Jack in the Box Inc (NASDAQ: JACK) Q3 2021 earnings call dated Aug. 04, 2021.
Corporate Participants:
Chris Brandon — Investor Relations
Tim Mullany — Executive Vice President and Chief Financial Officer
Darin Harris — Chief Executive Officer
Analysts:
Brian Bittner — Oppenheimer — Analyst
Lauren Silberman — Credit Suisse — Analyst
Greg Frankfort — Guggenheim — Analyst
Jared Garber — Goldman Sachs — Analyst
Dennis Geiger — UBS — Analyst
John Glass — Morgan Stanley — Analyst
Chris O’Cull — Stifel — Analyst
Jeffrey Bernstein — Barclays — Analyst
Brian Mullan — Deutsche Bank — Analyst
Andrew Charles — Cowen — Analyst
David Tarantino — Baird — Analyst
Jon Tower — Wells Fargo — Analyst
Eric Gonzalez — KeyBanc Capital Markets — Analyst
Jake Bartlett — securities — Analyst
Jeff Farmer — Gordon Haskett — Analyst
Alex Slagle — Jeffries — Analyst
Nick Setyan — Wedbush Securities — Analyst
Presentation:
Operator
Good day, everyone and thank you for standing by. Welcome to the Jack in the Box, Inc. Third Quarter Fiscal 2021 Earnings Conference Call. My name is Jesse, and I’ll be your conference operator for today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management from Jack in the Box will conduct a question-and-answer session, and conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. A replay of the call will be available on the Jack in the Box corporate website, starting today.
I’ll now turn the call over to Chris Brandon, Vice President of Investor Relations. Sir, please go ahead.
Chris Brandon — Investor Relations
Thank you, Jesse and good afternoon, everyone or evening depending on where you are. We appreciate you joining today’s discussion highlighting our third quarter 2021 results.
On aside note, I am very excited to be a part of this earnings call my first with Jack in the Box. 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 conference analysts.
During our prepared remarks and the Q&A portion of today’s call, we will refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today’s earnings release which is available in the Investor Relations section of our website at www.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 available on the Investor Relations section of our website.
A few brief housekeeping items before we get started, a reminder that the current year has a 53rd week, which will factor into our upcoming fourth quarter 2021 and its year over year comparison. We will provide more detail on this related to our results and as a reminder, this will not have an effect on same store sales, but will have impacts on among other things, system wide sales, revenues, and earnings.
Next and hopefully this is good news, we will be changing our earnings release and call times going forward beginning with Q4 in November. On Earnings Day, we will be putting out our release, our earnings release at 8:30 AM Eastern time. And on that same day, our conference call will begin at 10:30 AM Eastern time. In addition, Jack has historically had a quiet period of one month prior to the earnings calls. That will now change to a two week quiet period.
So beginning in November, note that we will now be able to have analyst and investor interaction up to two weeks prior to our earnings released and call. Lastly, I’d like to quickly review our guidance updates included in this afternoon’s earnings release. As a reminder, going forward, we will be providing new annual guidance each year for four items, CapEx and other investments, G&A, commodities and labor cost outlook. These annual measures will be introduced at our fourth quarter earnings typically around November and updates to those annual measures will be provided at our second quarter earnings, typically around May.
In this afternoon’s earnings release, we provided the following updates 2021 CapEx of $40 million to $45 million, which was previously stated at Investor Day and does not include other investments, which will be included beginning with our 2022 guidance, 2021 G&A of $71 million to $76 million. This G&A guidance omits our net COLI gains or losses and going forward, we will be providing this in a dollar range rather than a percentage of system sales.
2021 commodity outlook is up 4% to 5% compared to 2020 and 2021 labor costs outlook is up 7% to 8% compared to 2020. Our three to five-year outlook related to comps, unit growth and system wide sales metrics, which all factor into that outlook beginning in 2022 remains the same as what we provided at our Investor Day in June. And as we stated then all other outlook measures we had provided previously for 2021, particularly related to EBITDA are no longer a part of our guidance going forward.
Also this morning for additional visibility, we provided a CapEx and other investments guidance range for 2022. Tim will speak to this further in his prepared remarks. And with that detail 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 and Chief Financial Officer
All right, thanks, Chris and good afternoon, everyone. We’re excited to discuss our third quarter results with you today. Overall, we had a very strong quarter of top line results helping us in our effort to continue to drive top tier, very strong top line results, helping us to continue to drive top tier unit economics and store level returns for our franchisees, positioning us for the future of growth that Jack has been capable of for decades. We remain as focused as ever on getting our fundamentals into place to accomplish just that.
Turning to our results; overall, our franchisees, operators and restaurant managers generated strong operating results leading to a diluted EPS of $1.79 for the third quarter, a 26.1% increase from the prior year. I’ll provide some detail on the components of these earnings. System wide sales grew 10.6% as compared to Q3 2020. As a reminder system wide sales includes both comp and net unit performance. Our system wide sales in Q3 were also benefited by restaurants that were temporarily closed for remodels a year ago, but contributed to what our results this quarter, as well as high volumes at our newly open stores, which helped offset the negative store count.
Our same store sales performance in Q3 was outstanding growing 10.2% while lapping a prior year increase of 6.6%. Breaking down the cop, our franchise business increased 10.3% in the quarter while our company operated stores were up 9.0%. The comp this quarter was driven by a balanced mix of book check and transaction growth. This was our second consecutive quarter of traffic gains held by our strong value platforms and LTO offerings. While average check growth came from premium menu items, maintain strengthen items per check, as well as some price increases at the store level.
Shifting to unit count, we opened four stores during the quarter and closed 13. Most of which included agreements for offsetting locations, as we continue to take the needed steps to make our system more efficient. Keep in mind that in most cases, these stores continue to pay both royalty and rent contribution until the offsetting locations become operational.
As you may have seen in our Thank You filing this afternoon, we stepped in to take over operations of 16 stores in a non-cash transaction all of which are located in the State of Oregon. Our goal was to eventually have these stores back in the hands of franchise operators, but in the meantime is a prime example of our strategy to when necessary take in under resourced stores in markets we know we can improve and grow. This process will continue as we get our fundamentals positioned for growth and it’s reflected within our three to five years unit growth guidance. We remain very confident in our target of 4% unit growth in 2025. And in the meantime continue to develop, improve out the fundamental strength and best in class unit economics to get us there.
Revenues for the third quarter, we’re nearly $270 million up just over $27 million or 11.2% from the prior year quarter. This increase was primarily driven by higher system-wide sales led by strong same store sales across the board. Restaurant level margin remained flat at 25.4% or $23.4 million while franchise level margin improved to 43.3% or $76.9 million. Sales leverage was offset by increases in wages, commodities, packaging, delivery fees and maintenance costs in our company-operated restaurants while higher royalties and rent revenues from strong cops contributed toward the increase in our franchise margin.
G&A expenses increased approximately $7.4 million as compared to Q3 2020. This is due to increases in litigation accrual, insurance costs and lower net COLI gains. Excluding net COLI gains of $2.6 million in Q3 versus a $3.9 million gain last year, G&A increased by $6.1 million. And as Chris mentioned, our annual G&A guidance measures assume a neutral or zero net COLI impact.
Our reported effective tax rate as a percentage of earnings from continuing operations before income taxes was 23.1% for the quarter as compared to 27.9% in Q3 of 2020. This was primarily due to a decrease in the impact of certain non-deductible expenses an increase in non taxable gains related to COLI policies and release of reserves on uncertain state tax credits and losses.
When you combine all of these elements, net earnings increased to $40 million for the third quarter compared with $32.6 million a year ago. And adjusted EBITDA was $79 million in the third quarter, compared with just under $73 million from the prior year quarter. Our diluted EPS in Q3 was $1.79 versus $1.42 in the prior year an increased the 26.1% or $0.37 per share. Breaking down that $0.37 increase a bit, most notably earnings from operations benefited us by $18 cents a lower diluted share account through the buy share repurchases benefited us by $0.05. I’ll provide more detail on share repurchases in a moment.
Net interest expense positively impacted us by $0.02 cents, mostly related to our BSN activity a year ago. The lower effective tax rate positively impacted us by $0.11. And lastly, other various items impacted EPS about $0.01 of positive impact.
Now shifting to cash, our top tier economic model remains strong and it continued to generate significant free cash flow throughout the quarter. Year-to-date we have generated attractive net cash provided by operating activities of approximately $150 million. After deducting for CapEx, we have generated free cash flow of approximately $115 million. Also year-to-date, we have spent approximately $35 million on CapEx primarily toward lease right of first refusal transactions. And remodel refresh of company operated restaurants.
During Q3 and including the first week of Q4, we repurchased approximately 577,000 shares for $67 million or approximately $116 per share on average bringing our total 2021 year to date repurchases to $132 million. As of today there’s $68 million remaining under the board authorized stock buyback program. Additionally, during Q3, we returned $9.8 million to our shareholders in the form of $0.44 quarterly dividend payment bringing our 2021 year to date total dividend payments to approximately $28 million.
I also wanted to touch briefly on the CapEx and other investments guidance range we provided this morning of $65 million to $75 million for 2022. As a reminder, beginning with this guide, all annual CapEx and other investments, guidance will include two main items that’ll be capital expenditures and franchise tenant improvement allowances and incentives. To help visibility, we thought providing us guidance earlier than expected as it will typically come at our yearend earnings will be helpful in framing up a focal point of our investment outlook for next year.
I’d like to summarize by noting our performance related to the Four Box financial strategy I talked about at our Investor Day in June. First, driving operational excellence. I am particularly pleased that our ability to deliver strong operational and margin performance yet again, demonstrating the strength of our proven free cash flow model in Q3.
Second system-wide sales growth; this will be the key metric to measure our progress against balanced top line sales plus unit growth performance. We had an outstanding quarter driving double-digit system-wide sales growth and our future upside opportunity within unit growth has me optimistic that we can continue to perform well in this area.
Third, funding investments. As we discussed at Investor Day, we are leaning in where needed which will be necessary in getting our fundamentals to a meaningfully improved place or unit development and growth are delivered on a consistent basis. Look for us to continue to be disciplined yet front footed in this area.
And lastly returning capital to shareholders, we will continue to manage the balance sheet and use of cash efficiently, whether in the form of dividends repurchases or incremental business investments, always through the lens of strengthening franchisee profitability and maximizing shareholder return.
In closing our business continued its strong performance during the third quarter, demonstrating the strength of our economic model at both the company and store level. We continue to focus on operating efficiently, investing wisely and building fundamentals for long-term growth.
Thank you again for joining the call today. And now I’ll turn it over to Darin.
Darin Harris — Chief Executive Officer
Thanks, Tim and good afternoon, everyone. Appreciate you joining us today. Our earnings call today marks one full year of reporting on performance and results each quarter as CEO Jack in the Box. And what a year it’s been. I’m extremely pleased with our accomplishments over the last year. We built a talented new management team, our sales performance has been impressive.
Our digital business has grown We’ve proven our ability to drive strong earnings as a company and most importantly we’ve driven increased profits for our franchisees. Our relationship with our franchisees continue to strengthen as our alignment with them about the brand’s direction solidifies. So with that said today is a good opportunity for me to reflect on some of my thoughts and priorities in my first year leading Jack in the Box. And before discussing the quarter specifically there are a few things I’d like to highlight.
First I thoroughly enjoyed the time spent developing relationships with our franchisees and I truly feel that the partnership between our franchisees and our new management team is off to an outstanding start. Our strategic foundation of serving our people and franchisees well is really beginning to take hold and although we still have opportunities, our entire team is energized by reengaging with our franchisees and treating them as partners in strategy.
Recently we attended the National Franchise Association event in Nashville it was a great opportunity to connect with franchisees in-person and meet their families and this month we have the opportunity to bring the Jack family back together again at our upcoming franchise business meeting where we have the opportunity to celebrate our 70th anniversary, you heard directly from our franchisees at our Investor Day last month and hopefully got a sense for their excitement, the alignment, the positive energy and store returns combined with excitement around our new store prototypes, strong marketing, our digital and loyalty innovation have our franchisees operators and management team as ready as ever to execute on our growth potential, I’m impressed every day by our energy and culture both as a brand and as an organization as an organization.
We know what we are here at Jack unexpected and out of the box and I love that the fun and enthusiasm you sense from our marketing communications and brand identity externally is exactly the same as what I observe from our talented teams internally, the teams are scrappy were a challenger brand, a street fighter in a boxing match, if you will. This persistence and determination make us unique and it truly energizes me and my team.
And lastly I’m thrilled that the team we’re building and the way we have aligned on the need to take a step back and think about our fundamentals for growth. We are attacking the elements of the business that need to be improved for us to meet our growth potential, we realize the importance of mending a broken franchisee relationship and immediately went to work on repairing it, we realize the importance of unit economics and providing such strong returns that franchisees can’t wait to build more restaurants.
We realize the importance of a clear brand position and a focused long term strategy and most importantly communicating this clearly both internally and externally, we realize it is time to lean in on investments, innovation and listening to our guests more. We’re committed to investing aggressively in store improvements and new store build, innovating via digital operations and menu and we’re building out a much stronger, more robust data and analytics team to ensure we never take our eye off the ball and putting the feedback and insights from our guests before our own.
And lastly, Im determined to make sure it’s clear that Jack in the Box is anything but just another burger player whether it be an existing market or territory, a new market that we may be entering for the first time, the uniqueness of our brand, our menu our day part, value and premium offerings and most notably uniqueness of our overall guest experience is something we can never let our sales, or most importantly our existing or potential guests lose focus on.
I can’t express enough how pleased Im with the progress we’ve made on all of these fronts. We couldn’t have made so much progress in such little time without outstanding leadership a team energized and committed to a new path forward and a group of franchisees willing and ready to roll up their sleeves and help us get better.
All-in-all to say I’m excited about the opportunity to lead this brand is a tremendous understatement. And while we are just getting started there is tremendous amount of work still to do, I am encouraged by what we’ve accomplished thus far in our journey of getting our fundamentals in a position to expand. And we’re extremely optimistic that the time has truly come for this brand to reach its full growth potential. Our next step is to execute on the Show Me story related to unit growth improving. Something I am fully committed to achieving.
Now turning to a few quick thoughts on the quarter itself, overall, we had a very strong quarter of top line results which only helps our effort to continue to drive a top tier unit economics and store level returns for our franchisees. Our double digit same store sales performance is certainly a credit to Ryan Ostrom and his marketing team which is what I would consider their first full quarter executing as a team delivering very strong sales via nice mix of traffic and ticket.
I’m excited about what this team can continue to accomplish not just for existing guests and markets but in introducing the Jack brand experience to unfamiliar markets and new potential guests. In addition to the breakfast day part late night performed well yet, just again a trend we have seen in the business, things have started to reopen and people have started to get out and about more like usual, late night is a tremendously exciting opportunity for our business an area where we can truly differentiate and establish category leadership, there’s a compelling way to prove out not just another burger player philosophy and is something we will continue to dedicate energy and focus on going forward.
On the promotional front a popcorn chicken offering was a definite highlight only offset by the fact that it almost performed too well and you know as a former operator it drove me crazy that we weren’t able to continue with a product that our customers were clearly craving. But I was pleased to see our team responded, we made a very nice pivot to our biscuit sandwich platform which also performed well and maintained our top line momentum, this was yet another reminder of how well equipped we are to continue to activate to get innovation and platforms around chicken, expect more of this in the future.
We saw particular strength in our dining and carry out businesses as things continue to open, all highlighted by the reemergence of traffic gains which as Tim noted marked our second consecutive quarter of positive transactions, it may not sound like a lot but considering the trends and behaviors in much of the industry’s reliance on tickets to create sales growth, I was pleased to see more of a balance.
This is not only something we are very capable of consistently due to our ability to provide both value and premium offerings to guests who want it, but it is also certainly the most sustainable way for us to grow sales and compete.
Sales and compete.
Before we wrap up and take your questions, I’d like to introduce a new way for us to best summarize and gauge quarterly performance against our long-term strategy that was presented at Investor Day. So expect each quarter for me to review our performance against our four pillar strategy. First, building brand loyalty. Highlighted by the launch of our Jack Pack Rewards program during quarter 3, something simple to opt in — opt into, simple to earn and simple to redeem.
In addition to the experience and uniqueness we offer our already existing loyal fan base, the loyalty program hopes to take this important pillar to the next level. This is also a strong boost to our digital ordering experience as a whole. When we see a better guest experience, higher frequency, a stronger food add-on, helped by the visibility and interaction with our unique menu, digital remains a strong opportunity for us in maximizing guest satisfaction as well as creating sticky, frequent customer behavior. We have grown our digital database 30% thus far in 2021 alone and are excited to soon hit the mark of 10% sales coming from digital channels.
Next, driving operational excellence. Tony Darden joined us for Investor Day Q&A is up and running and spent a significant portion of his time training in our local restaurants recently. I’m very excited about what his leadership can bring to the table and encouraged by the way he fully understands the uniqueness of our brand experience and has already dialed-in and focused on how we maintain it.
At the same time, he’s thinking about how we create simplification and what it needs to boost service and profitability. His arrival was also a timely sense, and much like the remainder of the industry we continue to be pressured by labor and hiring which has impacted store hours and service levels, Im pleased with the way we’re managing through this but certainly keeping a close eye on ensuring our consistent execution and service levels remain as strong as possible considering the headwinds.
Third growing restaurant profits, as I stated at Investor Day, this is an obsession for our management team which is why it will now be a transparent annual disclosure going forward, unit economics are key to our unit growth potential. No question about it and it’s a big part of the job that I have that excites me which is seeing our franchisees generate strong returns, building fundamentals to support and sustainment economic and gets a place where franchisees grow organically within our system is certainly our end goal and we are on our way.
Lastly and on that note our fourth and final pillar is expanding Jack’s reach which is undoubtedly something everyone on this call shares as a priority and a focus toward our future. We have now completed signed development agreements for 64 restaurants thus far in 2021, we announced at Investor Day our plan to reach 4% unit growth in 2025 and our aspirational goal of operating in 40 states by the year 2030, we will get there by learning from our past to improve fundamentals, solidifying our unique brand position to potential guests in a strong fashion and most importantly providing a franchise opportunity like no other in QSR.
In closing I’ve personally never been more energized in my entire career than Im about This team that we ve built. The franchisees and operators I’m fortunate enough to partner with and this brand that and its 70 year history – and its 70 year history has never been in a better position to grow and bring its unique experience to all who want it.
And with that we are happy to take your questions.
Questions and Answers:
Operator
[Operator Instructions] Speakers, our first question is from the line of Brian Bittner of Oppenheimer. Your line is now open.
Brian Bittner — Oppenheimer — Analyst
Thanks good afternoon Darin and Tim I appreciate the color on the 2022 CapEx and other investments as I know it’s been a topic of discussion in the investment community. When we – when we think about the 2022 CapEx in the order of $65 million to $75 million how much of this is tenant allowance and incentives and how much of this is core CapEx kind of as it relates to the 2021 gains of $40 million to 45 million
Darin Harris — Chief Executive Officer
Yeah I think the way – the best way to look at that is we gave guidance relative to 2021 at $40 million to $45 million of the core CapEx and that’s exclusive of tenant improvement allowances and incentives with 2020 to being $65 million to $75 million inclusive of those items. And then on Investor Day we also gave a range of unit growth over the five year long-term span of going from 1% up to 3% on a long term CAGR.
So basically what that’s suggesting is that there s going to be a process and a timeline of building up the pipeline which you wouldn’t anticipate a sizable or a radical increase in corporate store CapEx in 2022 contributing to that $65 million to $75 million. So I think it’s the company CapEx will be relatively consistent with prior years. And as we rollout next year this new franchise tenant improvement allowance and incentive program you’ll see that slowly start to ramp up as well.
Brian Bittner — Oppenheimer — Analyst
Okay, thank you.
Operator
Next question is from the line of Lauren Silberman of Credit Suisse. Your line is now open.
Lauren Silberman — Credit Suisse — Analyst
Thanks so much. My question is on average check. I think it’s up about 25% on a two year basis. Can you expand on that dynamic that continues to drive that check? How you’re thinking about the sustainability into next year. And then you’ve talked about making gains with the higher income consumer throughout pandemic. So to what extent are those gains contributing to the average check growth and does that give you added confidence in your ability to retain the check. Thank you.
Darin Harris — Chief Executive Officer
Average number of items per check has been holding steady from comparative growth that we saw early in the pandemic. So we’re staying pretty consistent and steady between at 4.2 to 4.3 items per check. And our core premium items such as Salted Jack and Buttery Jack continue to help sales our value items such as Tacos and Jumbo Jack support growth and we’ve seen good movement to back to normal levels of checks under $5 and continued improvement for the check over $5.
And so what we re seeing now with the overall performance from a standpoint of higher income demographic, is we re holding on to that customer and we re seeing less churn. So we re holding on to those new customer that we ve acquired since COVID, although rising somewhat the churn what we re really pleasantly surprised by is that we’re still net positive for these new customers. The other thing that we find interesting is frequency of these new and lower frequent guests, we’re seeing it grow. And then our high frequency guest, we’re holding steady on.
Operator
Next question is from the line of Greg Francfort at Guggenheim Partners. Your line is now open.
Greg Frankfort — Guggenheim — Analyst
Hey, with the risk of telling for this but the — just a clarification of what the guidance implies for fourth quarter G&A specifically just does a lot of moving pieces and that would be helpful. And then my question is there was a lot of concern that limited service would lose share back to a full service as the economy opened up or fast casual players, that doesn’t seem to be happening in the US through this earnings season. What are your thoughts Darin on just why trends in QSR maintain where they aren’t to your basis even as the best economies come back, or where that share may be coming from? Thanks.
Darin Harris — Chief Executive Officer
I’ll take the first piece of that so relative to our guidance on G&A, so we’re providing 2021 full year or fiscal year G&A in a range of $71 million to $76 million and that’s net excluding net COLI gains and losses in that forecast. And just to note, we have shifted how we provided this guidance. Year-to-date, we re at $46 million. So that’ll give you some context for Q4. We are shifting how we provide this guidance from a percent of system-wide sales to this dollar range to help you kind of hone in with a little bit more precision there. So, hopefully, what we provided kind of gets you there.
And then to the second part of the question, I think you — you kind of referenced more industry-wide as far as the shift of consumers back to higher income or not higher income, but more to casual or upscale restaurants. And I think there s been a fundamental shift overall in behavior and that is with digital and our — our business continues to grow from a digital standpoint.
I definitely have seen I think we’ve created some behaviors by bringing some customers back, as I mentioned, our new customers and our infrequent customers. We’re seeing their frequency go up which is hopefully we’ve introduced them to new flavors and new experiences that Jack that keep them wanting to come back and trade some of their former dining dollars into QSR because of the experience and the flavors and the quality that we’ve given them.
And so, that’s part of our overall crave strategy here at Jack in the Box is to drive guests to our restaurants that have crave-able products that want them — that — that keep them coming back. And so I think that’s a part of it between digital and just making the right product introductions to innovation and value.
Greg Frankfort — Guggenheim — Analyst
And just to follow-up a note on the year-to-date G&A, that $46 million number you re increased gains, COLI gains are net of $9 million. So excluding those $54 million leading in to that so excluding those $54 million leading in to that $71 million to $76 million full fiscal year guidance.
Operator
Next question is from the line of Jared Garber of Goldman Sachs. Your line is now open.
Jared Garber — Goldman Sachs — Analyst
Great. Thanks for the question. I wanted to flip back to the unit growth side. Darren I appreciate you guys giving us some of the color on this development pipeline in those 60 units or the 60 agreements that you signed. Can you help frame for us I guess a couple of things with respect to the unit growth. I guess what’s the time frame that we should be thinking about those 60 units opening, is that something that we should expect to see 60 units at least open in 2022.
And then can you comment a little bit further on the pace for the — what you are seeing on the closure side, and how we should be thinking about the net — kind of the net growth in 2022. I know you’ve given us sort of that 1 to 3 unit guidance. But wanted to just get a better sense of what you’re seeing maybe on the ground with franchisees.
Darin Harris — Chief Executive Officer
Sure. As far as the potential development units, so there are more to start to create a lead indicator for future growth. And that s not designed to say by next year all those will open. Those are spread out over time and so we haven’t provided guidance yet on what our opening goal be for next year. But what I can tell you is that with the improvement in our economics year-to-date we’re up about $90,000 in just overall unit economics, the franchisees are aligned. They’re showing the desire to grow. And I anticipate another good quarter with more development agreements coming.
So they’re expressing it through showing their interest in developing that time to build that pipeline as you all know as natural. We’ve already been building it. We’ve already seen an increase in the coming in. But it takes a good 18 to 24 months to really start to see that come to fruition. I anticipate we’ll see the start of that next year but all those 60 are not in one year. We will also be announcing development agreements as they occur.
I think the other thing that you had mentioned it about closures and I think this is a good one about closures and I think this is a good one to make sure we address very clearly. We don’t anticipate outpacing our historical averages. We’ve seen as we’ve mentioned on prior calls a discussion around anticipating closures to increase this year as we work through opening up communication lines with franchisees.
And what you can’t see is I think Tim described it in his – in his description of the call is that a lot of these have offsets where we’re getting royalty and revenue until future units open. And that’s part of the overall discussion as we think about portfolio optimization. What is the right thing to do for the franchise and what is the right thing to do for the brand for the long-term. But that doesn’t mean we can just close the unit not expect that we lose the royalty and/or revenue from rent. So we’re working hand-in-hand with franchisees to make good decisions for the future of this brand.
Tim Mullany — Executive Vice President and Chief Financial Officer
And just to follow-up on that, so again of the 13 units that closed in Q3, seven of those included those future offsetting locations that Darin mentioned. We continue to see economics from until those offsetting locations open. And then the remainder of those 13 closures are relative to agreement expirations on the franchisee’s side. So I think we’re again leaning in securing the portfolio and allowing some of these locations that are either older or where the markets moved away from them to move in to locations and markets whether new prototypes that can contribute greater royalties opening?
Jared Garber — Goldman Sachs — Analyst
Thanks. I appreciate the color on the offsetting unit growth and also the franchise economics. Appreciate that. Thanks.
Operator
Next question is from the line of Dennis Geiger of UBS. Your line is now open.
Dennis Geiger — UBS — Analyst
Great. Thanks for the question. Darin, I wanted to follow up on a couple of the earlier sales questions. Maybe just wondering if you could talk a bit more about kind of maintaining and then growing some of the sales volumes that you’ve seen even as behaviors perhaps shift a bit going forward, really strong top line performance in the quarter obviously.
So, just how you’re thinking about some of the brand specific drivers that you touched on earlier going and looking forward, what’s most impactful with its new items, digital the operation just kind of contextualizing that, and then the other piece thinking about sort of the macro drivers, potential pandemic impacts anything based on what you’ve seen today that you can kind of share there as it relates to the go-forward. Thank you.
Darin Harris — Chief Executive Officer
Yes. Sure. What I’ve seen since being here is we have mentioned this before is we took a lot of time and effort to listen to our guests to segmentation work and really dial into what it is that they want from Jack in the Box. And then the strategy that we’ve implemented has continued to resonate with our guests and that strategy around our promotional line-up with innovation, and we’ve seen sustained check growth during Q3 more than other QSRs.
And it really comes down to our strategy. And one of the promotional strategies I mentioned related to innovation and what we’re promoting. Our upsell, so we promoted popcorn chicken. But, we have an upsell at popcorn chicken that did extremely well and then we had the pivot to our cheddar biscuit that also had chicken that was an upsell.
So our upsell strategy is working with favorable items and guess what and then our add-ons are $3 to $4 add-ons with Mini Munchies or Mac & Cheese Bites, the Roost Fries and Chocolate Croissant Bites. I mean, those are helping our overall check averages increase and then lastly as with this new and infrequent customer we’re seeing has a huge trend towards the shift to premium items.
So that’s a part of what’s working is our menu strategy, our overall strategy of listening to our guests and giving them the offers they want and then lastly what I would add to that is our day parts. We’re seeing growth across all day parts and specifically at late night. We continue to know that that’s a huge opportunity for us to take share. If we can continue to service it well.
And the last part I would mention is digital. Our digital continues to grow. We were behind when we started, we’re now starting to catch up. We’ve seen digital grow to close to 8% of sales. We’ve got a strong team that’s behind it that are working on the right digital initiatives to continue to grow our unique user base that we can communicate and do one to one marketing with, so we’re doing all the right things that give me confidence that we’ll continue to find ways and levers to build this business over time and I can tell you there’s just a lot of exciting things happening here with the way we’re building the tools to prepare us for your ongoing growth.
Operator
Next question is from the line of John Glass of Morgan Stanley. Your line is now open.
John Glass — Morgan Stanley — Analyst
Hi. Thanks. I want to ask about the traffics over longer term, even though it’s turned positive, if you look at it two and three year basis it’s still down significantly over the last couple of years. I understand that s a hard metric now because the shifting and ordering patterns. So when you look at your traffic do you think one — are you losing a lower end consumer as you push the brand out there.
Maybe that’s a good thing from a margin and profitability standpoint or do you feel like you have to address a value piece in the business. And maybe if you just look at the traffic by day part where have you lost the those traffic counts and maybe you where they have picked up to better understand the dynamic in traffic. Thanks.
Darin Harris — Chief Executive Officer
So I think naturally throughout the pandemic I don’t think it’s just a unique thing to Jack in the Box. We saw the check that was under $5 start to decline. And so we’ve been very sensitive to finding ways to balance premium and value. And this quarter we saw continued improvement in that less than $5 check which is exactly what we wanted to have. And we wanted to balance between promoting items with upsells that would drive people into our restaurants, but also balancing the value consumer.
And I think we did a nice job of that in this quarter and the numbers reflect it. And then the last part I would say about that is all day port of all of our day parts have been positive. And so I think that speaks to the strength of Jack in the Box with our strategy and positioning of having all menu items available all day every day. And we continue to see that contribute to our success.
Operator
Next question is from the line of Chris O’Cull of Stifel. Your line is now open.
Chris O’Cull — Stifel — Analyst
Thanks. Good afternoon. This is actually Alex Estrada on for Chris. I was hoping you could speak a bit more about the 2022 tiebacks investments. Your Investor Day really you mentioned remodels would be the majority focus over the next few years maybe help outline how much of that core spend will be on remodels and roughly how many of those 400 to 450 locations are company owned or maybe expected to be completed in 2022.
Darin Harris — Chief Executive Officer
Yeah. So high level or maybe expected to be completed in 2022?
Tim Mullany — Executive Vice President and Chief Financial Officer
Yeah. So at high level, we’re — we’re putting the finishing touches on our incentive program for the franchise system. So that’s going to rollout in 2022. So I think it just if you’re able to compare our guidance again on 2021 core CapEx guidance of $40 million to $45 million versus 2022 is combination of CapEx and other investments which include these franchise TI allowances and incentives that got us of being $65 million to $75 million. You can see the incrementality there and a majority of that is again going to be more or so on this remodel refresh program that we anticipate to rollout in 2023 to 2022. So I kind of leave it there. I think — I think that gives you a pretty good look at — at what are sort of funding expectations are for that new remodel refresh program.
Operator
Next question is from the line of Jeff Bernstein of Barclays. Your line is now open.
Jeffrey Bernstein — Barclays — Analyst
Great. Thank you very much. Big picture question on the cost outlook from both the commodity and a labor cost standpoint. Like with only one quarter remaining, you boosted both inflation guidance for this fiscal year. So I’m wondering, first and foremost, if you could just share with us what the implied fourth quarter is for each of those? Just a little bit of sense where we are now and maybe whether or not you think directionally that’s a reasonable expectation for fiscal 2022?
In terms of inflation obviously not given specific numbers yet, but whether that feels reasonable to the out year just based on what you’re seeing from both commodities and labor? And whether or not you feel like you have the pricing power to both franchisees and the pricing kind of offset it and naturally you share what kind of the average of the range of pricing is for the system or for the franchisees, prior question and just to clarify you didn t mention EBITDA for fiscal 2021 and I know you had guidance before but now with one fiscal quarter remaining just wondering whether you — where you stand on providing an update in fiscal 2021 EBITDA guidance? Thank you.
Darin Harris — Chief Executive Officer
Yeah I ll start with pricing, what I m seeing from our pricing strategy and looking forward is, we’re being consistent with what the industry is as with food away from home and what we’re seeing from an inflationary standpoint. So I think that’s a good way to think about how we’ve managed pricing going forward or you know last quarter, I should say not going forward but we anticipate offsetting some of increases through price and maintaining kind of industry norms. And then I’ll let Tim kind of answer your question related to some of the wage inflation and commodity costs.
Tim Mullany — Executive Vice President and Chief Financial Officer
Yeah I ll just in Q3 we had commodity inflation of 5.7% and that was an increase from Q2 which was 1.7% and you will recall in Q1, we were right around the same level of 1.6%. So those three figures combined with our guidance for 2021 outlook of 4% to 5% that should kind of give you a good range backing into it what Q4 is, you know relative to 2022 it s hard to say.
We re keeping an eye on this, obviously there’s continued pressure and supply chain pipelines with a multitude of variables that are driving that labor being one of those as well. So it’s early for us to give guidance on 2022 right now but we will look to provide that in November to this group.
Darin Harris — Chief Executive Officer
The one thing I would add is the benefit of Jack in the Box because we’re not just in burgers or one protein. We have the benefit of the supply chain structure that enables us to focus on different product lines that have different causes of price pressures. And so we can put it in and out of different promotions to really focus on how to run our business effectively and profitably.
Jeffrey Bernstein — Barclays — Analyst
Can you share those same metrics for the labor in terms of the first three quarters of the year relative to full year guidance?
Darin Harris — Chief Executive Officer
Yeah. Sure. So Q3 labor inflation was 8% and that was an increase from prior quarter of 6.3% which was an increase from the Q1 inflation of 4%. So again marrying that against our labor 2020 guidance of 7% to 8%. You can get into a Q4 is and that 7% to 8% is a increase from our previous guidance of 5% to 6%. As we saw in the last several weeks that the labor pressure continues. So we’ll be keeping an eye on that. And again in November we’ll provide 2022 outlook on that as well.
Operator
Next question is from the line of Brian Mullan of Deutsche Bank. Your line is now open.
Brian Mullan — Deutsche Bank — Analyst
Hey, thank you. Tim, in your prepared remarks you referenced taking over 16 stores and I think at Oregon in the non-cash transaction. Can you maybe just elaborate a bit on the circumstances there why that was non-cash and if you’d be willing to give us some sense of the average volumes and margins of those stores. Is it safe to assume those are coming into the company owned base lower than the current average. I think it’s about a 10% or 11% increase in the size of that store base. So any color would be helpful. Thank you.
Darin Harris — Chief Executive Officer
Yeah. I’d say high level of this. This falls really nicely into what we communicated at Investor Day as far as leaning in and acquiring or taking possession of markets or locations that we feel are either are valuable and attractive but have an operator in place that either doesn’t have the financial resources to grow or the interest in expanding and running a market. So it just happened to come fairly quickly after our Investor Day.
So these 16 restaurants we find very appealing. We think we can bring operational efficiencies and resources to improve the four-wall EBITDA there as well as drive growth in that market. And again it s something that — it is in line with our long term strategy. So I think, we won’t provide color as far as regionality and specific to Oregon, but again it’s a market that we think has a lot of potential.
Tim Mullany — Executive Vice President and Chief Financial Officer
We had strong — I’ll just add to — we had strong performance across all geographies and the handful that we didn’t know where we had these ops concerns like Portland and St. Louis.
Operator
Next question is from the line of Andrew Charles of Cowen & Company. Your line is now open.
Andrew Charles — Cowen — Analyst
Great. Thanks guys. On the 2Q call you talked about the lend, that you ll be looking at same-store sales in the back half of the year is on a three year basis and trending probably in line, trend in line with where you were in 2Q and the business accelerate nicely yearly in 3Q very impressive, same-store sales performance. As we go from here, is that still the right lens that you guys will be looking into the business to kind of gauge the underlying health of sales, it’s kind of on a three year basis from 3Q levels? Thanks.
Darin Harris — Chief Executive Officer
Yeah, I’d say that it’s fair to look at three-year stack or even two-year stacks and you can — as you look at how our course have progressed in Q1, we had a two year stack of 14.2%, Q2 that increased to 16.4% and now Q3 that increased a little bit to 16.8%. So we think that that’s a fairly consistent and healthy way to look at forecasting. We want to reiterate annual guidance, but we think that that trend is a strong one for us.
Operator
Next question is from the line of David Tarantino of Robert W. Baird. Your line is now open.
David Tarantino — Baird — Analyst
Hi, good afternoon. My question is on the investments that you’re leaning into. I think you’ve mentioned your plans now is a good time to lean in and we see that in CapEx and other investments planned for next year. But one first to clarify Tim, is it your expectation over this three to five year horizon that continues to move higher as you sort of ramp up the development engine.
I just want to sort of directionally understand how you’re thinking about the capital side. And then Darren I was hoping you could comment on whether an investment — part of the investment includes G&A and what your outlook is for that over this kind of three to five year horizon?
Tim Mullany — Executive Vice President and Chief Financial Officer
So I think as you look at the nature of the various — to your CapEx and you have these other investments which are effectively the franchise remodel and refresh program on raw CapEx we have sort of what I call as our continued core operational CapEx year-to-date. We’re currently at $35 million as an example half of that being purchases of sale leaseback assets.
But excluding that we expect that that sort of core CapEx would continue. And then in line with what we communicated as a company s historic trajectory, you know as Darin I mentioned a few minutes ago Growth trajectory. As Darin mentioned a few minutes ago, there’s sort of a gestational period involved in that. Once we identify sites, it takes 18 or so months to get those units open into the ground, and that’ll take time to build up. So, I wouldn’t imagine as we communicated yesterday as well, any immediate meaningful increases in company CapEx spending relative to company stores.
Now, on the other investment side with the tenant improvement and franchise remodel refresh program, that’s something that we’re looking to rollout and operationalize in FY 2022 and will be made available to the franchise system fairly immediately at that point in time while that is more accessible and more immediate if there is still a wrap-up time involved with that as well.
So, while the funds would be in the program accessible to the franchise system, the franchisees still need to line up their contractors and the programs and projects et cetera in timeline. So, it’s not going to be a dramatic immediate increase. But we will over the next four to five years see 1% to 4% or so growth in capital.
Darin Harris — Chief Executive Officer
And so you see, to Tim s point, the parallel strategy of as the business is growing, some of our capital investment is growing that continues to create a really nice flywheel effect to the business and that’s the intent here. On our free cash flow, it’s still great and will continue to be great and allows us to do what we need to do from a capital allocation standpoint.
David Tarantino — Baird — Analyst
And Darin, on the G&A outlook, are you also planning to lean in there or I guess what’s your thoughts on that one?
Darin Harris — Chief Executive Officer
Yeah. I think we’re obviously not providing guidance there, but what I would tell you as I’ve said in past calls is that with all the investments we’re making in G&A these are all items that we think generate a return in and of themselves, whether it’s in cost savings or in revenue top line. So I don’t see substantial change but we will definitely provide guidance in November to 2022.
Operator
Next question is from the line of Jon Tower of Wells Fargo. Your line is now open.
Jon Tower — Wells Fargo — Analyst
Great, thanks for taking the question. I guess this is for Ryan. I’m curious going back to the commentary earlier about seeing higher frequency of higher income customers. Are you communicating differently with this group than you have in the past or you’ve found better ways to reach them than perhaps what the company was doing previously.
Clearly digital is a new avenue so maybe that’s the primary difference between now and what you’ve done previously. And on top of that aside from seeing higher check from this group are you seeing them use your brand differently say across day parts or ordering channels relative to your core customers.
Darin Harris — Chief Executive Officer
So Jon I know that Ryan would nail that question but he’s actually not in the room. Darin do you want to take that one?
Tim Mullany — Executive Vice President and Chief Financial Officer
I’ll take some of it. And what I would say is Ryan rolled out at the Investor Day the strategy. And what I would tell you we are doing things to become more culturally relevant on social and digital. Just some examples of hearing from our guests the collaboration we did with Jason and being more consistent in how we communicated the brand doing some fun things like the on the Berger Rocco or the TikTok where we did things with taking products that we already have in store and what you saw with people doing the hack on TikTok where they re folding up a tortilla with a churo, a cheesecake, I m telling you it’s an outstanding product a lot of it is the way that we’re thinking about the business and engaging our consumers and communicating to our consumers and then giving them offers that are compelling.
So digital is definitely reaching our guests. We’re definitely seeing some trends there with the different types of consumers and then as I mentioned earlier from a frequency standpoint these new and lower frequent guests continue to increase their frequency and so the way we’re communicating the clarity we have around our customers and the offers we’re making that are more one to one type offers. We’re seeing it resonate.
Jon Tower — Wells Fargo — Analyst
Got it and are they coming at different times maybe during more breakfast, late night using delivery channels more so than your core guest.
Darin Harris — Chief Executive Officer
Well this one – it’s an interesting dilemma because clearly breakfast in late night are significant contributors of transaction improvement in this quarter and that just makes common sense considering rolling over the pandemic, the good news is that that’s who we are at Jack is, we’re all items all day every day and so we’ve definitely seen the day part change I think that’s going to change the breakfast day part change that’s going to change in the mind of consumers for a long time.
Consumers are behaving differently when they come for breakfast and with the difference in the way that they work and so we definitely see that trend continuing, we see the late night trend continuing, workers are just working differently as a whole if they decide to work late at night versus getting up early in the morning Jack in the Box is there for them and it doesn’t matter if they want a breakfast item at lunch or a breakfast item in the middle of the night. We’ll find a way to get — get what they want.
Jon Tower — Wells Fargo — Analyst
Thank you.
Operator
Next question is from the line of Eric Gonzalez of KeyBanc Capital Markets. Your line is now open.
Eric Gonzalez — KeyBanc Capital Markets — Analyst
Hey. Thanks for the question. I’m just curious how much you might be leaving on the table as a result of some of these staffing issues. I imagine the late night hours might be particularly hard to staff. So is there any way you can quantify how much of a drag that — that might be or speak you have a staffing level today versus the — maybe three months ago?
Darin Harris — Chief Executive Officer
We’ll provide specifics. Like everyone in the industry, I would love to be making sure we could service and keep our stores staffed at all levels of the day, because we would — we would take these results and even improve them even more than what they already are. But the industry as a whole as you know are challenged by this where we’ve — we’ve spent the majority of our time is if we know that we can staff late night or hours when our business is there and the demand is there, we want to make sure we’re staffing it.
So we’re getting smarter about the way we support our franchisees and staffing at the right time when their business is there by location versus if we have to shut down a certain hour or two, so that we can make sure it s staffed. They must do it at the right time versus just when it’s convenient. And so we spent a lot of time on coaching and working with franchisee is the right times to remain open and make sure their staffed appropriately and then also supporting them through tools for marketing and hire — for — and not marketing — marketing to fire and maintaining the current staff that they have.
Eric Gonzalez — KeyBanc Capital Markets — Analyst
Thanks.
Operator
Next question is from the line of Jake Bartlett of Truist Securities. Your line is now open.
Jake Bartlett — securities — Analyst
Thanks for taking the question. I just had one — I want to start with a follow-up in that last question. I think in the script you mentioned that staffing was negatively impacting sales as well as service. So, maybe if you can kind of quantify how much it might be impacting and whether we should — that should be one material driver of sales going forward as staffing issue improves.
And then, the second question I have is just about your stance on marketing in 2022 or maybe in the fourth quarter, but as you emerged from COVID whether there’s going to be any sort of more weighting on premium items now you have this kind of new cohort, new consumer that can spend a little bit more. Do you expect your folks to value premium and products and innovations to change going forward?
Darin Harris — Chief Executive Officer
I think I answered the first question related to how we think about sales impacted by both labor and/or operating hours. We’re always looking at making sure our residential staff whether it’s during this time or not. So, we’ll continue to focus on staffing them appropriately, but providing our franchisees the tools to do it the right way. As far as the question about premium, like I said as we listen to our guests and understand them better and know different ways to reach them that Jack in the Box necessarily hasn’t in the past. We can do both premium and value, and we’re making sure that we balance that equation and we’ve proven it with the results that we have here and seeing many different check sizes perform.
Operator
Next question is from the line of Jeff Farmer of Gordon Haskett. Your line is now open.
Jeff Farmer — Gordon Haskett — Analyst
Thank you. I just wanted to clarify an earlier point you guys made. So if I understood this correctly you’re not providing an update on 2021 same store sales and EBITDA guidance this late in the year because moving forward in 2022 those are items that you will not be providing guidance for. Is that a correct way to think about it?
Tim Mullany — Executive Vice President and Chief Financial Officer
Yeah. That’s correct. So on a go forward basis the annual guidance we will be providing our CapEx, G&A commodity and labor costs and while sort of giving an annual franchise for a while EBITDA update. But outside of that we’re relying on the three year to five year long-term guidance that we provided at Investor Day.
Operator
Next question is from the line of Alex Slagle of Jefferies. Your line is now open.
Alex Slagle — Jeffries — Analyst
Hey, thanks. And Darin you talked about providing I guess more regular discussions around the progress against the four pillars. I know franchisee profitability is a key focus. I’m just wondering if you’ll be able to provide sort of more regular metrics around franchisee profitability as we’re sort of going forward and do you have any sort of updates at this point?
Darin Harris — Chief Executive Officer
Yeah. Typically we get that data a quarter behind. But we stand on every January fiscal year providing an update to being very transparent with the data that we’re receiving on how we’re performing about improving get wall economics.
Operator
Last question is from the line of Nick Setyan of Wedbush Securities. Your line is now open.
Nick Setyan — Wedbush Securities — Analyst
Thanks. Just a question and clarification on the labor guidance does that include hourly wage growth or hourly On the labor guidance that includes hourly wage growth, or our hourly wage growth as well or just the wage inflation portion.
Darin Harris — Chief Executive Officer
That’s just the wage inflation portion. So it doesn’t account for our restrictions. We should see more in our financial results.
Nick Setyan — Wedbush Securities — Analyst
Okay. And in terms of the company-owned unit growth obviously that’s something that’s going to become a more prominent forward, does that capex I mean it just seems like the capex guidance implies just a very slight increase in new unit development not necessarily a big leg up in 2022, is that fair?
Darin Harris — Chief Executive Officer
Yeah. It is fair. I mean keep in mind, we are an asset light model right. So a majority of our units are franchise. And we’ll be looking to we just announced year to date we have 64 unit commitments or awards rather to the franchise system. So we’ll be looking to expand Jack’s reach primarily through the franchise system.
But at the same time as we alluded in our strategy on Investor Day to help feed some of that growth and push the pace we will opportunistically look to deploy company capital through CapEx to open company units, but again from a unit count growth point of view that will be a smaller fraction of our overall growth.
Operator
Thank you, participants. I’ll now hand the call over to Chief Executive Officer, Darin Harris for final remarks.
Darin Harris — Chief Executive Officer
Thank you all again for joining us today. And I’m excited to meet many of you on the road in the coming weeks and months. And we look forward to speaking with you in late November to discuss our fourth quarter and full year 2021 results. So thank you again for your time today and look forward to speaking soon.
Operator
[Operator Instructions]