Jack in the Box Inc. (JACK) Earnings Call Transcript & Summary

Good morning, everyone. My name is Jeff Bernstein, and I'm the restaurant and foodservice distribution analyst here at Barclays. Thank you all for joining us in the room and on the webcast. Our next presenting company this morning is Jack in the Box. With us this morning from sunny San Diego, California, we have Darin Harris, CEO and Brian Scott, their newly named CFO. By way of background, for those not familiar, Jack in the Box is a quick service portfolio company, consisting now of 2 brands, specifically the name state Jack in the Box with 2,200 primarily franchise units and Del Taco, the newer addition with 600 units that is now north of 50%, approaching 60% franchised and plans to increase that mix to 90% over the next few years. And with both of those brands still regional and focused more on the West, unit growth is accelerating and ultimately moving East. So for those of you here in New York, a little patience. But thank you all for joining us. And with the fourth quarter of fiscal '23 earnings actually reported just last week, I figured I would start with a few questions that have come up with that we've heard from investors in recent days and then obviously touch on some bigger picture topics. And I will kick it off. And then towards the end, I'll open it up to any audience Q&A. So if you have a question, please raise your hand at that point. But with that said, I want to thank Darin and Brian for joining us from California.

Thanks for having us.

Thank you. Happy holidays.

Thank you.

So Brian that you just report a week ago. It's very timely. So I made sure I insert a couple of questions right at the top of things that I've heard from investors just over the past week that we thought would be helpful for clarification or further color. And the first one that's gotten a lot of attention, I guess, is around the CapEx spend for fiscal '24 that they have a September year-end, so we're now in the fiscal '24. Just wondering if you could provide a little bit more color on the CapEx guidance. I believe it's $110 million to $120 million. Questions have been, is this a new run rate because it is up from where it was this past year? Or maybe there are some short-term investments or one timers? Or how should we think about the buckets of that CapEx spend for fiscal '24 relative to future years.

Brian?

Yes, yes. I'll kick off and Darin, I'm sure we'll sweep anything I miss here. So we've heard a couple of questions on that as well. And it's -- we're -- it is an increase, but we're excited about the opportunity that those investments are going to bring to the organization. They are paramount to our growth strategy that we've articulated. If you look at fiscal '23, we had about $75 million of CapEx. There's another about $5 million of investments that go on the balance sheet. They're going to run through amortization. So kind of put that together, you've got about $80 million of spend actual in '23. The guidance, as you said, was $110 million to $120 million. And the largest part of that increase is a little over $20 million of investment in new restaurant growth. So as Darin and the team kind of kicked off this growth strategy several years ago to really start to flags in new markets and really get the brands growing, there -- we're starting to really see the inflection point of that happening. So we opened 2 company restaurants in '23. We've got more significantly more opening in '24. And so really now we're in that build mode. And so again, a little over $20 million of that increase is squarely focused on one of our most important initiatives, which is growing the brand. The success we've seen already in Salt Lake City in Louisville, which we'll touch more on, is a great reflection of the opportunity we have in front of us. And so that type of spend on a go forward, we do expect it to be to run at a higher level it's going to be somewhere in the range of $30 million this year. That's probably a decent proxy, $30 million to $35 million for the next couple of years. And at the same time, though, as we get further into this and we really get some development agreements in place in these markets, we'll be able to franchise those corporate on stores and be able to basically recycle those investments. So it is a step up, but I think it's actually a pretty good sense of like the run rate going forward and potentially could come down to start to be able to sell those company stores. So it kind of item #1, but the most important one of that increase. Our -- another really important part of our brand growth strategy is making sure that our -- we have brand standards and the quality of all of our restaurants. And so we are seeing a pickup in the investments, again, in this initiative around remodeling older stores. So that kicked off last year. And so as you've now gone from kind of approval for company stores, getting to the design and the approvals, now we're actually going to be doing more remodels during '24. We've also opened that up for our franchisees and now added Del to that mix. And so there's another $5 million to $10 million tied directly to remodeling our older stores. For those that we have remodeled, we're seeing a really good return anywhere between upwards of 10% to 15% increases in AUV in those stores. So again, a great return on investment for the organization and really important to our long-term brand strategy. And then the last piece where we're seeing some investment increases is in our IT side. We've mentioned we kind of come to a final decision on our new POS. We're running with a 20-plus old point-of-sale system and the Jack brand. we need to upgrade that, obviously, not only just to have a more modern system for our team members, but it's really a foundational to a lot of the things we do around digital and AI and automation. We need to have a modern POS to support that. So part of the increase in '24 is tied to starting to roll out those POSs in our corporate stores. And then the other area of IT investments is around digital. We've seen great success. We're up to now 12% digital mix. We think we continue to grow that, but we need to invest in our digital capabilities around loyalty as well. So those are the -- those are the biggest drivers. Some of those are more episodic like the POS and increasing our company store counts. But I think from a kind of future, if you were thinking out the next 2 to 3 years, I think somewhere around $100 million to $110 million is a reasonable place to be, probably a little bit higher in '24 because of the POS rollout, and then other areas we want to continue because, again, it's really about driving the growth of the business.

I'll have Darin for Brian, I can just join the system. It seems like you've thrown them in DP. So we have a lot of the details. So you passed that fast, it's good. And then the other topic that comes up a lot is the refranchising, which haven't covered Jack in the Box for a while. That was something that you went through with the Jack in the Box system and now obviously, it wasn't too much pain or you felt like the reward was worth it because now you're doing it with the Del Taco system. So we think about -- I know a year ago or close to a year ago at the ICR conference, you gave some specifics around the mechanics of it. Has there been any update in terms of the financials or the dilution related to the refranchising in general. I know you did, I think, just north of $110 million last year, but now the guidance is for another $110 million or so, but now that's spread out over 3 years. So how do we just think about the repercussions of that? And is there a I already heard this morning, people say, well, if you did $110 million last year, why couldn't you do $110 million this year? So just how you think about the ability to go faster and get to that 90% target before fiscal '26.

So the way I think about it is we're going to do the right deal at the right time with the right buyer who can grow. And so we have plenty of interest. The demand is increasing, not decreasing for buying Del Taco. So we want to just make sure we do the right deals with the right partner. And I think that's going to be our gauge of speed, more so than anything. We want people who can come and invest capital and grow invest in these restaurants to make sure they're successful and they have the operational capability to do that. So we have demand to do that. We'll continue to focus on it. We just want to make sure from a standpoint that we're balancing between the timing of these transactions with the right partner. So they're not overly dilutive as we're giving up EBITDA. We need to have some growth starting to come in from some of the development agreements so we can balance this by giving up EBITDA and making sure it's not overly dilutive even though we're buying back shares. Anything you want to add to that?

Yes. Now like the interest is very strong. So I think the point of saying that we would move to that kind of fully refranchise or franchise model by '26 is just -- I think it's just a reiteration of our strategy. it's not that, that our target is to not finish it until '26. We're just saying we are -- we had a great first year in refranchising strong appetite, and it could go quicker, but we wanted to give some kind of bookend around it's not a 5-year journey. It could happen sooner, but we absolutely are committed to making sure we move to that asset-light model. It's worked really well thus far. We've definitely heard a strong positive reaction from our investors. And we have great interest from our existing franchisees as well as new ones to get these assets because it's a great brand. We think there's a huge amount of growth potential that we're just really in the early stages of unlocking. And so to Darin's point, we want to ensure we have the right partners in place to help us on that growth strategy long term. And so we have the benefit of this case of we can use time as a kind of our ally here. if we can strike deals more quickly that we think work for us to help drive our long-term strategy, we absolutely will do that. But we also don't feel any imperative to get it done immediately.

So 2, just clarifications. One, when you said there's tremendous demand, that's from existing Del Taco franchisees as well as Jack in the Box franchises or is it primarily Del Taco.

Primarily Jack franchisees and third-party outside interest.

And the idea that you did over $100 million this past year, you sacrifice all the things that you mentioned at the beginning that all these things need to get -- just the stars aligned and you got a lot done in fiscal '23, and you're just saying, you know what, that we can't always assume that's going to be the case. So we'll do over 3 years, we'll get the other $100 million and so.

Yes. I think it's the right deal at the right time. We have the demand to execute on our strategy, but we want to make sure that we're doing it timely.

Yes. Understood. A couple of questions we've been posing about the broader consumer environment, which I'm sure you get every day and your thoughts on the state of the consumer going into in 2024. There was -- Investors have been pleasantly surprised with how resilient the restaurant industry has been throughout this year. with all the headwinds that have been talked about, there was a little bit of a slowdown for the industry and really the headwinds that are hitting the consumer, which in the end might actually help quick service by not, who knows, but on the lower end of ?or is it just a return to some normal seasonality where some companies said, "You know what, it's not so bad and actually things got better in October, so it gave some people side relief. But if you weren't looking at all the macro headlines and you were just looking at your business of 2 brands, what you see in the numbers, is there any change for better or for worse from a consumer standpoint.

I mean, look, it's been the most interesting environment in my career over 20 years in the industry where you take double-digit price increases, you have inflation, double high double digits and sales grow. And gas prices recently, $6 to $7 in California, now $20 wages. You do things haven't experienced. And so I think from a standpoint of trying to predict the consumer is very challenging. What we focus on is what is the consumer, why do they come to us? Why do they leave? How do we meet their demand? How do we make sure we have the right offering at the right place at the right time. and then leave the rest to speculation. But I think we always go in with the idea that we're going to try to drive traffic despite heavy increases in price in this case, specifically in California with AB 1228. But knowing that that's a risk. And so how do we mitigate that and have a good balanced offering between a barbell strategy of premium offerings. And then for those who want checks under $8, making sure we have an offering that meets people that are really a budget -- that $8 used to be $5 right? 3 years ago, it was $5.

Okay. and being that you're a month or so into fiscal '24, you've got a lot of things going on between 2 brands. And what would you say you're most excited about that you think maybe is underappreciated. But what's the if you're prioritizing the things that really could drive the business and the growth going forward, what's the top of the list for fiscal '24.

Well, I always believe it's people and culture. So I'll start there. I think with the leadership team we put in place in Jack and Del Taco and I'm excited because I don't think the market has had a chance to really hear from the entire team, and we'll do that at our investor conference in January. I think that's key. I think getting the chance to see this leadership team, what their capability is, how they interact, how they engage is going to be critical to our growth success in the future and both with the new Del Taco team. I think that's one. I think, two, we have some really breakthrough items coming from an innovation standpoint, that we're excited to launch in fiscal '24 that we've been talking about. I think it's a breakthrough item for us. And I think last is just the fact that we're seeing a lot of the things we're doing from a margin management stuff come to fruition and improve the P&L. So all 3 of those things, I think, are critical for where this business is today.

And the new product news you said you want to share today.

Not yet. We're almost there.

Okay. We'll wait.

Think about Qdoba.

Yes. Well, we did just launch Qdoba, that wasn't the breakthrough part. But Qdoba just launched is the first in the industry to launch Qdoba [ Tea ] , and it's outperforming everything we expected it to do. And so we're excited. It's having a similar impact that maybe Red Bull did when we launched Red Bull.

And the Jack in the Box character being the main live, we still have some legs to it.

It absolutely does. I mean, part of the strategy has been to really make Jack a pop icon and with all his friends in the industry. It's definitely come to life from everything from the Snoop Dog partnership to Ryan Reynolds in the now sexiest man alive, we're seeing jack being -- becoming really relevant.

Yes. I think it's really -- if you think about our growth strategy to going into new markets and just the ability to connect across the country through social. Jack being such an iconic figure, I mean there we're kind of preceding these markets with more and more interest in the brands because they know a lot of people know them already, but then it's just getting a top of mind and if someone used it to kind of get that full reach. So as we're coming into new market, it's -- we're not having to kind of build that loyalty or that knowledge, consumers know us already.

We'll definitely talk about new geographies, but just so you know, people in the East Coast I've had taste of it in the past, but it hasn't sustained so there's some excitement about that. But you mentioned what I call the [ Fast ] Act, I guess has a new and better name, but all about the wages in California, being that we don't have too many companies with the degree of penetration and reliance that you guys have on California, I'm sure you get tired of talking about it. But if you can maybe just frame how you think about wages primarily for your franchisees at Jack in the Box, your own companies as well, but Del Taco, I would think that is quite daunting for a franchisee to think about having to pay $20 per person per hour starting April 1. So what are those conversations like? And how do you think Jack in the Box responds to this unprecedented potential increase?

I think when we talk to franchisees, and we have the conversations, I think for them, the a moment where their eyes get large and concerned is when you're looking year-over-year, having to take 8% to 10% price. And I think that's something they have an experience in their careers. And so I think that's the bigger concern is, we know we have to take price, but it's pretty alarming that we've never done this before. So what does that look like? So I think that's the biggest concern. Now they know we have to do it. We're giving them great guidance. We've got new tools and pricing discipline that enables us to go in and look store-by-store market-by-market and find out what the competition is doing, how are we stacking up are we pricing accordingly. And so that's giving them some confidence that on the back end, we're making sure we have things that will help them save money, how to manage their labor differently, some technology tools and equipment that all these things together will add up to make sure that they're in a healthy place going forward. But their fear is more about how can the consumer absorb another 8% to 10% after we just took that last year.

And what do you tell them in response to that because it does seem like it was a but every restaurant, I guess is doing the same thing, you want to eat. Hopefully, the wages are going up enough so that consumer has the dollars to come in the front door. But.

Yes. And I think that's the critical component is our competition is going to have to do the same thing. They're going to have to take the same price increase. And so for us, what we at least have is some experience when labor was short, and going into the market and saying in L.A. and other California markets, we immediately listed $20 an hour for pay. And our stores are staffed very quickly. So we do know it help staffing and those restaurants that struggle with staffing, we've seen it retain our staffing as well. So we do know that we get the benefit of that and that helps sales. It helps throughput. It helps all the things that can make our model run more efficiently and effectively. So we do think there's some benefit there, and we have some time tested strategy that we've already utilized to move to those kind of wages. It's really about how quick will the rest of the competition have to go there with their wages, meaning casual dining or fast casual or retail who are competing for the same employees, how fast will they have to move to the same wage rates. And I think that's the critical component.

Is there a thought so be a pessimistic thought for you guys, presumably. But if a national brand said, you know what, instead of raising wages by 8% to 10% in California, we'll just raise it by 1.5% across the country. well, raise prices. I want to , but obviously, you count do that because franchisees in California needed to manage their own cost structure. But I would think there's some game and ship going on among all different brands to how do we handle this and maybe win out on something like this, the independents close or.

Yes. I've heard a lot of those arguments from our franchisees, from other franchises like what if we -- you give us some benefit on royalty and we'll not price as much, and we'll win over the competition and all those things. I think at the end of the day, we know it's a competitive market, at any time the competition is going to put out price, somebody in the market is going to come close to it and compete. And so I think at the end of the day, the reality is the consumer natural demand characteristics or what it's going to end today. And so we have to make sure we meet customers with the right product at the right time. The pricing is going to be the pricing and then let it settle No, this is going to be the most anticipated and exciting restaurant history.

So I look forward to that. When you think about the top line from a comp perspective, and we were talking about earlier today, you gave guidance for fiscal '24 for low single digit to mid-single digit. And as we spoke about, that's inclusive of 6% to 8% pricing at the national level...

The company-owned stores.

Company-owned stores, franchisees make all their own pricing decisions. But with that said, the simple math would imply that there's some modest negative traffic assumed within there. So how do you -- I'm assuming that correct me if I'm wrong, but if that is the case, -- why are you assuming modest negative traffic in fiscal '24? Is there anything that's concerning you? Or is it just conservatism?

Yes. No [indiscernible] kick it off.

Yes. I mean, naturally, when you're looking at a year of -- after taking double-digit price increases and the market also with the California with such a large restaurant base, we think there's some natural. We have such a high percentage of our restaurants there if we're taking that kind of price to assume that it's going to be a positive traffic year, it's hard to speculate. And so we're being cautious and we're looking at it and trying to say as we run our algorithms and our models that what is a reasonable assumption of negative traffic considering 2 years straight of 8% to 10% price. I think that's the key. I was trying to make the right assumption around that.

Yes. So I think outside of California, we expect traffic trends will improve versus the last year. But in California, that's the wildcard as we take price, probably have some -- you'll have more -- obviously more impact on traffic. So that's the overall assumption we've made for the company stores. And then for the franchisees, again, we've kind of left -- not kind of speaking for them. We think we'll see what they end up doing, but I would expect there to be a significantly different outcome in terms of consumer behavior. But we think the traffic trends have been improving. And so kind of ex this impact maybe 1228, we're pretty feeling pretty good about [ '24 ] on the traffic side. It's just California is a bit of an unknown at this point.

2 quick follow-ups. One, I'm assuming investors are going to ask, all right, starting in April, May, June, will you share your California traffic versus your -- I mean you guys will have some tos of data to showcase what this implication has had. So whether or not you plan on doing that is just interesting sidebar. But separate -- the numbers show -- we'll see -- we know if you share that, right? Well the other thing is just I know franchisees make all their own pricing decisions, and that is a key component of the franchise model, but I'm guessing there are lots of conversations and they look to you for some guidance because you're overseeing a couple of thousand restaurants, and you have decades of data. So how do you go about handholding without crossing the line? Like what tools do you share with them, if any, that would really help them rather than them making their own knee-jerk reaction potential.

Yes. Over the last year, we made quite a bit of investment in a pricing team and data and modeling tools that enable them to get insight into what's the competition to an item to item, store by store, region by region. And so we give them guidance from a standpoint of where do we think on their specific store should they take price more surgical than we've done in the past. And we've also given them tools with ranges of saying in max. Here's where we think you should be for this store in this market. And so we're able to guide them without doing anything that's a challenge from a pricing standpoint. But giving them real clear guidance to say, we think breakfast and these specific items you have opportunity chicken, you may need to dial it back or keep it as is. So we can give guidance around where we think there's opportunities and then they have to decide what is that range within [ them in max ].

Do you find franchisees are receptive to guidance on implementing those type of things?

Yes. I think they have because they haven't had this type of data or insight in the past. And so as we're backing it with the data to support them. They've been very willing to work on the pricing and actually grateful for what we've done to give them this insight that they haven't had in past.

Yes. And we can share what we're seeing. So when we're making pricing changes in the company stores, what's the impact of traffic we can share that. We can share general best practices because we have -- we can see the overall system, what's performing, what's working, what isn't working, and we provide that insight back. So franchisees maybe one market they are only seeing their data, which is really important, but we can also see what's working elsewhere. It's also -- this whole -- with AB 1228, it's kind of recatalyze a lot of these operational improvements that the teams are working on and driving through the system for the last year -- couple of years now. really working closely with them now with translate on say have you implemented these system changes yet, whether it's different cooking systems or labor strategies really making sure that they're diving in and pushing all those now so that when they get to April, they will -- it will minimize the amount of price tick because they've been able to find other cost efficiencies as well. And the last thing I'd say is that bringing Del Taco into the fold now, we're able to take all these tools on pricing and operational efficiencies. And now we're kind of rolling those out into the Del Taco. So they just now got access to a lot of the same pricing tools that we've got for Jack. So that they are able to make more important decisions as well.

The economies of scale of having a multi-brand portfolio.

Exactly.

That's fine. Got it Brian, obviously, pricing falls within comp and comp gets a lot of attention just because it demonstrates the health of your business and whatnot. But the unit growth is, I think, what people are most intrigued by in terms of your top line drivers, which for many years, it hadn't been much in the way of new unit growth that were fits and starts. But it does seem like we're reaching an inflection point. I think you actually said for this year, it will be the first year of, well, confidence in net positive unit growth at both of your 2 core brands, and I know there was prior guidance for accelerating upwards of 4% at a certain point in time. So if you could just share your confidence in that acceleration and maybe how much of it is new market versus existing markets we can kind of gauge because then we have a couple of new markets, which, as Chris and I were talking about earlier, is super exciting because that was the way the pushback was in a new market if nobody knows your brand you can talk about it, but it's not going to work. And if you're actually starting to see some success, that would give people a whole lot of confidence that this ramp can really happen, which I think would be a big boom for the company.

Yes. We talked about when I first joined trying to get in and understand the pipeline and assuming that the pipeline was going to continue. We went out and said, we think we could double what's been happening and get to maybe 4%. Well, I think that's probably with everything that's occurred in the marketplace, unrealistic with everything from supply to challenges with COVID and all the different challenges we've seen over the last 3 years. So at our Investor Day, we'll update that guidance, give you a better long-term feel for what that should be. But this is a brand that can be a growth brand. And we've seen the pipeline start to get full. We tried to get information related to the number of commitments because that's the starting point. And then now how many locations are actually in the process of being built. So people can get a feel that this is a growing pipeline. This is real. There's coming to fruition that there's enough new units happening. Now it's about limiting closures and then making sure that net new unit growth happens year-over-year-over-year. And we were excited to see that we had net new unit growth in 2023. We think that will continue to build into 2024 and beyond as we have a better line of sight into the future pipeline.

How many of those units would you say are higher risk because they're in markets that you don't have the brand recognition you don't have the data for versus this is just another one going into a very successful region of California.

Yes. Our primary focus has been in our core markets and let's go out and fully penetrate those. And so that's the majority of where we started with our pipeline. Let's get that built -- we know they'll be successful they're in core markets. And so that's the majority of the pipeline currently. Now we've been building into new markets, and we're starting to see those come to fruition like Salt Lake City will have -- we went from 0 units a year ago, so it will be 15 within 2 years. We've already had 4 open there now. and they're all performing extremely well. We have Louisville. We just opened as a new market. We went in with a company in both in Salt Lake and in Louisville, we partner with our franchisees to grow. They're growing at the same time we are. We opened our second store, our second store in Louisville opens tomorrow, and they're all performing over $100,000 a week in sales. And that's been phenomenal for this brand. They haven't seen this kind of performance out of a new market in its history.

And this year, we'll have Mexico or the Board of Mexico opening, I think another couple of states as well. So it's -- as you said, to Darin's point, you're starting to see more of that growth coming from new markets. as very early innings. There's a few other states that we'll talk about probably at the Investor Day as well that we'll be seeing here over the next couple of years, and we think a tremendous opportunity to fill out these other markets.

Yes. As Brian mentioned, we have Florida and Montana Idaho, Arkansas all opening as well. So we have a lot of new markets. But the majority of the early growth is coming by filling in our existing and supplementing it with new markets.

I would assume when you talk to your franchisees in some of these newer markets that your competition probably doesn't make it easy for you. So I see you coming and there's 1, 2, 3 stores, they immediately try and attack other brands. We've talked about that with different dayparts, where the competition is not really friendly and whatnot. So you've been able to -- you've seen that and been able to withstand it. It seems like the brand is -- it's not like it's the first month pop. I mean, there's some move behind it.

Yes, there's definitely some time behind this. This isn't just the first month pop and then the drop. These are sustaining. These types of sales are sustaining. So our first store in Salt Lake opened close to $200,000. It's still performing $140,000, $150,000 a week, and we just turned digital back on. So you're talking about substantial performance, and we're seeing across all the new stores that we've opened, not just in these new markets. The new markets are really performing. The existing stores or existing markets that are not in the new markets are still performing above system average north of $2 million. And so we think, overall, we've got a story to tell that this model works.

I had to do math in my head on stage, but $140,000, $150,000 on 52 weeks would be like a $7 million when your system doing $2 million.

Correct. Pretty good.

[indiscernible] Presumably, those are examples that hit other franchisees as a potential margin in the fixed cost leverage can get pretty good.

Very good, very quick. Just even over $100,000 a week, right, is tremendous.

So and the refranchising, which I guess is more specific to the Del Taco set of things that create some noise and uncertainty. Obviously, your guidance you gave for fiscal '24 does not assume any refranchising because came to it with certainty, but we know that over the next few years, so I'm guessing the sell-side community has taken stats of how many they think each year. But how should we think about best guess -- should we therefore just be assuming 1/3, 1/3, 1/3 over each of those 3 years? And what line items would have the greatest dilutive impact. I mean I'm assuming net-net, it's dilutive because you're trading way a company operated store for a franchise?

Yes. There's some near-term dilution. As you said, kind of the best way to offset that is through share repurchases. There's even -- there's a lag effect from when we sell the store when we took those proceeds and be able to repurchase shares. So it has some modest dilution in the in-year as we've talked about with every one of these, we're also adding development agreements. So if you look ahead and few years and as we take out more G&A, we then add more royalties from new development that comes along with these refranchisings, then we can turn it into a neutral to accretive -- and along with that, all the benefits of being asset light that we are really focused on. So it's not just about the EPS impact, but it's really about our long-term strategy of updating of our franchise model. And so I think it's -- at this point, again, we've been on the call, we are fully committed to getting there. we don't have an exact number to be able to provide because we don't have -- these are under contract yet. We could go faster. I think for now, using that equal weight is probably the best we can give. I guess we get to either ICR or next call, we'll have much better line of sight to what the year looks like and it can be able to give a more wholesome update and that will be probably the best time to get a checkpoint on what to do for '24 in terms of changing models. But for now, I'd say probably use something like [ 40 ] and there is some modest solution. Again, you're trading off the EBITDA you're selling, we're obviously picking up royalties. We're taking out usually about $35,000 per restaurant or DNA is going away, and then there's some incremental G&A that goes away as well. And so kind of those are the main components of how it impacts our P&L. And then, again, with the proceeds, I think for now, modeling it, we would use it to repurchase shares is probably the right way to think about it for '24.

Understood. And I know you mentioned a key component of that, which is someone buy the store from you there as a promise to open up. Is there a ratio that you've historically seen? Because that seems like the lynchpin you'd be willing to sell it at a certain multiple, if you probably to open up x number of stores at will believe you over time. So how do you think about...

We want a minimum of one store per store bought. So we want them to build at least 1 per store bought. And then also, these typically come with some type of remodel commitment, although our goal is more development. There is some kind of remodel capital commitment that we're less focused on, but happens and we provide a lot more time for that to occur versus just the new builds. So there's -- we should get benefit both in remodel and development.

Again, let's get back to you why we want to we think the right partners to refranchisees, so that these are known commodities either existing franchisees that have a track record of kind of living up to the commitments or working with large established new franchise operators that maybe have other brands where they've proven their ability to move from an agreement to an actual build an opening of a restaurant. So that's fully critical. I think as we've shown the economics improving, I think it also is encouraging more franchisees to come and want to work with us. I think that also think is going to strengthen our conviction that we can turn those agreements into actual restaurants.

And I've got another 20 questions for our last 2 minutes, but that probably doesn't work. But I figured I would open it up to the audience and see if there were any questions we have a mic runner that can. There's one up in the front over here.

Do you have franchisees from Jeff in the box wanting to open franchisees still talk and vice versa.

Yes. Yes. Some of the deals that we've already transacted are Jack franchisees that have bought stores that have signed up to build both Jack and Del Taco. And then we had a Del Taco franchise by some stores and also sign a development agreement to do as part of when we bought Del Taco stores signed up to do both Del Jack.

Was this in Salt Lake City.

No, this is in Idaho, but Paul, if you probably know with Paul Hitzelberger, he's been around the industry for years. He's committed to sell right now. He's strong. He's a great guy and a great operator.

I would assume he would -- he's doing those?

I think he's getting closer to retirement if he ever retires, but his focus is on continuing to build Del Taco, but he's been one of our biggest fans as far as the whole transaction of Jack by and Del Taco. Yes.

My last question was just on restaurant margin line. So you gave guidance initially for fiscal '24, actually for both restaurant margin and EBITDA margin. the 2 brands is a pretty wide gap between them. Is there any reason why like over time under your ownership that the Del Taco restaurant margins wouldn't be more similar to the Jack in the Box restaurant margins? Or is it something structurally different about the Mexican category versus burgers because it seems like it's a wide gap and presumably an exciting opportunity if Del met Jack up here rather than Jack coming in.

There's a couple of things going on there. I think when Jack did refranchising, they cherry-picked the best performing stores in California to keep. So we already had a good built-in margin base. I think that's one thing that's just different off the top. So separating that, there's definitely opportunity at Del for us to improve margins through synergies through our purchasing supply chain through just better use of what we would call our operation services team to find ways through equipment, technology and process to take costs out of the model. So we know there's opportunity there to improve the margins at Del Taco, and we're excited about that. And then also just the way we do menu management and look at the menu board and how we can drive better margin from the menu along there's opportunity. So we know that there's future opportunity for Del to improve margins.

And the EBITDA margin, I guess, is a little bit more deceiving because of the different level of franchise versus company ownership, but I assume it's something similar -- a similar story there, the very wide gap. There's no reason why they couldn't close materially once Del Taco was that 90% pressure.

Correct.

And we look forward to that and look forward to the Investor Day is that in January in San Diego?

Yes.

It sounds fantastic. Great. We want to thank Darin, Brian and the Jack in the Box team for joining us today. Hope you have a good day of meetings.

All right. Great.

Thank you.