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Jack in the Box Inc (JACK) Q2 2023 Earnings Call Transcript

JACK Earnings Call - Final Transcript

Jack in the Box Inc (NASDAQ: JACK) Q2 2023 earnings call dated May. 17, 2023

Corporate Participants:

Chris Brandon — Vice President of Investor Relations

Dawn Hooper — Chief Financial Officer

Darin Harris — Chief Executive Officer

Analysts:

Brian Bittner — Oppenheimer & Company — Analyst

Lauren Silberman — Credit Suisse — Analyst

Dennis Geiger — UBS — Analyst

Andrew Charles — TD Cowen — Analyst

Gregory Francfort — Guggenheim Securities — Analyst

Chris O’Cull — Stifel — Analyst

Alex Slagle — Jefferies — Analyst

Eric Gonzalez — KeyBanc — Analyst

David Tarantino — Baird — Analyst

Chris Carle — Chris Carl — Analyst

Brian Harbour — Morgan Stanley — Analyst

Jeffrey Bernstein — Barclays — Analyst

Presentation:

Operator

Good morning. My name is Rob, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Jack’s Second Quarter 2023 Earnings Webcast. [Operator Instructions] Thank you.

Chris Brandon, Vice President of Investor Relations, you may begin your conference.

Chris Brandon — Vice President of Investor Relations

Thanks, operator, and good morning, everyone. We appreciate you joining today’s conference call, highlighting results from our second quarter 2023. With me today are Chief Executive Officer, Darin Harris; and our Interim Chief Financial Officer, Dawn Hooper. 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.

I’d like to provide our conference and events scheduled for the next few weeks. We will be attending the Cowen, Future of the Consumer Conference on Tuesday, June 6. The Baird Global Consumer Tech and Services Conference on Wednesday, June 7. And the RBC Capital Markets Consumer Conference on Thursday, June 8. All in person, and all taking place in New York City. The week following, we will attend the Oppenheimer Conference on Wednesday, June 14, which is being held virtually. We look forward to participating and seeing many of you there.

Lastly, we’d like to apologize in advance for any background noise. Our headquarters are five miles from [Indecipherable] and the Naval Base decided to go ahead with their training exercise this morning, regardless of the Jack in the Box earnings call. While fun to watch out the window, it is not ideal for a conference call, so please forgive us for any aviation or Top Gun sounding voices throughout our remarks.

And with that, I would like to turn the call over to our Chief Executive Officer, Darin Harris. Thanks, Chris. We are very pleased to report strong quarter two performance, as we are seeing momentum from our strategy execution and the results prove it up. Our performance can be best characterized by a sharp increase in same-store sales, improvements in restaurant and franchise level margin, growth in adjusted EBITDA, and operating EPS, combined with continued confidence in reaching positive net unit growth for the year. This progress on top of our results from the first quarter have given us the confidence to raise annual guidance across key metrics. In doing so, we want to thank our franchisees, [Technical Issues] Jack in the Box Management Staff and our restaurant-level team members who are working together to successfully execute our strategy and put wins on the scoreboard. They are a talented team that makes it possible to achieve our objective of creating value for our shareholders. I will keep utilizing our four strategic pillars of the guide in discussing the progress and outcomes of many actions supporting our strategy, before turning it over to Dawn to review our financial results and updated guidance in greater detail. We start with building brand loyalty and our efforts to grow sales and accelerate transactions through our crave marketing strategy and positioning. We exhibited strong calendar execution in quarter two by balancing value with premium offerings beginning the quarter focused on the debut of the $5 Jack Pack Combo. This new value platform can be revisited throughout the year, and was particularly effective in driving incremental transactions. In January, we launched a new beverage layered through our partnership with Red Bull, debuting our premium Red Bull infusion ice beverages. These products expanded our variety and drove incremental sales in our beverage category by providing customers with a new use occasion. We also enhanced our core by rolling out a new and improved grilled chicken sandwich for guests looking for a great tasting, healthier option to start off the year. In early March, we featured the return of classic and Spicy Popcorn Chicken, a fans favorite that has proved itself as a strong performance driver for the brand. We did celebrated our cultural moment with our distinctive St Patrick’s promotion, the Mint Mobile shake, which was supported by a fun and edgy campaign featuring one of the sexiest men alive, Jack Box, oh and of course, Ryan Reynolds. This one of a kind activation created a unique partnership between the popular actor, and is Mint Mobile investment, along with the Jack brand. We saw a strong social engagement and positive brand sentiment, helping average check growth, mobile and app sales while setting a new benchmark for future Shake promotions. Continuing to develop these unique brand partnerships as a priority, and it’s one more lever in making Jack even more craved in 2023. Over the past few years, Ryan Ostrom and team have optimized our marketing spend by focusing on retailer frequency, while using digital channels to keep an active dialog with core users. When hand-in-hand with effective creative, and the right offer, this has a meaningful layer of sales performance. By investing in our MarTech stack, it has enabled us to become a more formidable digital competitor and assisted in driving same-store sales and brand loyalty. We have gone from sub-1% [Phonetic] digital sales pre-COVID and we’re now approaching 12%. Last quarter, we rolled-out a new app, plus a new web ordering platform, which now allows guests to order when they want and from whichever the buys they choose, all while we get to capture important data on our guests. We’re now positioned to drive incremental upsell and add-ons to our order, while operating safe payment methods, favorite locations, previous quarters, and the ability to easily earn and redeem loyalty points through Jack Pack Rewards. This has all led to higher average check, greater transactions and a 30% increase in web and app sales during quarter two. Third-party delivery continues to perform well with room to grow, and we continue to focus on the operational initiatives that assist further in optimizing this channel. While we have only scratched the surface of our overall digital potential, we have clear next steps, including personalization, driving loyalty and frequency with our biggest fans, and the ability to retarget lapsed users, while growing our CRM and loyalty database. In fact, Jack Pack Rewards membership grew 45% during the second quarter, driven by our In-app promotions of the Mint Mobile shake and our famous Tacos. We are well-equipped to realize this big opportunity and see realistic potential to do so by leveraging our scale and resources to capture and better utilize data, field incremental sales for both brands. Lastly, on this pillar. I will touch on the early progress of our reimage program, which is garnering solid interest from our franchisees. On the franchise side, there are currently 405 reimage forms that have been submitted and already 71 of these in the design and permitting stage. We expect about five investor of image remodel to be completed by the end of the fiscal year. For company owned, we have approved 28 restaurants set to be updated in the new craved image, with 10 restaurants in the design and permitting phase, with five of these to be completed by the end of the fiscal year. We are targeting and expecting [indecipherable] for these restaurants and we will update you on this regularly as the program continues to gain meaningful traction going forward. Let’s move on to our second pillar. Driving operational excellence and the three key items within. Building our people capability through training and staffing, elevating the execution of standards across the system and simplifying operations. In terms of executing standards, we continue to see significant progress overall. We began by focusing on training, resulting in lower turnover and better staffing, which has directly driven improvements related to speed, alerts and guest satisfaction. Our drive-thrus were 11 seconds faster year-over-year in the second quarter, even as we roll over improvements, the previous year. After implementing our guest experience standards a year-ago, we have seen over a 20% improvement in our standards execution from third-party assessments. All in all, due to these many efforts, we are operating at higher levels and giving our guests a better experience. I’d like to touch on hours of operation and the reopening of dining rooms, which are both having a positive impact on transactions. We have been particularly focused on owning late night by increasing hours, specifically on the franchise side, and did so again compared to Q1. While we are still about 30 minutes behind average hours opened versus 2019, our franchisees are taking actions and understand that late night represents a daypart where we believe we can take share. In terms of the dining room reopenings, we have now increased the number of dining rooms opened greater than five hours a day to 98% system-wide. On average, dining rooms across the system were opened just over 13 hours a day, an improvement from last quarter. We continue to share the playbook and work with our franchisees and are pleased with this progress. Lastly, touching on our point of sale selection process. We have narrowed the field to two POS providers and plan to finalize our decision during Q3. Restaurant implementation funded by franchisees will begin in fiscal year 2024, and we anticipate being near system completion by the end of fiscal year 2025. The new POS will allow us to drive cost out of the system and improve the guest experience with advanced tools like automation and AI. But we won’t wait for the POS rollout to innovate on other automation initiatives. And in fact, we will be expanding our current Miso Robotics automatic prior test to a second location, and Del Taco is successfully testing voice ordering with Presto which is providing us insight that could benefit both brands. Success across these operational focus areas should lead to growing restaurant profits, which is our third strategic pillar. We see profitability going in the right direction after a tough inflationary environment in 2022. We’re starting to see progress on the 200 basis point restaurant-level margin opportunity. We identified potential savings of about $55,000 per restaurant on an annualized basis. As of today, 50% of the system has installed both cheese pumps and Hydro Rent equipment. These two initiatives represent almost 30% of annualized savings possible. We will continue to roll-out other equipment process and technology programs that will assist us in achieving the 200 basis-point goal and maintain the momentum displayed within our improved ROM [Phonetic] performance. While inflation is showing signs of easing, we continue to be strategic with each pricing action using a more data-driven and surgical approach. With the assistance of machine-learning and more sophisticated analytical tools, we are identifying pricing opportunities by store, channel and market all enabling us to benchmark competitively. We are regularly sharing these best practices with franchisees, so that they can make more educated pricing decisions. The profitability initiatives we just mentioned along with synergy savings and focus on maximizing store-level ROI further encourages franchisees to build and open new restaurants, which brings us to our fourth and all important final pillar, expanding our reach. Our growth plan to invent a more development commitments and site approvals in the last year alone, when we had in the previous three years. We are slated to have a very active back-half of the year and remain positive in our ability to meet our annual guidance for gross openings. We now have 61 restaurants currently in the permitting, design and construction phases, which is the most we have seen in at least a decade. Naturally, we will still experience some closures. But we remain confident in our ability to reach net positive unit growth in 2023 for the first time in four years. Next month, we will open the first Jack restaurant in Salt Lake City with the new crave image. We plan to open three stores in 2023 and at least seven in 2024 both company and franchise location. With this being a combined market, all we chose in that efforts are activated in hopes of making this our strongest new market opening in history. Later in the summer, we will open restaurants in [indecipherable] beginning with company restaurants. And speaking of strong early performance. I’d like to provide the latest on our newest Jack drive-thru only prototype in Tulsa, Oklahoma. Through the end of Q2, this restaurant is still outperforming expectations, generating average weekly sales of approximately $43,000. We’re also seeing about 15% of sales, coming through digital aided by food lockers for speed and convenience. The restaurant has been opened for about nine months, has all of our latest equipment and we have seen a much higher-level of sustained outperformance in terms of AUV and sales. Particularly compared to the Honeymoon curve, we typically see in newly opened locations. This is very encouraging as our franchisees looked to expand with this lower-cost prototype. Since launching our Jack development program in mid 2021, we have signed a total of 76 new agreements for a total of 335 restaurants. With safety and commitment in fiscal 2023. highlights within these commitments include our first new Jack franchisees in over a decade. Brand new marketing channels includes Florida and Arkansas. As incremental development agreements via Del Taco refranchising including commitments from a Del Taco franchisee to build both Jack and Del Taco Restaurants for the first time in new markets, Montana and Wyoming. I would also like to make special mention of our franchise agreement for 22 restaurants in Mexico. It’s a monumental step for the brand to be returning after 30 years and we know that many citizens of Mexico are familiar with our brand due to its proximity to many of our U.S. restaurants. We’re excited to work with this experienced multi-brand franchise operator in this new territory. Centered on the border states of Mexico, we believe here this time we have the right operations and development experience, personal values and culture fit and an established distribution network to be successful right from the start. To be clear, we are not pursuing an aggressive international growth strategy at this time. We chose to enter the Mexico border states due to the strategic partner, we identified, their distribution capability, a brand affinity due to adjacent Jack in the Box markets and the ease to which we can assist with nearby restaurant and franchise support. Turning to Del Taco, which continues to be a value-driving addition to our company that I’m excited about. The brand is well positioned to meet varied customer needs with a strong value proposition and barbell mini strategy, despite the elevated market pricing model to protect margins hindered from inflation. We started the quarter with a promotional focus on the 20 Under $2 menu platform and the epic fresh Guacamole Burrito. 20 Under $2 continues to be well-received mixing at approximately 16% during non-promotional periods and over 18% when on primary message. Promoting a premium epic burrito simultaneously was designed to enhance check and did so nicely by mixing it over 8%. We then shifted primary methods to premium crispy Jumbo Shrimp. With an added beer battered fish focus during Lent. In the last week of Q2, we introduced $5 Dels deals, which added another value layer beyond 20 Under $2. The daily out Rewards program launched about 18 months ago and is currently up to a 1.3 million members compared to 1.2 million members as of Q1. Throughout Q2, we also tested a variety of additional offers in our mobile app to drive incremental visits and frequencies, while we have seen an uptick in app engagement and use. As membership continues to grow Del Taco will also gain the ability to target guests to help drive average spend and re-order trends. Turning to operations. Through the continued focus on recruiting and the expansion of operating hours to help drive same-store sales, thankfully, we are seeing labor availability increase in most of the brand’s geographical footprint and have invested additional wages in order to increase staffing for late-night. We’re getting closer to pre-COVID levels for operating hours and are now well-above 2022 average hours per store. We have started the process of implementing the same operational focus as we have at Jack, including training and standards execution, has led to an improvement related to restaurant-level turnover in Q2. which is actually the lowest it’s been in over a year. A large first store are also showing early signs of being helped by these initiatives, with Q2 seeing the lowest number the brand has seen in well over a year. Since the Del development program launched in 2021, Del Taco has signed 14 agreements for a total of 101 restaurants. Within these agreements, two restaurants have opened, leaving 99 remaining for future development. We opened three franchise restaurants in Q2. And there are currently 17 restaurants in the permitting, design or construction phases. This includes our first drive-thru only Fresh Flex restaurant, which opens next month in New Mexico. We’re feeling optimistic about the opportunity to increase the development pipeline at Del Taco while continuing the progress made at Jack. We are making progress on the three major benefits to shareholders of refranchising Del Taco Restaurants. First, getting closer to a company-wide asset-light model. Second, capturing incremental development agreements involving both existing and new franchisees as well as existing in new markets for both brands. And third. Accretion via share buybacks from refranchising proceeds evidenced by again raising our share repurchase outlook to at least $70 million for fiscal year 2023. We completed a 17 new agreement subsequent to the second quarter. And continue to see demand with several more agreements in process. When including the 32 restaurants completed year-to-date, we expect to refranchise 65 to 85 restaurants in this fiscal year, all of which will contain at least a 1:1 ratio of restaurants purchased to restaurants developed. In fact, as part of the development agreements within the most recent transaction, both Jack and Del Taco will enter Montana and Wyoming for the first time in each brand’s history. We will continue to update regularly on our continued progress. And finally, as we noted at ICR last January, our groundwork for synergies is in its early phases, but we have made steady progress in three areas of note thus far in 2023. Media buying consolidation providing both brands with better rates and further reach. Second, supply-chain and integration, and third, the completion of the initial phase of head count and shared service consolidation, resulting in $3.8 million of EBITDA benefits, with an additional $2.3 million benefiting the full system, which is in ongoing process and assessment. Opportunities for the future include a company-wide approach to technology and digital scale benefit as well as continued supply chain and procurement projects. To conclude, we will remain focused on delivering results from the significant progress made executing our strategy to create value. Whether it be digital and assess we have made to become a formidable player in this competitive area. Unit economics in restaurant level profitability moving in the right direction. At the beginning stages of real progress against our 200 basis points ROM projected. Staffing initiatives when coupled with our topline fundamentals is driving sales, traffic and faster service levels. Refranchising and synergy, both of which are helping make our new company more efficient while driving shareholder value. And lastly, unit growth performance that is growing beyond development agreements and starting to reflect in openings. Thank you again for your time today. And I will now turn the call over to Dawn.

Dawn Hooper — Chief Financial Officer

Thanks, Darin. I will begin my review with a discussion on each of our two brands, followed by detailed and our consolidated performance and capital allocation. Finally, I will provide updates on our outlook for fiscal year 2023, as we are increasing our guidance across several key metrics.

Let’s start with Jack in the Box where Q2 system same-store sales growth was 9.5% consisting of company-owned comps of 10.8% and franchise comps of 9.4%. On a three-year basis, same store sales growth was 29.3%. The system-wide quarterly same-store sales breakdown was as follows: A 9.1% increase in pricing reflecting a sequential decrease of 90 basis points. A 0.8% decrease in transactions, reflecting a 30 basis point sequential improvement. And a 1.2% increase in mix reflecting a 230 basis point sequential improvement.

We are especially encouraged by the return of positive year-over-year mix-shift for the first time since Q3 of 2021. Transactions were supported by our hook and build strategy as well as the successful marketing of our barbell menu with culturally relevant messaging. These marketing initiatives in addition to improvements in hours of operation and ops execution have been the key driver of our improving transactions over the last three quarters.

Increasing average operating and dining room hours also remain tailwinds for the Jack in the Box system. And while company ops are leading the way, franchise ops are catching-up. Notably, a 11.5% of net sales came from digital channels, the highest in Jack’s history. The majority of digital sales stemmed from third-party aggregators, but mobile ordering on the Jack app is increasing month-to-month and web ordering is starting to build as well having launched fairly recently in Q1 of 2023. On product category, notable contributions came from sides, burgers, chicken and breakfast. All dayparts generated positive sales, but once again dinner and late night stood out the most, with late night now posting positive transactions for the second straight quarter. We are making significant headway in our objective to dominate this daypart, helped by expanding operating hours and compelling products, that resonate particularly well with our late night guests.

Turning to restaurant counts, there were two Jack franchise opening in Texas and Arizona, along with one franchise closure. This resulted in a quarter-end restaurant count of 2,187 restaurants. We are pleased to have posted positive net unit growth again in Q2, and will be further building on this throughout the back half of the year, supported by our strong and growing development pipeline. Importantly, we continue to anticipate, Jack will deliver positive net restaurant growth for the first time since 2019, and meet our gross openings guidance of 25 to 30 restaurants in fiscal year 2023.

Turning to our Jack restaurant-level margin, we expanded performance by 640 basis points to 21.4%. Notably, this is inclusive of our two remaining evolving markets, Oklahoma and Kansas City. Food and packaging costs as a percentage of company-owned sales declined 130 basis points to 31.3%, driven primarily by sales performance, led by menu price increases and positive mix shift. Commodity inflation was 7.7% for the quarter, with increases across nearly all categories except for pork and beef, with the greatest impact seen in sauces, potatoes, beverages and bakery.

Labor as a percentage of company-owned sales fell 340 basis points due to sales leverage inclusive of price increases and the benefit of refranchising Oregon and Nashville, within the last year. However, this was partially offset by wage inflation of 4.8% compared to the prior year. Recall that in Q2 2022, we’ve executed a substantial wage increase in order to attract and retain team members due to the tight labor market and are now beginning to lap that. This resulted in lower sequential labor inflation year-over-year.

Occupancy and other operating costs decreased 150 basis points to 16.8% of company restaurant sales due to leverage from higher sales in the Oregon and Nashville refranchising benefit, partially offset by higher COGS from utilities, maintenance and repair expenses, delivery fees and other operating expenses. Franchise level margin was 41.2% of franchise revenues or $73.9 million, an $8.9 million increase compared to the prior year, helped by flow through from higher sales and lower cost for bad debt expense.

Turning now to Del Taco. System same-store sales rose 3.2%, consisting of company owned comps of 3.5% and franchise comps of 2.8%. There were positive sales results in all major geographies with particular strength across the non-California franchise footprint, demonstrating our ability to drive strength in non-core markets. Del Taco’s system same-store sales breakdown included pricing of 9.9%, down 200 basis points sequentially, a decline in transactions of 3.8%, a sequential improvement of 200 basis points, and a mix decline of 2.6%, up 10 basis points sequentially.

All dayparts were positive, led by strength during snack, dinner and late night. Late night was aided by growth in delivery, which over indexes during late night hours. Staffing improvement resulted in operating hours running above 2022 levels, and we are roughly one hour per store on average lower than pre-COVID with continued upside opportunity. In Q2, there were no restaurant closures and three Del Taco franchise opening in Ohio, Idaho and California. The Del Taco restaurant count at quarter-end was 595.

Del Taco restaurant-level margin was 17.3% compared to 17.8% in the prior year. Food and packaging as a percentage of sales decreased 90 basis points to 27.5%. Tortillas, shells and potatoes drove most of the 6.8% commodity inflation we experienced and was offset favorably by chicken, [Indecipherable] and beef. Labor as a percentage of sales increased 40 basis points to 33.5%, while average wage inflation was approximately 4% in Q2. Occupancy and other operating expenses increased 100 basis points to 21.7% driven by higher utilities, increases in maintenance and repair costs and higher rent expense. Franchise level margin was $5.1 million or 37.3% of franchise revenue compared to $2.5 million or 41.7% last year.

Shifting now to our consolidated results. Consolidated SG&A was $39.4 million or 10% of revenues, compared to $28.2 million or 8.8% a year ago. Note that Q2 2023 reflected a full quarter at Del Taco, whereas last year only included about six weeks. Excluding the net COLI gains, G&A was 2.5% of total system-wide sales and within our long-term expectation. Consolidated adjusted EBITDA was $78.8 million, up from $64.4 million in the prior year due primarily to higher Jack franchise and restaurant-level margin and a full-quarter of Del Taco contribution compared to a partial quarter in the prior year, partially offset by higher G&A.

Consolidated GAAP-diluted EPS was $1.27, compared to $0.37 in the prior year. Operating earnings per share, which includes certain adjustments, was $1.47 for the quarter versus $1.16 in the prior year. Note that the effective tax rate for Q2 was 34.8%, compared to 33.3% a year ago. The operating EPS tax rate for the second quarter of 2023 was 26.7%.

Moving to capital allocation. During Q2, we repurchased approximately 200,000 shares for $18.4 million as part of our ongoing share repurchase program. And year-to-date, we have repurchased $33.4 million. We now plan to execute at least $70 million in share repurchases this fiscal year, up from $60 million previously and currently have $141.6 million remaining under our Board-authorized buyback program. On our previous call, we committed to paying down $50 million of our variable funding note this fiscal year. During the quarter, we strategically decided to accelerate the entire paydown of the balance due to our strong cash position and the current interest-rate environment. We now have approximately $172 million of total available borrowing capacity under our BFN and Del Taco credit facility.

Beyond share repurchases and paying down debt, we will also continue investing in the future of our brands, while returning cash to shareholders through dividends. To that end, on May 12, our Board declared a cash dividend of $0.44 per share to be paid on June 13 to shareholders of record as of the close of business on May 31. Of course, future dividends will be subject to Board approval. Let’s conclude with a review of our updated company-wide and segment guidance. Reflecting our revised expectations across several key metrics for the fiscal ending October 1, 2023. Our updated company-wide guidance includes the following, capex and other investments guidance of USD75 million to USD90 million inclusive of capital expenditure and franchise tenant improvement allowances and incentives is unchanged. SG&A guidance of USD170 million to USD180 million, excluding net COLI gains, which amount to $6.6 million year-to-date. This increase is primarily due to $5 billion in net litigation charges year-to-date. In addition to higher incentive based compensation. Company-owned commodity guidance is now up 8% to 10% versus 2022. Company-owned wage rate guidance is unchanged, still at 3% to 6% for 2022.

And lastly, we are raising our fiscal year 2023 operating EPS guidance to between USD5.90 and USD6.10. This includes the $0.22 negative impact from the legal charge in Q1 of 2023. As well as the 5% net positive impact from the two litigation matters in Q2 of 2023, all of which are not expected to recur. And recall this also included the $0.23 positive impact from the Hawaii transaction in Q1, which should be noted as a one-time item that will not occur in Q1 2024. In addition, note the $0.11 negative impact associated with the store-level technology and POS investment, which was previously $0.22 when we originally guided last November. And lastly, this excludes the impact from the expected refranchising of 65 to 85 total Del Taco Restaurants in fiscal year 2023.

Shifting to our brand segment guidance measures. We reiterated our expectation of positive net unit growth for Jack in 2023, led by 25 to 30 expected gross openings. For Del Taco, we anticipate positive net unit growth led by 8 to 12 expected gross openings. Same-store sales for Jack is now expected to be up mid to high single digits, which is up from our prior low single digits guidance. Same-store sales for Del Taco is still expected to be low single digit for the full year.

Turning now to restaurant level margin guidance. For Jack, we are now expecting between 19% and 21%, up from 18% to 20% previously. This assumes high single digit price increases for the year. We still estimate a roughly 125 basis point impact from our evolving markets. For Del Taco restaurant level margin. We still expect it to be 14% to 16%, inclusive of a high single digit price increase and the impact of refranchising. Jack franchise level margin is expected to now be between 41% and 42% for the year. This includes the negative impact of store-level technology platform to support POS selection, operations and e-commerce. And as a reminder, the $7.3 million or roughly 90 basis point impact from the Hawaii transaction was included in both the original franchise level margin guidance from November, as well as the current franchise level margin guidance update provided today.

On the Del Taco side, franchise level, margin is now expected to be 37% to 38%, primarily due to the impact of refranchising. Keep in mind that although refranchising is accretive via share buybacks and incremental development agreements and accretive to franchise level margin dollars via royalties. It is dilutive to the franchise level, margin percentage due to the pass through nature of rent on refranchising Del Taco Restaurants.

To conclude, strong execution against the four strategic pillars has yielded robust quarterly performance through the first half of the year, while enabling us to increase our guidance for the remainder of 2023. Of course, these results would not be possible without the combined efforts of our Jack and Del Taco teams. And we thank them for helping us continue to unlock the combined power of our brands.

And with that, we’d be happy to take some questions. Operator, please feel free to open the line for Q&A.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Brian Bittner from Oppenheimer. Your line is open.

Brian Bittner — Oppenheimer & Company — Analyst

Thank you. I just boarded a plane. So, hopefully you can hear me. But, Darin, Jack in the Box, same-store sales have significantly outperformed so far this year relative to your original guidance that you gave at the beginning of the fiscal year. What’s been the biggest drivers of the upside surprise, is it a flip in the mix or is there anything else that you’d like to describe is what’s driving this upside and what are your current indicators telling you about the health of your core consumer, as we move forward from here?

Darin Harris — Chief Executive Officer

So I think overall. Brian, it’s been a strong quarter, as you can tell. I think there is just a triangulation of things happening. We’ve had strong operations performance, we’ve had the right promotions at the right time, speaking to the right guests. And from those two things, this led to some things we’ve done in our marketing speaking to our guests. The last piece of this is t;hat our marketing and offers all three things are resonating. So we’ve had the combination of price we’ve had sequential improvement in transactions we’ve had positive improvement from mix and then the acceleration of our digital business. So all those things are working together to really drive our topline. And so we feel great about the momentum we’ve been able to maintain in our business.

Brian Bittner — Oppenheimer & Company — Analyst

Thank you.

Operator

And your next question comes from the line of Lauren Silberman from Credit Suisse. Your line is open.

Lauren Silberman — Credit Suisse — Analyst

Thanks so much. And congrats on the quarter. Would you be able to talk about the cadence of comp that you saw throughout the quarter. And any color on what you’re seeing quarter to date. I know you talked about continued momentum. And then related, any additional color you can provide on what you’re seeing across different consumer cohorts. I know the past couple of quarters, you had mentioned about regarding the strength and the low-end, high-end consumer and potentially some opportunities in the middle band. Thank you very much.

Dawn Hooper — Chief Financial Officer

Hi, Lauren, thanks for the question. I would say on the cadence on comp that you mentioned during the quarter, we really saw some favorable momentum, specifically in February and March. As a reminder, our quarter ended April 16. And trends in Q3 remain favorable, the momentum continues and we’re active on the innovation front, we have a lot of strong promotions coming in, Rib-eye Burger, we have French Toast Sticks which is always a fan favorite. So a lot of positivity going into Q3.

Darin Harris — Chief Executive Officer

And as a result, Lauren, we’ve taken the chance to move our guidance upwards to mid to high single-digits. So, as Dawn remarked, there’s really no big changes on momentum our AUV is strong and it continues to remain favorable. I mean, I think you mentioned something about the consumers. Income level — I’m sorry and the income level of our customers. What we’ve been able to do is we’ve seen really good balance between all levels of income. And most substantially over a two year basis we’re seeing heavy contribution from high income. But overall this year we’ve seen a really balanced across all levels of income and positive momentum in both sales and transactions.

Lauren Silberman — Credit Suisse — Analyst

Great, thanks so much.

Operator

And your next question comes from the line of Dennis Geiger from UBS, your line is open.

Dennis Geiger — UBS — Analyst

Great, thank you, encouraging development updates specific to the unit growth and the development agreements that you highlighted, I’m wondering if you could talk a bit more about sort of where franchisee sentiment is now on development and broadly, particularly as it relates to thoughts on the environment costs across cost pressures and interest rates and if you’re seeing any impact there obviously heading in the right direction with all the agreements. Just if there’s been any impact there Darin, and how you had done you’d kind of frame some of that up? Thank you.

Darin Harris — Chief Executive Officer

Yeah, Dennis. I think as I think about our development pipeline, the biggest positive seeing our people continue to show desire to sign agreements, where we’ve mentioned in our release and in our commentary that the pipeline for real estate continues to build. We have more locations in both permitting, all the way through construction than we’ve had in the last 10 years. So, the sentiment is positive. I think naturally as most of industry has described, we have a run-up in cost, but we’ve also had a run-up in pricing to offset some of those costs related to our sales, so all the benefits we were getting from a lower-cost model, we’ve had to makeup for in price or have been raised, because of the increasing in cost of the build. So, long-story short is favorability from the franchisees and sentiment is positive and ultimately, we’re showing it through our pipeline growth. And so, at this time, we’ve kept our guide at 25 to 30 for gross openings.

Dennis Geiger — UBS — Analyst

Great, thanks, Darin.

Operator

And your next question comes from the line of Andrew Charles from TD Cowen. Your line is open.

Andrew Charles — TD Cowen — Analyst

Great, thank you. Darin, we get a lot of questions around what is different today for Jack in the Box versus the brands more challenged 2008 2009 experience that of course pre-date your time in the company and it’s good to hear about the crave you mentioned that you’re seeing in 3Q. But hypothetically, if we were to see a more challenging macro for the industry, which part of crave playbook would you anticipate leaning into more to help preserve traffic?

Darin Harris — Chief Executive Officer

I think for us it’s balancing our barbell approach to both premium, which we’ve seen working, but also having a very strong value offer that drive people into the restaurant, so we’ve been deeply in the middle of our Value Menu, things like $5 Jack Pack. We also have highlighted things like munchies under $3 as a way to drive the value, but also combine it with a premium promotion like we did with the Ribeye Burger or Popcorn Chicken and then beyond that I think, we’ve been really strong in driving our digital business compared to pre-pandemic and 2008. I think that helps us as far as driving check and substantially increasing our overall AUV and ticket.

Andrew Charles — TD Cowen — Analyst

Well, thanks.

Operator

And your next question comes from the line of Gregory Francfort from Guggenheim Securities. Your line is open.

Gregory Francfort — Guggenheim Securities — Analyst

Hey, thanks, maybe a just follow up to Dennis’ question. I would imagine you’re starting to get a look into what the development pipeline looks like for 2024 and openings. And do you expect acceleration in 2024, do you expect that to start to play-out and in short, maybe just a little bit about franchisees balancing remodel capex versus growth capex and the way to fund that. Thanks.

Darin Harris — Chief Executive Officer

Yeah. I think, as I mentioned, our pipeline, we’ve already have a line-of-sight into 61 restaurants. That between now and the end of next year that are in the permit — permitting and design and construction phases. So we have a very strong pipeline. Some of those obviously could get extended beyond ’24. But the pipeline. Is as strong as it’s ever been at Jack in the Box. From a standpoint of — related to Reimage, and Franchisees balancing between reimage and development at this point. It’s a balanced approach. Most of our franchisees have shown the interest in growing and that would be the primary factor as to where their capital dollars are going and over time as we begin to prove out our remodel program, I anticipate more and more franchisees will participate. Because of the return on investment from that opportunity.

Yeah, we’re in the early stages of our reimage program at this point. We rolled it out, we had 71 of the 405 forms submitted to move to permitting and those, we have five of those remodels opened or reopened this year and so we will be able to report on the progress. And we anticipate pretty strong return on investment and at the same time, the company has created this testing our crave reimage, and we’re going aggressively into the craved reimage program and so we’ll be able to report on results that I think will, increase the momentum of the system to one of few more reimages but not at a lack of desire for growth.

Gregory Francfort — Guggenheim Securities — Analyst

Okay. Thank you.

Operator

And your next question comes from the line of Chris O’Cull from Stifel. Your line is open.

Chris O’Cull — Stifel — Analyst

Thanks, good morning, Dawn, I wanted to make sure we understood your comments about sales momentum continuing into the third quarter. Just wondering if your implying comps are still up in that high-single-digit range and then how much pricing will the company stores have during the last two quarters and maybe give us any commentary, you think about menu mix change.

Dawn Hooper — Chief Financial Officer

Yeah. I think we’re just going to say that momentum continues to be favorable. And as far as pricing, we guided pricing being up high single-digits pricing through Q1 and Q2, it is about 9.7% for the Jack brand, so. Kind of continue at that higher-level. However, if you recall, the most substantial pricing, we took was in Q3 — in Q4 last year. So the rollover pricing is going to decrease as we progress throughout the year.

Chris O’Cull — Stifel — Analyst

Okay, thank you.

Operator

And your next question comes from the line of Alex Slagle from Jefferies, your line is open.

Alex Slagle — Jefferies — Analyst

Thanks. Congrats on the quarter, with the outlook for 65 to 85 units to be refranchised this fiscal year. Does this alter your view on the longer-term opportunity for 120 over a three years. I mean, perhaps it’s premature to talk about that, but it would seem you’re happy — happier about the kinds of evaluations and development agreements you’re seeing. So any color on how you’re thinking about the opportunity beyond this year?

Darin Harris — Chief Executive Officer

Yeah, at this point, our focus on the refranchising transactions that we’ve provided the guidance that a 120 over three years, we’ve had offers on every market, we like the valuations that we’ve received. They are accretive and so what we shared is that they’ll probably move faster than the three years, as we get through this early-stage of the 120, then we’ll update you on the further or the next steps related to our overall refranchising strategy. And with that, as we’ve stated before, that we will use proceeds towards share repurchases. And you see in this report, we increased our guidance to at least $70 million in share repurchases this fiscal year.

Operator

And your next question comes from the line of Eric Gonzalez from KeyBanc. Your line is open.

Eric Gonzalez — KeyBanc — Analyst

Hey, thanks for the question and congrats on the quarter. My question is about your guidance given the momentum that you’re seeing here as you head into the third quarter. I’m wondering whether you might be being a bit conservative with the outlook for the second-half, just given that you delivered low-double-digit EPS growth in the first-half and. I think the midpoint of guidance implies EPS would be down mid to-high single-digits in the back-half. Obviously, you’re lapping the Del Taco acquisition, but maybe if you can comment on that assumption. And then call it any other one-time items that we should know as we think about the next few quarters. Thanks.

Darin Harris — Chief Executive Officer

Yes. I don’t know that. I have an opinion to say that there’s anything conservative or otherwise. We’re focused on our guidance, we’ve shown that we have pretty results on the scoreboard. And we’ll continue to keep strategy and so far [Technical Issues]

Operator

And your next question comes from the line of David Tarantino from Baird. Your line is open.

David Tarantino — Baird — Analyst

Hi, good morning. Darin. I think you referenced in your prepared remarks some pricing analytics that you are doing and helping the franchisees with better. I guess technology around pricing, so. I was wondering if you could elaborate on that and also talk about really the outlook for pricing, do you think you can price or your franchisees can price ahead of inflation to try to recoup some of the margin pressures they’ve had or profitability pressures they have or is this more of a strategy to just offset the inflation you’re seeing and drive margins through some of the productivity initiatives you mentioned. So any color there would be great.

Darin Harris — Chief Executive Officer

Yes, so. I think I’ll start with the latter part of the question first. And that is. What we’ve been able to do with pricing is cover this year’s inflation and what we’ve seen in food and wage and so that was our focus as going into this year and make sure at least through pricing covering this year’s inflation and then through other means, whether it’s operational performance better discipline around how we look at mix, and what we’re promoting, chip away at last year’s inflation. And we’ve been able to do that on both brands and make-up for some of the margin we lost in 2022, so that’s been our focus now. About 16 to 18 months ago, we’ve built an internal pricing team, we’ve supported them with technology tools and machine-learning, so that we can go in and we can understand the ability to find strategic pricing opportunities by store, by market. and do competitive benchmarking. So we’ve been able to find each quarter different opportunities related to pricing and that’s where we remain focused is how do we find by store, by market and by product, an opportunity to price more strategically and make sure we’re in-line with the competition versus just historically approach with looking at pricing sensitivity and in spreading our price across the whole menu. So now we’re looking specifically by item and by market.

David Tarantino — Baird — Analyst

Great. Thank you very much.

Operator

And your next question comes from the line of Chris Carle from RBC Capital Markets, your line is open.

Chris Carle — Chris Carl — Analyst

Hi, thanks, good morning. So Darin, can you expand maybe a little bit more on the progress you made in staffing levels and in-restaurant operations and maybe help us better understand to what extent do you think that’s providing a tailwind to the momentum you’re seeing at Jack here. And then just relative to the other initiatives you have in place. Thanks.

Darin Harris — Chief Executive Officer

As far as from a staffing standpoint, what we’ve seen is at, Jack, on the company-owned side, It’s been working since we implemented our playbook. We’re at pre-COVID levels in staffing actually exceeded those on the company side of the business. Our franchisees have been following that playbook and making up for some of that lost ground. We’re about 0.6 hours away from being at pre-COVID levels on the franchise side of business. So we’re definitely seeing improvement there on the Del Taco, we’re about an hour off of pre-COVID levels and the team has really made-up some progress over the last quarter and a half using sort of the same playbook and their own. And so we still think there’s upside from a Q2 standpoint. We think we had about a 2% impact to same-store sales and a positive — from a positive standpoint. And then we still think there’s opportunity in the back-half of the year. Great, thanks.

Operator

Your next question comes from the line of Brian Harbour from Morgan Stanley. Your line is open.

Brian Harbour — Morgan Stanley — Analyst

Yes, thank you and good morning. Can you just maybe comment on the mix component of same-store sales and. Is that more about channels you delivery, it sounds like it’s still performing well or anything in customer behavior you’d call out or just was it some specific promotions that drove that?

Dawn Hooper — Chief Financial Officer

Yeah. I mean, we were very pleased to see the favorable mix return up 1.2%. Favorable to Q1 performance, I’d say that we’ve seen positive for the first time. I guess since Q3 of 2021, so six quarters. We’ve seen more guests move into the premium items. That is contributing to some of that benefit that we’re posting.

Darin Harris — Chief Executive Officer

That’s the bonds comment. We’ve been balancing between an innovation item and core. And what we’ve seen is a carryover effect when we promoted core that it reminds our guests, of the product that they love, such as our Baking Ultimate Cheeseburger. And we saw that carry-over into this quarter of more guests ordering that premium product.

Operator

And your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Jeffrey Bernstein — Barclays — Analyst

Great, thank you. Darin, just to want to follow-up on the franchisee pipeline of unit opportunity and their health in more broadly. on The pipeline. I think you said you have like 60 or so Jack units that are in permitting, design and construction, which presumably. I guess is double the 30 gross units you’re expecting this year, although I’m not sure if that 61 inclusive in it, but with 18 months type pipeline needed to open up a new-store, it doesn’t seem like the growth in fiscal ’24 will be that much more than ’23, so just trying to gauge. I know your prior target was to get the 4% plus net unit growth in ’24, I would think that that’s been delayed a little bit, but just trying to get your expectation for how many do you think gross openings, you could have in ’24 and whether it’s any risk that franchisee balance sheets are elevated or they’re becoming a little bit more cautious that the openings might lag the commitments? Thank you.

Darin Harris — Chief Executive Officer

We will guide ’24 later in this year as we typically do and then provide longer-term guidance at our Investor Day. Overall, as I mentioned, we are positive about the pipeline, the pipeline that we’ve seen at Jack in the Box is the strongest I’ve seen since my tenure and in the last 10 years, we’ve approved more sites as I mentioned in my commentary in the last three to four quarters than we have in prior three to four years, so. All of those things point to a stronger pipeline of growth. We are definitely. and I think the industry is seeing this that the time from site to open, it’s taking longer because of labor because of manufacturing challenges in getting equipment. But overall, the key is to fill the top of the funnel and that is our commitments. Then with sites and get stores in that design and permitting process so we can get them open. And so, 61 for us, like I said, it’s the most we’ve had in our pipeline at this point in 10 years at this stage with more coming behind it from a site approval standpoint. So we feel really good about where we are. It has taken longer in the site we should build stores is not as efficient and that’s where we’re spending our time, how do we make the pipeline, more efficient from the time when site comes in to opening. And it will continue to focus on our guide of 25 to 30 in 2023.

Jeffrey Bernstein — Barclays — Analyst

Thank you.

Darin Harris — Chief Executive Officer

Well, hey —

Operator

And we have — Please go-ahead.

Darin Harris — Chief Executive Officer

Well, thank you again for joining the call today. We were really excited about this quarter, how we performed, we believe that the strategy that we have in place is working. We felt that it was showing in results. And that next quarter we anticipate our performance to be strong as we see strong momentum. And so we look forward to seeing many of you this summer on the road at conferences and we look forward to the next time we speak in August for our third quarter 2023 earnings call.

Operator

[Operator Closing Remarks]

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