silberman with Deutsche Bank. Please go ahead.