Jack in the Box Inc. (JACK) Q1 2022 Earnings Call Transcript

Jack in the Box Inc. (NASDAQ: JACK) Q1 2022 earnings call dated Feb. 23, 2022

Corporate Participants:

Chris Brandon — Vice President, Investor Relations

Tim Mullany — Executive Vice President, Chief Financial Officer

Darin Harris — Chief Executive Officer

Analysts:

Brian Bittner — Oppenheimer & Co. — Analyst

Brian Mullan — Deutsche Bank — Analyst

Gregory Francfort — Bank of America Merrill Lynch — Analyst

Nick Setyan — Wedbush Securities — Analyst

Jared Garber — Goldman Sachs — Analyst

Dennis Geiger — UBS — Analyst

Alex Slagle — Jefferies — Analyst

Chris O’Cull — Stifel — Analyst

David Tarantino — Baird — Analyst

John Glass — Morgan Stanley — Analyst

Jeffrey Bernstein — Barclays — Analyst

Lauren Silberman — Credit Suisse — Analyst

Brian — Cowen — Analyst

Presentation:

Operator

Good day, and thank you for standing by, and welcome to the Jack in the Box Incorporated Quarter One Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Chris Brandon, Vice President of Investor Relations. Sir, please go ahead.

Chris Brandon — Vice President, Investor Relations

Thanks very much and good morning, everyone. We appreciate you joining today’s discussion highlighting our first quarter 2022 results. Joining us today are: Chief Executive Officer, Darin Harris; and Chief Financial Officer, Tim Mullany.

Following their prepared remarks, we are happy to take some questions from our sell-side coverage analysts. During our prepared remarks and the Q&A portion of today’s call, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today’s earnings release which is available on the Investor Relations website at JackintheBox.com. We may also make forward-looking statements that reflect management’s current expectations for the future, which are based on current information and judgments. Actual results may differ materially from these expectations based on risks to the business.

The Safe Harbor statement in today’s news release and the cautionary statement in the company’s most recent 10-K are considered a part of today’s 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 the Investor Relations section of our website.

And with that out of the way, let’s get started. I will now turn the call over to our Chief Financial Officer, Tim Mullany.

Tim Mullany — Executive Vice President, Chief Financial Officer

Thanks, Chris, and good morning, everyone. We continue to make progress on our long-term strategic plan and delivered same-store sales results of 13.7% on a two-year basis in the first quarter despite a continued challenging operating environment. We’re working diligently with our operators and franchisees to mitigate the effect of inflation and labor pressures on our business and remain confident in our path to deliver best in class unit economics to fuel our growth strategy. As I will discuss in a moment, we are well on track to achieve the long-term growth targets that we laid out on our Investor Day. We’re also making steady progress toward closing our acquisition of Del Taco and beginning the process of integrating our teams while working to identify and unlock meaningful synergies as well as knowledge-sharing initiatives. We will provide more insight into these efforts in the coming quarters.

Let’s turn to some detail on our Q1 results and our start to 2022. We are very proud of our franchisees, operators, and restaurant managers who have navigated a tough environment to generate positive system-wide sales growth, led by a same-store sales increase of 1.2%. This growth can largely be attributed to price increases, in addition to an effective add-on strategy during the quarter. Same-store sales performance in Q1 was nevertheless pressured by limited hours of operation due to labor shortages and some unusual weather impact in the Pacific Northwest. To mitigate the impacts due to the current inflationary environment, we increased pricing by 5.5% year-over-year within our company-operated restaurants. This also allowed us to narrow the performance gap between our company-operated and franchisee restaurants in the quarter.

Turning to earnings. We delivered diluted EPS of $1.85 for the first quarter, with our operating EPS coming in at $1.97, just below flat when compared to a year ago. I’ll provide additional context on our earnings performance in a moment. In terms of future unit growth, the quarter was highlighted by the completion of 26 development agreements signed for 98 future restaurant openings, bringing total agreements to 50 and restaurant commitments to 201. This is the highest level of unit growth commitments in Company history. While the results of building our development pipeline have been robust and encouraging, we continue to make the needed efforts toward portfolio optimization, including the targeted closure of underperforming units.

In the first quarter, we closed 12 units, while opening two for a net decrease of 10 units. While we knew this process will take some time, we are making great progress on getting the current store base where it needs to be for our growth strategies to take full shape. As always, keep in mind that with the exception of naturally expiring franchise agreements, most of our closed locations continue to provide economics in the form of both royalty and rent contributions. Overall, we remain confident that our growth strategy and focus on best in class financial fundamentals will enable us to reach 4% net unit growth in 2025 and have Jack in the Box in 40 states by the year 2030.

Turning to revenues. We reported $345 million, up approximately 1.8% year-over-year. This increase was largely due to the growth in system-wide sales and same-store sales. For our company-owned stores, which as a reminder make up about 7% of total store count and less than 10% of system-wide sales, restaurant-level margin was 18.3%, driven by cost and labor pressures as well as the impacts from our evolving markets, which we are working to re-franchise. Franchise level margin driven by 93% of our unit portfolio was up 0.4% from a year ago due to improved sales performance.

SG&A expenses increased approximately $4.8 million, mostly due to COLI unfavorability and partially offset by a decrease in incentive compensation. Our reported effective tax rate was 26.5% for the quarter as compared to 25.1% in the first quarter a year ago. This was primarily due to the nondeductible COLI losses in the current year versus non-taxable gains in the prior year. Combining all of these elements, net earnings decreased to $39.3 million and adjusted EBITDA was just over $91 million in the first quarter.

Shifting to cash. Our economic model remains resilient as it continued to generate attractive free cash flow in the first quarter. We generated free cash flow of approximately $24.7 million and spent approximately $9.4 million on capex, primarily toward lease right of first refusal transactions, maintenance, remodel and refresh of company-operated restaurants, and digital and technology initiatives. In terms of our capital allocation, at the beginning of the second quarter, we were able to take advantage of the favorable interest rate environment to repay in full a tranche of the company’s existing 2019 senior secured notes and to fund a portion of the company’s acquisition of Del Taco.

Our $200 million buy-back authorization remains in place and we’ll continue to view share buybacks as part of our total shareholder return strategy, and will likely revisit this approach in the back half of 2022. Our board also recently declared a quarterly dividend of $0.44 per share, which will return approximately $9.3 million to shareholders and will be paid out during Q2.

I’d like to quickly touch base on the addition of Nashville to our evolving markets, joining Oregon, Kansas, and Oklahoma as markets that we intend to re-franchise in the near future. The effect on restaurant-level margin from these markets is temporary and we quantify their impact at 200 basis points to 250 basis points until the exit of company-operated restaurant portfolio.

In closing, and before I turn it over to Darin, I’d like to provide some perspective on the Del Taco transaction and how it fits into our overall financial outlook. As we discussed when we announced the transaction in December, adding Del Taco is an opportunity to scale our business, improve profitability, and share best practices while strengthening our capital structure. We believe that this transaction is particularly critical in the current environment as it will provide us operating and financial synergies that will help mitigate some of the macroeconomic headwinds we are facing. As we continue to work through our integration planning, we continue to be excited about the opportunities that this transaction will provide and the possibility of exceeding our previous target of $15 million in run-rate synergies. We will provide further updates on this and other aspects of integration upon deal close.

To wrap up, we are very pleased with our start to 2022 and how the business managed despite a backdrop of inflationary headwinds and labor challenges while delivering strong sales performance and record-setting growth in our new unit development pipeline. Thank you again for joining the call today. And now I will turn it over to Darin.

Darin Harris — Chief Executive Officer

Thank you, Tim, and good morning, everyone. As we begin another year, I am extremely proud of the work our team, franchisees, and operators are doing to deliver for our guests, as well as our shareholders. Despite the industry headwinds due mostly to the ongoing challenges from COVID, their resilience and dedication enabled us to grow same-store sales, while making strong progress on our strategic foundation and four pillars.

I have seen during the past year-and-a-half, many instances where our scrappy challenger brand mentality and culture’s truly a competitive advantage, but I have particularly noticed, and of recent, [Phonetic] is our team’s ability to take on these headwinds with passion and tenacity has been on full display. Now, before I reflect on our results and progress within our strategy, I want to expand upon Tim’s commentary in terms of the state of the industry and how we see it impacting our business and our guests.

In November, we signaled what the rest of the industry is now seeing, namely that inflation and labor pressures were going to have an impact on Jack in the Box and our peers in 2022. This last quarter has demonstrated for most in the industry that these cost pressures are real and may take longer to overcome.

Let’s touch on COVID. We were experiencing positive trends in staffing and topline sales performance until the onset of Omicron, which temporarily reversed some of these trends and limited operating hours across many of our restaurants. Like others in the industry have noted, we are seeing improvement coinciding with the rapid decline of Omicron. We’re not alone in navigating these challenges and most in the industry are using price as one lever to manage through the inflationary and wage pressures. I do believe we have opportunity within pricing, but more importantly and something that differentiates us is the promotional strategy we have executed since establishing our crave marketing approach. In essence, creating an upsell and add-on opportunities with our wide variety of craveable menu items, which is certainly a more sustainable way to grow average check over the long term.

We are taking a disciplined approach to pricing, keeping both the short-term needs and long-term objectives of the business in mind. Both our company operators and franchisees are seeing that their guests remained quite loyal even with our increased pricing activity during the quarter, which is a good sign. Keep in mind that our significant pricing action didn’t take place until the end of Q1 in January. Besides our focus on upsell and add-ons as part of a promotion, we believe there continues to be opportunities to take a surgical approach to price increases within our core menu. Combined with menu innovation we are in a unique position with multiple levers to pull related to price.

Shifting toward our results for the quarter. Our same-store sales remained solid and grew on a two-year basis by 13.7%. Although limited hours impacted our same-store sales, our performance shows that our topline drivers remain in great shape even as we await the opportunity to consistently execute our strategy across all five of our dayparts, which as you know is part of what makes the guest experience at Jack special and will reignite our ability to dominate the late-night daypart. I remain confident in our potential to drive a balance of ticket and traffic in a more normalized operating environment. Our ability to sell value and premium items can currently offer upsell and add-on platforms due to our unique menu variety and bring more new customers into the Jack experience via digital are meaningful ways we are positioned to drive balanced comp results.

Now, I will turn to our performance across our four strategic pillars as our teams continue to make strong progress against our strategic objectives and roadmap to results, beginning with building brand loyalty. Our updated brand positioning and Crave marketing strategy continue to resonate with our guests. From a product and promotional standpoint, it was a strong quarter for our burger category, including the cheddar-loaded cheeseburger and our ultimate burger platform which led the way in terms of sales contribution. I would also note the strong performance from our Tiny Taco Big Box platform; a great example of packaging and platform innovation using current items. And it was just another way to utilize our add-on strategy that positively impacts ticket beyond just raising price. We continue to grow our e-commerce platform and digital capabilities, building on our strong progress from 2021 during which we achieved a 90.6% increase. We grew digital sales by 38% in Q1 and 271% since two years ago when we started focusing on this aspect of the business. Our digital channels now make up nearly 10% of all sales and our digital database has grown 52% since a year ago.

Loyalty is off to a great start in its first year and it continues to help drive our digital growth. Over 95% of our mobile orders are coming from guests who are Jack Pack Rewards members and we are pleased that our existing digital customers are seeing value in the program. While we are only a couple of quarters in since the launch, we look forward to providing more detail around active member growth and how it is impacting customer behavior in the near future.

I’m also pleased to announce that in quarter two, we will expand loyalty beyond just our mobile app by launching our in-store Jack Pack program. In addition, we will be launching our first ever web ordering platform and an entirely new mobile web experience later this year. These additions will immediately help make online ordering and the Jack Pack rewards program significantly more accessible to our guests.

Turning to our next pillar, driving operational excellence. We are taking labor and staffing challenges head-on, implementing and testing everything from increased pay to automation, enhanced training to local market activation, all in the effort of attracting and retaining talented people to work at Jack in the Box. Building a top in-store culture within QSR and providing a place people generally want to work is our focus. We will also provide them opportunities for development and career advancement. We are committed to helping our team members and managers break out of the Box and reach their full potential. This has always been a part of the Jack in the Box culture as most of our franchisees started out by working in one of our restaurants.

We are focused on three main actions of operational improvement: the rollout of our new guest experience systems and brand standards that enables us to significantly raise the bar on the expectation we place on ourselves and servicing our guests. Improving the image of our restaurants; recently we made our new reimage and remodel program available to our franchisees. We will certainly update you on the progress of this important initiative. And lastly, and already underway is strengthening our training infrastructure which includes online training, above restaurant-level training, certified training restaurants, and new restaurant opening support.

Our third pillar: growing restaurant profits, has certainly been a focus point for our operator experienced management team. We continue to work with our franchisees on ways to manage through the macro pressures we are facing, but most importantly, ways to maximize profitability for the long term. We have invested in an operation services team that is laser-focused on innovating processes, equipment, and technology, to drive out cost and simplify operational tasks. As you heard from us this past December, our record-setting year of store-level economics, highlighted by our 20% increase in store level EBITDA, supports our franchisees and their efforts to navigate industry margin pressures and positions them well for future growth.

And this is a nice segue to our final pillar, expanding Jack’s reach. Tim mentioned our development agreement signed in quarter one and I’m thrilled that in such a short time since launch of the program, we already have commitments for 201 restaurants from our existing franchisees. The strong pace and enthusiasm from our franchisees have me very encouraged about our ability to maximize our long-term growth potential. And that both the realignment of our relationship and our shared emphasis on finding ways to improve store-level ROI and profitability are beginning to pave the way toward our goal of 4% restaurant growth by 2025. And let me assure you, this is only the beginning.

Before closing, I’d like to discuss a few thoughts on Del Taco as we find ourselves closer to deal completion. As I said when we announced this transaction in December, a key reason we are excited to bring Del Taco into the Jack family is the perfect fit of business model, geography, customer base, and culture. Through this transaction, both brands will be able to evolve within many strategic areas faster together than apart. We are confident there will be synergies, opportunities to scale technology, execute on a common growth strategy, and benefit from knowledge sharing. Scale certainly helps through short-term pressures, but more importantly, will help our long-term efforts to position both Del Taco and Jack in the Box franchisees for even more success in terms of restaurant margins, store-level profitability, and taking more share every day from the competition.

Over the last several weeks, we have been working closely with the Del Taco team to develop a thoughtful plan to bring our businesses together. Through this integration process, I have gained even more respect for their team, culture, and dedication to providing guests with great food and exceptional experiences. And together, I believe we will create an organization that is a force within the industry. In closing, I want to reiterate how grateful and appreciative I am for our franchisees and corporate operators and their relentless dedication towards serving our guests. While we may face headwinds and while we may not be able to predict the future, I can say with full confidence, we will control what we can control, rise to the challenge and continue to make progress on the long-term strategy that will evolve our business, our brand, and will bring Jack to places we haven’t been before.

We appreciate you joining us today and we are happy to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Again, Brian Bittner, your line is now open. You may ask your question.

Brian Bittner — Oppenheimer & Co. — Analyst

Thank you. Good morning, Darin and Tim. Jack’s improving unit growth story is a prove-it story in the eyes of the investment community and I think you guys realize that and you’ve made major strides in the first quarter with these development agreements, 98 restaurants, doubling your pipeline to 200. Can you just talk on — about these 1Q commitment wins and how they line up against your expectations as you walk this path towards the 4% net unit growth goals that you’ve laid out? And maybe help us understand the time frame of how these commitments transformed into shovels in the ground? And the follow-up to that is just these wins are coming at a time where you’re still dealing with elevated net closings, can you maybe explain how much longer we should anticipate this net closing dynamic to persist for the financial model? Thanks.

Darin Harris — Chief Executive Officer

Brian, thank you for the question. It’s good to hear from you. Let’s start with the growth. We are incredibly excited by what we’ve accomplished with 26 development agreements for another 98 restaurants. As we said on previous calls, those are split over about a three-year to four-year period, so they are evenly balanced as we sign with our existing franchisees and we’re confident based upon the increased activity of our real estate team, working with franchisees, going out into the market and really driving sites into the process which we don’t provide guidance around as [Phonetic] this pipeline is rapidly increasing. And that — we start to see this really start to turn into 2023 to a unit growth story, leading to our 4% growth by 2025.

So, it’s all happening as we’ve expected. The pace is picking up from a development activity standpoint and this is just with our existing base. We’re still out talking to new franchisees as well and increasing that pipeline. As it relates to closures, you know, we’ve mentioned this before but we’re continuing to do the tough work around optimizing our portfolio and preparing for growth. The store closures that we had in the — in this quarter, we knew were coming, we budgeted it. Many of them were related to the St. Louis issue, six of the closures. So most of these were things that we anticipated and prepared for and we will continue to optimize the portfolio throughout this year as we — as we focus on moving to that 4% growth rate by 2025.

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah. And, Brian, just to add to that deal, on the closures, we continue to receive economics on those, so as they close, we’ll record that, but also these units typically have fairly low average unit volumes and because of that to the extent that they have said sandwich leases, what we ended up receiving from those is fairly minimal to begin with so the loss here is negligible as we close.

Brian Bittner — Oppenheimer & Co. — Analyst

Great, thank you.

Operator

Thank you. The next question comes from the line of Brian Mullan of Deutsche Bank. Your line is now open. You may ask your question.

Brian Mullan — Deutsche Bank — Analyst

Hey, thank you. Just a question on the pending Del Taco acquisition, specifically around the potential refranchising process. In addition to perhaps receiving some inbounds from your existing franchisees which we heard a few months ago, is there any work you’ve been able to do ahead of time to position yourself to execute on refranchising opportunities once the deal closes? So — and if you could just speak to your desire to move fast and your ability to move fast if you choose to do so? Thank you.

Tim Mullany — Executive Vice President, Chief Financial Officer

Yes. So we’re currently in the process of, obviously, closing the transaction. We’re mindful of gun-jumping sensitivities and considerations. So the amount of tangible work that we’re able to do in setting refranchising strategy for Del Taco is fairly limited until we close. We expect to close in the second week or so of March. However, having said that, we do obviously just like with Jack in the Box, with Del Taco, we see refranchising as an opportunity, a tool to be evaluated that could be a meaningful addition to our strategic plan.

Darin Harris — Chief Executive Officer

To add to what Tim mentioned, Brian, we see the opportunity for the strategy — refranchising that was part of the strategic approach that we took when we bought Del Taco. We’ve obviously, as part of our due diligence, looked at the portfolio, looked at where we think there is opportunity within our system. We haven’t had a chance yet to meet their franchisees and see where there is opportunity within their system. And then, we also know that there is plenty of interest from outside the Jack in the Box system expressing both interest in Jack in the Box and Del Taco. So, we know that refranchising is part of the strategy. We’ve done some work but we’re not in a position where we can talk openly about it until post the transaction.

Brian Mullan — Deutsche Bank — Analyst

Thank you.

Operator

Thank you. The next question comes from the line of Gregory Francfort. Your line is now open. You may ask your question.

Gregory Francfort — Bank of America Merrill Lynch — Analyst

Hey. Thanks for the question. Can you maybe — I think you talked a little bit about company store pricing, can you talk about where the franchisees stand and maybe do you feel like you’re in a good spot right now in terms of pricing or you might take more in the coming months to kind of protect the margins where they stand? Thanks.

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah, sure. Thanks, Greg. So for company store pricing in Q1, we took 5.5%. That was a very deliberate increase in previous quarterly price takes, so in Q4, you’ll recall, we took 3.9%, and preceding quarters to that we were in the mid-to-low threes. So we expect that we’re going to have that as a tool and an opportunity for us to mitigate some of these inflationary headwinds going forward on the company side.

The franchisees, we haven’t disclosed the specific price take, the percentage on that, but they’ve maintained a sizable increase over our company price take, so they’re also using that as a tool to offset wage and commodity pressures.

Darin Harris — Chief Executive Officer

The other thing I would add to what Tim mentioned is that a lot of the company price increase didn’t take full effect until January, so we’re not getting the benefit of that in this — much of the benefit of that in these quarterly results on the company stores, so roughly 2% to 2.5% was November, the remaining part was in January. So we’ll start to see that kick in into the second quarter.

Gregory Francfort — Bank of America Merrill Lynch — Analyst

Thanks.

Operator

Thank you. The next question we have the line of Nick Setyan of Wedbush Securities. Your line is now open. You may ask your question.

Nick Setyan — Wedbush Securities — Analyst

Thank you. Just as a follow-up, so what will the pricing be in FQ2, the all-in pricing?

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah, we’re going to continue with our original guide of high-single digits for the fiscal year, and as Darin mentioned, with the price take that we took at the end of Q1, we’ll start to see that gearing up in Q2, is what we expect.

Nick Setyan — Wedbush Securities — Analyst

Got it. And can you just maybe help us quantify or identify the Omicron impact within the quarter in terms of the comp impact? And I know you guys — did a pretty good job of quantifying the staffing, headwind, the supply chain headwind last quarter, anything in line with that would be very, very helpful. And then any kind of sort of quarter-to-date trajectory around post-Omicron normalization would also be very helpful.

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah. We saw the impact fairly similar to what we saw last quarter. And note that our Q1 is — has four periods [Phonetic]. So unlike most of our industry, peer grouping, we saw or incurred a greater proportionality of that Omicron impact in our quarterly results than many others have, but we did see something very consistent with prior quarters. We also saw that dining rooms receded a little bit, so we had fewer dining rooms open this quarter than last quarter as a result of Omicron. But we also saw those behaviors mitigate somewhat towards the end of the quarter and start to recover. So we have an optimistic view of that in Q2.

Darin Harris — Chief Executive Officer

Yeah, we’re — to add to Tim’s comments — through the first three periods, we were — sales momentum was tremendous and gaining ground. And then, with our period for as Omicron spiked, we felt the same thing the rest of the industry did, which was limitation on our dayport — dayparts and hours and we’re now starting to see those trends change as Omicron has declined and it’s correlating with the decline in Omicron that we’re seeing stores come back online. So the good news is that the trends are improving since Omicron.

Nick Setyan — Wedbush Securities — Analyst

Thank you.

Operator

Thank you. We have the next question, comes from the line of Jared Garber of Goldman Sachs. Your line is now open. You may ask your question.

Jared Garber — Goldman Sachs — Analyst

Hi, thanks for the question. Darin And Tim, you talked a little bit about the impact from the reacquired units from franchisees, I think is maybe 30 or handful above 30 in the company-owned base now, and there was a little bit more of a productivity drag in the quarter that we saw versus the expectations, I think partially based on that. And then you also noted 200 basis points to 250 basis points of margin drag from those acquired units. So can you just talk about, I guess two things, one would be sort of AUV basis of those acquired units, including those nine that you just acquired in the Nashville area. How we should be thinking about the productivity of the company store revenues? And then also, what’s the right baseline to base that 200-basis point to 250-basis point margin drag? And then finally, just kind of how do you think about refranchising those units over time?

Tim Mullany — Executive Vice President, Chief Financial Officer

Thanks, Jared. High level on your — the beginning part of your question there. So, we did report an 18.3% restaurant-level margin for our portfolio and we noted that there was a 230-basis point impact on the evolving markets’ portfolio and that excludes the Nashville stores that came into that. So we’re guiding roughly a drag of 200 basis points to 250 basis points in that portfolio that you could pro forma out that 18.3% on top of which gets us back in line with some historical margin figures in a range of that. So, typically these evolving markets, as you can imagine, have a lower-A [Phonetic] review than the average remainder of our restaurant company-owned portfolio. And we’re actively obviously focusing on labor as a primary margin driver to improve restricted hours in those markets and increase the RLM portfolio.

Darin Harris — Chief Executive Officer

Yeah. What we’ll also do, to add to what Tim said, is we’re actively refranchising a portion of these markets now. We don’t have timing and we won’t provide guidance around timing, but we’re actively refranchising them. And also what we saw when we took over units, one of the markets was underperforming from an operational standpoint. Another market was what we found in both the markets and part of the operational challenges was just staffing. And so, our corporate team has really been active on increasing staffing and training the restaurants and we’ve already seen improvement in in both Oregon and Nashville — [Technical Issue]

Jared Garber — Goldman Sachs — Analyst

Great, thanks. And is the idea to re-franchise those markets to one operate — one franchise operator, then with the intent to grow that market thereafter?

Darin Harris — Chief Executive Officer

Yeah. Our goal is to utilize refranchising for growth using multiple operators.

Jared Garber — Goldman Sachs — Analyst

Great, thank you.

Operator

Thank you. We have the next question, comes from the line of Dennis Geiger of UBS. Your line is now open. You may ask your question.

Dennis Geiger — UBS — Analyst

Thanks for the question. Just wondering if the full-year ’22 guidance that you previously provided around restaurant margins and some of the key inflation targets, if that’s generally still sort of the right way to think about the year, recognizing that there are some moving pieces? And appreciate the color on the units that were temporarily bought back in, but just curious if you could touch on kind of any updates to those previous targets, if there are any? Thank you.

Darin Harris — Chief Executive Officer

At this point we — we give our guidance in November and what we updated in May. We’ll have a better read as we get into the year but right now, we’re not making any adjustments to guidance. Yeah, as we navigate the headwinds and we understand what’s happening with the headwinds, also our pricing ability, we’ll decide if that’s needed by May.

Dennis Geiger — UBS — Analyst

Thank you.

Operator

Thank you. We have the next question from the line of Alex Slagle of Jefferies. Your line is now open. You may ask your question.

Alex Slagle — Jefferies — Analyst

Thanks. Good morning. Wondered if you could comment on any subtle changes you’re seeing in the underlying consumer behavior? How they’re trading up or any changes you’ve seen related to any particular consumer type, specifically with the rising gas prices here, especially in California — all the inflationary pressures really but just anything you’re seeing?

Darin Harris — Chief Executive Officer

Yeah, I think the biggest thing for those of us in the industry that we’re seeing is what is considered the value consumer and what’s the price point that you would notice being that value play consumer because everybody’s raising prices pretty aggressively. So, I think that’s the part we’re all trying to get our head around, but what is now value, is it $5, is it $6, is it $7? And how do we continue to improve our pricing power?

For us we stated multiple times that our strategy is working with both the customers that we segmented. We talked about some high-end — higher-end customers along with our core base and the strategy that we’ve proven is that, have a very strong promotional offering with add-on and upsell opportunities, and we’ve seen that work and we’ll continue to do that and focus on that. And it’s working for us as a competitive differentiation in the industry.

Operator

Thank you.

Alex Slagle — Jefferies — Analyst

Thanks.

Operator

We have the next — all right, thank you. We have the next question, comes from the line of Chris O’Cull of Stifel. Your line is now open. You may ask your question.

Chris O’Cull — Stifel — Analyst

Hi. Thank you guys for taking my question, which relates to the transaction performance. By our math transactions that company locations are down about 17% to pre-COVID levels, is this primarily a loss of dining room traffic? And do you think the drive-thru is capable of generating the throughput to recover those transactions?

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah. Thanks, Chris. We don’t disclose the transaction trends and behaviors. I think we’re pleased this quarter with our overall two-year stack, same-store sales performance coming in where it did along with our quarterly 1.2% same-store sales. We’re also seeing some impressive growth in our loyalty base as a sales vehicle and how we look at transactions. So our loyalty program was up 68% this quarter and now we have over $1.4 million members in that bucket and those members from a behavioral point of view have a transaction frequency that’s almost double the rate of our typical in-store guest.

So we’re really leaning in on those digital channels and are pleased with the performance to date.

Chris O’Cull — Stifel — Analyst

Okay. Thank you.

Operator

Thank you. We have the next question, comes from the line of David Tarantino of Baird. Your line is now open. You may ask your question.

David Tarantino — Baird — Analyst

Hi. Good morning. I had a question on your commentary around the synergies for Del Taco, and I think, Tim, you said that the synergies would help you to mitigate some of the macro pressures and I just wanted to ask you to clarify what you meant by that statement? And whether you expect those synergies to flow through to profitability, or do you see them being an offset to some of the cost pressures that you might have in the business netting to something lower than that? Thanks.

Tim Mullany — Executive Vice President, Chief Financial Officer

Sure. Thanks, David. Yeah, absolutely. I think we’re actively working with our business unit leaders here along with Bain Consulting as an outside adviser in the integration process. And clearly, part of this acquisition, when we looked at synergies was both in short-term and medium-term to identify economies of scale, and particularly, in supply chain channels distribution, digital, construction outside of the P&L. So there’s quite a few areas where we see meaningful opportunity given the complementary nature of the two brands in both menu and geographical overlay. So will that $15 million that we initially guided towards as targeted synergies as a run rate, so that’s not something that we anticipate to achieve overnight, but within two years, we expect to get there. But we do think that there is meaningful opportunities across a broad range of functionalities.

David Tarantino — Baird — Analyst

And just to clarify, is that something you expect to flow through to earnings fully or do you think there’ll be some cost offsets to that, so you end up [Phonetic] to a smaller benefit or a different benefit than that on your earnings?

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah, well, it depends on the type of synergy. So if we look at, for example, supply chain, just to provide one that we would expect that to flow through to restaurant-level margin. We’re also looking at, clearly, other sort of cost synergies within digital and ops, and other areas. But in addition to that, we’re identifying some top-line sales-driving synergies as well that we would expect to flow through. So, I would say, a majority of these would primarily flow through the bottom line. And we’ll have more to come on that as we get further along in the integration process.

David Tarantino — Baird — Analyst

Great. Thank you.

Operator

Thank you. We have the next question, comes from the line of John Glass of Morgan Stanley. Your line is now open. You may ask the question.

John Glass — Morgan Stanley — Analyst

Thanks. Good morning. Just going back to pricing for a moment. I think simple math — my math would suggest pricing might be running like north of 9% if you take the two price increases, so maybe correct me if that’s wrong? Aside from looking at traffic in near term, how do you know that’s not too much? Do you have like real-time tracking of value scores? And if you do, like what is that telling you, specifically because that would seem still higher than some of your competitors, at least on a national basis, but maybe it’s different in your local markets?

And then, just finally, I think in the past you’ve provided maybe the average check size and absolute dollars for a number of items per order, if you have that for this quarter that would be very helpful as well? Thanks.

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah. We’re comfortable with the price take [Phonetic] that we’ve taken. We feel it’s in line with inflationary headwinds on the commodity and labor side. We think we do actually have more room to go on that should we need to, but we’re still in line with our original guidance of high single-digits. Relative to average check size, we’re just under approaching $12 an average check. So we’ve seen growth there. Our average number of items per check has held constant and steady. So, that’s been encouraging that we haven’t seen any degradation of that as we’ve taken price.

Relative to the transactions, there’s always sensitivity to that. But so far, what we’ve seen has been pretty much in line with our expectations and our modeling for price sensitivity versus [Phonetic] trends. So there haven’t been any adverse indications that we should back off of our approach and strategy towards taking price in FY’22.

John Glass — Morgan Stanley — Analyst

And I guess my question was, how do you know you’ve got that? What is the evidence, I guess, you have on that pricing power with the data that informs, that was the question.

Darin Harris — Chief Executive Officer

Yeah, we’re constantly doing research in data-driven approach to our pricing models. And so we’re looking at how consumers are responding to our market research. We do it through an outsourced pricing authority and we’re working hand-in-hand with our franchisees and what they’re seeing in their markets. So, we take a three-legged stool approach to this.

John Glass — Morgan Stanley — Analyst

Got it. Thank you.

Operator

Thank you. We have the next question, comes from the line of Jeffrey Bernstein of Barclays. Your line is now open. You may ask your question.

Jeffrey Bernstein — Barclays — Analyst

Great. Thank you very much. My question is on development. You mentioned ramping up the development pipeline. I’m just wondering if you can share any color on typical terms of agreements, whether you’re offering any incentives to to accelerate that growth? And maybe what’s the greatest hurdle or challenge to achieving that acceleration in unit growth, whether it’s near-term inflation or real estate availability — maybe brand recognition in new markets?

Just trying to gauge the incentives you’re providing if any and what could be the greatest hurdles to that acceleration target? Thank you.

Darin Harris — Chief Executive Officer

Yeah, I’ll let Tim address the incentives. We had the incentives in our FTD for the last few years. So, we’ve — it’s been the — standard incentive that we’ve offered. As far as challenges, I think the biggest thing is we’ve been out working with our existing franchisees, working hand-in-hand, and we’ve used data to map every market and now the focus is about really driving sites into the pipeline. We’ve seen a really rapid increase of which we’re not providing guidance on, but an increase in our site approvals within the organization. I think the challenge that we’ve seen is many brands have reported their challenge with getting equipment and supply related to whether it’s HVAC or other items to complete the build process. That’s happening just like supply challenges across all industries. So, what we’ve done to offset that is we’ve used our balance sheet to pre-order a lot of the items to be prepared for this oncoming growth so that it doesn’t hamper our ability to meet our objectives from a growth standpoint in 2023 and beyond.

Operator

Thank you. We have the next question, comes from — all right, thank you. We have the next question, comes from the line of Lauren Silberman of Credit Suisse. Your line is now open. You may ask your question.

Lauren Silberman — Credit Suisse — Analyst

Thank you very much for the question. In the Q, I think that mix for company restaurants is down 2% for the quarter. So, can you talk about what’s driving a little bit of the negative mix shift and your expectation for mix for the rest of the year?

Darin Harris — Chief Executive Officer

Can you repeat part of that question? I heard the second half of it, what was the first part about mix shift?

Lauren Silberman — Credit Suisse — Analyst

Sure. I think that mix for company restaurants in the Q was down 2% for the quarter. So just on — so if you could talk about what’s driving some of that?

Tim Mullany — Executive Vice President, Chief Financial Officer

You mean as it relates to franchise sales versus company sales?

Lauren Silberman — Credit Suisse — Analyst

Sorry. No, [Speech Overlap] I think that it was average check was 3.5%. So, if you have company — if you have price of 5.5%, the mix would be negative too?

Darin Harris — Chief Executive Officer

So you’re talking — Lauren, you’re talking about the mix within the company-owned comp of ticket and traffic?

Lauren Silberman — Credit Suisse — Analyst

Within average check being price and mix.

Tim Mullany — Executive Vice President, Chief Financial Officer

[Speehch Overlap] Yeah —

Lauren Silberman — Credit Suisse — Analyst

I can get it offline if you want. [Speech Overap]

Darin Harris — Chief Executive Officer

Okay. We’ll have to — because I don’t want to provide something that’s inaccurate, but I think the shift is somewhat related to operating hours. And some of the company-owned stores are specifically those evolving markets. But we’ll handle that offline.

Lauren Silberman — Credit Suisse — Analyst

All right. Thank you very much.

Operator

Thank you. And we have the last question, comes from the line of Andrew Charles of Cowen. Your line is now open. You may ask the question.

Brian — Cowen — Analyst

Hey. Thanks, guys. This is actually Brian on for Andrew. And just want to follow up to one of the last couple of questions here. We were pretty encouraged by the acceleration and development agreements. And I guess, just within those, if you guys talk a little bit more about the availability of drive-through sites versus, let’s say, a quarter ago, I guess in the efforts to make the footprint a little more flexible than being off-premises [Phonetic]?

Tim Mullany — Executive Vice President, Chief Financial Officer

Yeah, our drive-throughs have been unaffected, completely unaffected, and we’ve been taking an increasing proportionality of our volume through the drive-through and off-premises. And part of that’s also being aided by our digital initiatives as well. So, we’ve been pleased with that performance and that’s been obviously a competitive advantage for us relative to the industry in general.

Darin Harris — Chief Executive Officer

And at this point as far as sites, we’re still seeing plenty — an increased level of sites being submitted into our real estate pipeline. So we have not — we have not seen it — the lack of drive-through sites or that concern hamper our development. We’ve seen plenty of sites coming into the pipeline, all having drive-through ability.

Brian — Cowen — Analyst

Great. Thanks, guys.

Operator

Thank you. And there are no further questions at this time. I would now like to turn the call over back to Mr. Darin Harris, Chief Executive Officer. Sir?

Darin Harris — Chief Executive Officer

We appreciate your time today. We are encouraged by this quarter and the results we’re having and the momentum we continue to see in the Jack in the Box business. So we look forward to talking to you further and thank you for your time today.

Operator

[Operator Closing Remarks]