Jack in the Box Inc. Stock

Thank you for standing by, and welcome to the Jack in the Box Third Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Rachel Webb, Senior Vice President of Investor Relations. Rachel, please go ahead.

Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our third quarter fiscal 2026. With me today are Interim Chief Executive Officer Mark King; and Chief Financial Officer Dawn Hooper. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts.

Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliation provided in the earnings release, which is available on our Investor Relations website at jackinthebox.com.

We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statement in our most recent Form 10-K to be part of our discussion. Material risk factors, as well as information relating to company operations, are detailed in our most recent Form 10-K, 10-Q and other public documents filed with the SEC and are available on our Investor Relations website.

And with that, I would like to turn the call over to our Interim Chief Executive Officer, Mark King.

Thanks, Rachel, and good afternoon, everyone. Thank you for joining us. When I stepped into the interim CEO role just a few months ago, I said my first priority would be listening and learning. After spending meaningful time inside the business, I have greater clarity around where we need to focus to drive sustainable long-term growth. But we have a lot of work to do. I've met with almost all of our franchisees. We hosted a strategy summit with a few of our largest franchisees, and I attended the conference of our largest franchise organization just a few weeks ago, representing the majority of the system. I spent time meeting almost every employee throughout the corporate office. Most importantly, I've spent time in our restaurants, including working multiple shifts alongside of our teams. This gave me a first-hand view of both the operational challenges our teams face and the opportunity we have to improve execution.

My restaurant shifts included one memorable attempt at cooking our tacos that I'm fairly certain won't end up earning me another invitation. Those experiences reinforce something important. While the business model can at times appear complex, at the end of the day, we exist to serve hot, flavorful food to our guests. That's it. When we stay focused on why we exist, our priorities become much clearer. Being in our restaurants and hearing directly from employees, franchisees and guests has provided insights I simply could not have gained from a P&L or the corporate office. Throughout my career transforming consumer brands, this is the playbook I followed.

Getting closer to the customer is the first step toward improving the business for our stakeholders. And that will be our approach at Jack in the Box. Before I jump into my top priorities for the brand, I want to mention JACK on Track. JACK on Track is well underway, and I'm proud of the team's execution, including completing our refinancing in the quarter. Dawn will discuss this in more detail. Much of the remaining JACK on Track work is now happening behind the scenes. My primary focus is on improving same-store sales and positioning Jack for sustainable long-term growth.

As I've spent time across the system, 5 priorities have emerged, and they all support one overarching objective: to drive consistent same-store sales growth. First, we must obsess over what the customer wants. We need to listen to our guests first and use those insights to guide menu, marketing and innovation decisions. We've been revisiting both first- and third-party research while increasing our engagement with current and lapsed customers. Those insights will shape how we market the brand, present our menu and develop products that drive repeat visits. While Jack has historically differentiated itself through variety, we know we must strengthen our position around 2 things customers increasingly demand: quality and value. This fall, we'll begin testing an updated menu layout designed to improve navigation and to better communicate both.

At the same time, Katelyn Zborowski, our new CMO, and her team are developing a new brand campaign designed to strengthen our connection with existing guests while reintroducing the brand to new and lapsed customers. We expect those learnings to influence broader marketing efforts into calendar 2027.

Second, quality matters now more than ever. The competitive environment in the restaurant industry has changed significantly over the past decade. Consumers have more choices across QSR, fast casual and casual dining, all while consumers have become more discerning about how they spend. So what does that mean for our guests? Guests expect hot food that looks delicious, tastes fresh and delivers value they can immediately recognize. This requires more than quality of ingredients. It requires preparation, presentation and execution, along with a restaurant environment that reinforces the quality of the food, from the curb appeal of the restaurant all the way through packaging.

We've recently been testing a new burger platform, and early results have been encouraging. We're highlighting premium, higher-quality ingredients, a juicier burger patty, new ingredient prep and presentation and new packaging. We're continuing to refine this platform as we learn throughout this test. We expect to roll out our best burger platform system-wide in 2027.

Third, the restaurant experience needs to reflect the quality of the food. Guests expect clean, modern restaurants. While many refreshes are relatively modest investments, we've seen consistent evidence that generate meaningful, low-single-digit sales lifts and perhaps more importantly, improve the overall guest experience through a better look and feel. At our recent franchisee conference just a few weeks ago, we announced a modest contribution of $2,000 per restaurant to accelerate these improvements. In just a few weeks, approximately 25% of franchise restaurants in the system have signed up. We expect these refreshes to occur over the next few quarters. Longer term, a broader remodel strategy will be warranted. In the meantime, these targeted investments allow us to begin improving the guest experience and driving incremental sales with relatively modest costs.

Four, we must make our restaurants easier to operate. Sustainable turnarounds aren't built from one promotion or a single quarter. They're built through disciplined execution over time and experience that bring guests back again and again. Within the first 2 weeks of joining as Interim CEO, I attended roadshows alongside the leadership team visiting with franchisees. There, I heard very clearly we need fewer distractions and greater consistency to ensure our teams can execute the brand's initiatives. This means reduced complexity in promotional windows, rethinking the back of house and removing barriers to enable consistent, high-quality execution.

In 2026, we've reduced the number of promotions per marketing window from 3 to 2, and for 2027, we'll continue to simplify as we build out the marketing calendar. Shannon McKinney, our COO, and his team have done a phenomenal job retraining the entire system on joyful service and getting back to basics by holding workshops across the country and focusing on winning the shift. It sounds simple, but it drives results. I am encouraged by the operational improvements we've seen, but there's more to do as both our menu and kitchen remain complex. Our objective is straightforward: execute our core products consistently and give guests more reason to return. Jack in the Box serves great food. Our job is to make sure our guests experience that consistently.

Most importantly, we must improve franchisee profitability. Ultimately, each of these priorities should translate into stronger restaurant economics. The success of any franchise system begins with the success of its franchisees. Stronger sales across the system support stronger restaurant-level profitability. Stronger profitability creates capacity for franchisees to invest in remodels and build new restaurants. Over time, the results are healthier unit growth, stronger revenue streams, and ultimately better earnings for our shareholders.

Our incentives are aligned. Our role is to help franchisees succeed while delivering the experience our customers expect. Today, franchisee profitability remains under pressure. Multiple quarters of same-store sales decline, coupled with continued inflation, have weighed on restaurant-level profitability for us and our franchisees. We are developing plans now to stabilize franchisee economics and expect to be in a position to provide more detail on that with the 2027 guidance.

Now turning to the third quarter. Quite simply, our performance remained below expectations. We are making progress operationally, but that progress has taken longer than we anticipated to translate into consistent financial results. Dawn will get into more specifics for the quarter and the pivots we've made accordingly. As we look ahead, our approach is straightforward. We will establish achievable objectives and execute against them consistently. I've outlined our key priorities today. On our November call, we'll provide additional detail around these plans and the outcomes we expect to deliver.

There is meaningful work ahead, but I have greater conviction today than I did a few months ago that we are focused on the right priorities. We're listening closely to our guests and franchisees. We're simplifying the business. We're elevating quality, execution and restaurant experience. And we're focused on improving restaurant economics to build the brand to sustainable growth. Our job is now to execute. We're committed to building a stronger Jack in the Box that creates lasting value for our franchisees, employees, and shareholders.

And with that, I'll turn the call over to Dawn to walk through our Q3 results. Dawn?

Thanks, Mark, and good afternoon, everyone. I will start by reviewing the details on our performance in the third quarter as well as provide more detail relating to our JACK on Track plan. The third quarter same-store sales for Jack in the Box decreased 1.1%, comprised of a franchise restaurant same-store sales decrease of 1.2% and a company-owned same-store sales decrease of 0.9%. This resulted primarily from a decline in transactions partially offset by menu price increases. Throughout the third quarter, performance varied greatly across the 2 marketing windows. We started off strong with the continuation of our Sliders platform. Then, as we transitioned to Hot Ones, performance did not meet our expectations. The products in the Hot Ones promotion were highly polarizing and did not uphold the higher end of the barbell. This means our check was lower and overall sales were softer than expected.

Upon lower-than-expected performance in the Hot Ones marketing window, the team pivoted quickly to stabilize the remainder of the third quarter. First, we added options to the promotion to offer more broadly appealing, less spicy builds of our LTO products. Second, we replaced promotional panels that featured value promotions with core, higher-price-pointed products to limit trade-down at the drive-thru. Lastly, we ended the marketing window early and pulled forward our Philly Cheesesteak platform launch to kick off Q4. The team worked with our suppliers, franchisees and restaurants to pull this forward a few weeks from its original launch. This platform has resulted in strong customer interest and a higher associated average check. Q4 to date, same-store sales are positive in the low-single-digit range, reflecting us getting the balance of premium and value right in our promotional calendar so far quarter-to-date.

Turning to margins, Jack's restaurant-level margin percentage in the third quarter decreased to 17.6% from 17.9%. Food and packaging costs as a percentage of sales were 29.3% for the quarter, increasing 70 basis points from the prior year. This was driven by commodity inflation of 5.4% in the quarter. We continue to see elevated beef costs, and while we expect inflation as a percent to abate in the fourth quarter, we expect overall beef costs to remain high. We also expect deflation in other commodities such as dairy to offset some of this pressure. Labor costs as a percentage of sales were 33.7%, decreasing 80 basis points from the prior year. This decrease was primarily related to a rollover of elevated unemployment taxes in California in the prior year.

Occupancy and other costs increased 30 basis points driven primarily by sales deleverage and higher rent. Franchise-level margin was $60.3 million, or 37.4% of franchise revenues, compared to $66.2 million, or 39.3% a year ago. Of this decrease, approximately $1.7 million was driven by lower same-store sales, $1.5 million was driven by a lower number of restaurants versus the prior year and roughly $1 million was higher bad debt expense.

SG&A for the quarter was $17 million, or 6.6% of revenues, as compared to $20.6 million, or 7.8% a year ago. The decrease of $3.5 million was primarily due to a legal reversal that drove a benefit in the quarter, as well as lower stock-based compensation due to forfeitures, partially offset by the market fluctuation of our COLI policies, as well as higher incentive compensation in the quarter. Excluding net COLI gains, SG&A was 1.4% of total system-wide sales for the quarter, driven lower by the legal reversal. The effective tax rate for continuing operations for the third quarter of 2026 was 36.9% as compared to 20.9% for the same quarter a year ago. The adjusted tax rate used to calculate the non-GAAP operating earnings per share in the quarter was 35.7%.

Earnings from continuing operations was $21 million for the third quarter of 2026 as compared to $22.8 million for the same quarter of the prior year. We reported GAAP diluted earnings per share from continuing operations for the third quarter of $1.08 compared to $1.19 in the same period of the prior year. Operating earnings per share was $0.96 for the quarter versus $1.04 in the same quarter of the prior year. Adjusted EBITDA was $61.2 million for the quarter as compared to $57.1 million in the prior year due primarily to the favorable SG&A decrease and partially offset by lower sales performance and restaurant closures.

Now, turning to JACK on Track. We've made progress this quarter paying down debt and taking care of upcoming maturities. We continue to focus on debt reduction, and I'm proud of the team for completing the refinancing this summer. We completed the refinancing on June 23rd, fully paying down the August 2026 tranche and substantially reducing our February 2027 tranche. Prior to the refinancing, we prepaid $110 million of the August 2026 debt tranche using withdrawals of excess COLI funding along with cash on hand. Since JACK on Track was announced in April 2025, we have decreased debt by a total of $244 million. Our total debt outstanding at quarter end was $1.5 billion and our net debt to adjusted EBITDA leverage ratio was 6.3x, which has decreased from 6.9x in the prior quarter. We now expect our interest expense for the year to be roughly $81 million. Included in the interest expense is $1.3 million related to debt extinguishment costs as a result of the debt refinancing this quarter.

As it pertains to real estate sales, we've generated $26.7 million of proceeds year-to-date. So far in the fourth quarter, we've generated approximately $1 million of proceeds, and we don't anticipate any further real estate sales in the fourth quarter. We have closed 40 restaurants year-to-date and expect to close an additional 10 to 20 during the fourth quarter. While closures have occurred a bit slower than we had anticipated, franchisees have increased their willingness to close ahead of franchise agreement expiration to focus on higher-performing restaurants and improve margins of their portfolio.

As Mark mentioned, profitability remains a challenge for our franchisees. As a result, we expect accelerated closures to extend into 2027. Based on year-to-date trends, we do anticipate select franchisees to continue payment delays and potentially include continued deferrals. We are working through specifics to improve franchise profitability, including reevaluating our closure program as a whole, and we will provide updated guidance on our November earnings call.

We also continue to be strategic with our capital expenditures. Year-to-date through the third quarter, our capital expenditures were $44.1 million, which primarily included spending on restaurant information technology and new restaurants.

Given our year-to-date performance as well as expectations for the remainder of the year, we did update certain guidance measures as reflected in our release. For fiscal year 2026, we now expect Jack in the Box restaurant count of approximately 2,100. We expect restaurant-level margin of approximately 16.5%, which includes mid-single-digit commodity inflation and low-single-digit wage inflation. We expect franchise-level margin of approximately $265 million. This reflects our latest expectations about closures and selling real estate. As we've noted in our guidance, the timing of these elements could shift and as such have an impact on our franchise-level margin. We anticipate SG&A to be between $112 million and $115 million. As a reminder, this excludes any gains or losses from COLI. And lastly, we expect adjusted EBITDA to be between $225 million to $230 million for the year. The rest of our guidance that remains unchanged is listed in today's earnings release.

We look forward to updating you on our full-year results in November. Thanks again for your time this afternoon. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Brian Bittner with Oppenheimer.

It's good to hear that comps are trending positive in the quarter. I think your guidance, the full-year guidance implies positive comps in the quarter. So do you expect comps to continue to remain positive? Is that correct as far as the full year guide is concerned?

Yes, I think it'll be somewhere around flat to slightly up.

Okay. And just my follow-up, Mark, you talked a lot about strategies, simplifying the menu, reducing marketing complexity. You're taking the promotional calendar down from 3 to 2. And that sounds like it makes sense, but it also sounds like that gives you less opportunities to try to drive the business potentially and create frequency and accelerate sales. So can you talk about the balanced approach you're taking here between simplifying the business and driving traffic?

Well, yes. Well, first of all, thanks for the questions, Brian. But I think the simplification for us, we see as a positive to drive business because it'll allow us to focus on what matters most. And I think part of our challenge in the past was we had so many things to execute that we didn't do a great job really on anything. So the whole idea of simplification isn't to eliminate, it's to focus. And we believe the result of that should be positive.

Your next question comes from the line of Sara Senatore with Bank of America.

This is Ashley on for Sara. Just on franchise-level margin, it's now expected to be around $265 million. Can you help us separate the impact from closures and real estate sales from the underlying pressure in the franchise business? And as those actions normalize, what do you view as the right base for franchise-level margin going forward?

Yes, so I can give you kind of the breakdown for the quarter anyway on the closure impact. So the closure impact was about $1.5 million. We haven't, year-to-date, sold a significant number of restaurants to franchisees, so you won't see any material impact of that on our franchise-level margin. But that could change going forward. I want to say we sold about 4 restaurants to franchisees, so nothing material there. But the biggest drivers are obviously the closure program and the lower sales driving franchise-level margin lower. Obviously, the franchise-level margin is variable based on sales, so when we see the uptick in sales start, you're going to see that flow through to the franchise-level margin.

Great. My follow-up is on digital. Just can you update us where digital and delivery economics stand today? Are these channels still driving profitable incremental sales? There's still some kind of work to do there.

So overall -- this is Rachel, by the way. Overall, our digital percent of sales is around 22% for the quarter. In terms of the overall economics, there's still a lot of work to do, I would say, to make sure that every transaction is profitable through those channels. We're working very closely with our franchisees to make sure that it makes sense for their business as well as for ours. And I don't know if you guys want to add anything about digital strategy, but that's kind of where we sit today.

Yes, I think one of the things we'd like to do on digital is not be so promotional, but be more brand-specific, be more engaging with our customers and bring more exciting products, not just promotional. So I think you'll see the strategy slightly evolve from where it's been, which will also help drive profitability.

Yes, maybe just one thing to add back to your franchise-level margin question just to help you build your model. We've said that for each closure, franchise closure that we have for an underperforming restaurant, it impacts our franchise-level margin by about $80,000.

Your next question comes from the line of Dennis Geiger with UBS.

Mark, I wanted to ask a high-level question about the 5 key priorities that you outlined to drive consistent same-store sales growth. Helpful color on the priorities as well as a rough sense of sort of what the timing looks like on those priorities, it feels like. But just wondering if you could share a bit more on maybe where you think some of the lower-hanging fruit within those priorities lies as well as maybe where there's a little bit more of a heavy lift among those priorities.

Yes. So first of all, we spent quite a bit of time with our franchise partners over the past couple of months really identifying what are the key fundamentals that we have to be better at. And that's really where those 5 priorities came from. It was not just us, but we had a 3-day offsite with the leadership of the franchise group and really focused on we've got to know our consumer better, we've got to understand what they want and we have to be able to deliver that. Quality means everything that we touch from the restaurant to the food to the prep to the packaging, even to the team members because we'll be launching new uniforms next year. The look and feel of the restaurant. We have a refresh program going on right now that is really starting to take off. We've got more than 1/4 of the system have signed up for it just in a couple of weeks.

And then ops excellence. And I think this is the one that's probably the most challenging to get consistency at all of our 2,100 doors. And our ops team has done a lot and will continue to do a lot. We have field ops people now out training. We have franchisees that are welcoming the different training programs that we have and consistent follow-up in the restaurants. But that is a broad one because the back of house is a little bit different in each -- not in each restaurant, but in quite a few models that we have. So we want to bring more consistency to how we deliver the experience to the consumer. They're all underway, there's different groups working on all of them. But to me, it's the ops excellence and being consistent throughout the system, which is a real coordination between us supporting our franchisees.

Your next question comes from the line of Brian Mullan with Piper Sandler.

Just wanted to ask on the store closure comments earlier. Thanks for the update of your 4Q expectations. Understood this might extend into fiscal '27. Could you just expand on that a little bit? What's the disconnect between the pace you were expecting to see versus maybe what the franchisees are doing this?

Yes, so I think we've said that the closures have occurred at a slower pace than we had expected, and that's due to the lease obligation that remains once the restaurant is closed. Sometimes that burden is more than the loss they incur for operating the restaurant. That being said, we have hired a third-party firm to work with us on exiting the leases. They are currently working through the list of restaurants, prioritizing and up and running. So we do expect that, that closure rate will accelerate. We do think just based on overall profitability, if you think back to when we announced JACK on Track, we said we needed to close about 150 to 200 restaurants. Since then, we've obviously had 4 more quarters of same-store sales losses, so we are reevaluating our closure program as a whole. I think the restaurants that we didn't close in '26, you can expect to carry forward into '27, and I would expect elevated closures to continue into '28.

Okay. And then can you just give an update on the Chicago market? In the last call, you talked about starting to see some positive signs on the top line, which is good for margins. And then related to that, do you want to own that market long term or find a partner?

Yes, so Chicago, we did see improvements on the labor and food and packaging lines, so that was good news. We did turn on digital in that market, and that provided some pressure to the middle of the P&L with the digital fees. In our newer markets, digital sales are a higher sales mix. And obviously, those are less profitable just because of the digital fees that you have to pay. I will say that AUVs for Chicago are running under company averages. I think when we went into that market, operational execution and core leadership has impacted sales. But going forward, we have a new VP in market who's been focusing on the people and bringing the right leadership, we believe, to turn the market around. He's also very financially focused and looking on controllables, and we're starting to see that impact the margins there.

So good news there. I think as we progress with the stable leadership in place, we're going to gain more traction in that market. And I'll say that as far as long term, our plan has always been to seed that market and franchise it. But right now, we're just focused on getting the market to where it needs to be.

Your next question comes from the line of Logan Reich with RBC Capital Markets.

I just wanted to ask on the same-store sales improvement quarter-to-date. Just if you can help us understand what the biggest drivers of those are and then what you think the biggest opportunities you guys have in the near term on same-store sales growth for Q4, and then I have a follow-up.

Yes, so as we started Q4, we entered our Philly Cheesesteak window. As I noted in the prepared remarks, we pulled that window up based on the underperformance of our Hot Ones window. That has provided a really good balance between premium and value. The Philly Cheesesteak has a very strong center-of-the-plate offering combined with strong add-on products in our sauced and loaded wedges. So I think what you're seeing with this window is that our barbell strategy is balanced and it's really working. And as a result, as I mentioned, the sales trend is positive. We're seeing stronger check and traffic, and we're benefiting from that.

So we think this is a really good window and indicative that we're on the right marketing strategy. As we end the year, we have a window at -- I think it starts the last 2 to 3 weeks of the year. A very exciting collab that we have that we're looking forward to. So we really see that this momentum is going to continue.

Great. That's helpful. And then just curious if you saw any impact from the World Cup in Q3 as a lot of the games were in some of your core markets.

Yes, so I'll say we did see a benefit in our core markets that hosted, especially in the L.A. market, and it was a decent lift for a few weeks, but nothing that provided a significant lift for the overall system for the quarter.

Your next question comes from the line of Jim Sanderson with Northcoast Research.

I wanted to go back to the visits you've made to stores and the discussions you've had with franchisees. I'm wondering how are you giving those visits looking at labor and staffing levels amongst the franchisee store base? Is that where they should be? Or is there further investment that has to be made in order to execute on a new marketing or product development program?

No, I think the labor model is fine at this point. The issue really is sales. It's not labor. Labor looks bad because sales have declined, and I think really we're running at a pretty low labor rate. So -- and I don't think the execution is about more investment. Right now, it's just doing fundamentals. And I think that old saying of less is more, and that was to an earlier question. We just need to pick a few things, which we've done together, franchisees and us together as the franchisor, and said, we need to win in these 4, 5 key areas. And if we do that, we can start to build some positive momentum. I think we're all aligned. We just had this great conference a few weeks ago where we rolled out these 5 initiatives and everyone aligned behind them. And we're all holding hands as we move together and execute against these strategies. So I think we're in really good shape. And I'm not -- the things that we pick do not require more investment.

All right. I just had a quick follow-up question on the store margin guidance. I think it's 16. What is the most important step down as far as fourth quarter goes? What we should be watching for to get to that level for the year?

I'm sorry, on the 16.5%? I think -- yes, I think it's Chicago. I think that market, if you take Chicago out, our restaurant-level margin would have been 18.5%. So those restaurants do impact our consolidated results. So I think Chicago is going to be something to watch and something we're watching internally to get to where we think we need to be or where we plan on being.

Your next question comes from the line of Arian Razai with Guggenheim.

Congrats on the progress. It looks like the competitors are upgrading their chicken and beverage platform. What are your thoughts and expectations on that front? Are you anticipating any major upgrades there? And I have a follow-up on menu simplification.

Yes, I think -- is it Arian? Is that...

Yes, yes.

Nice to meet you, Arian. Look, I think beverages is a big opportunity. And everyone in the space is looking at beverages. We have a very good beverage platform. Our shakes are amazing. I think it's about doubling down on what we have in terms of that. Chicken is the protein of choice right now, and we have to innovate in chicken. Now, we've got great chicken offerings right now, and so to me it's more in this menu reimagination, it's how do we focus on, and that would be some of the core products that I would be focusing on, which would be beverages, specifically our shakes, and how do we do a better job around chicken, and a lot of that, I believe, is going to be how you see it visually on the menu board, which we're working on. So those are big opportunities, and as everyone else is looking at them, we need to look at them, too.

Yes, and I'll just add a couple things on drinks. One difference is the access that we have to our partners and our products and the innovation that we put into them. Our Red Bull Infusions are a strong example of that, and you can continue to expect that we're going to build on that platform. And then as far as chicken, we've improved the quality of our chicken over the past year, but we do have some room on quality perception, so we'll continue to work towards that.

Got it. And on menu simplification, I just want to make sure I understand. Are you considering a noticeable decline in the SKU count as you zero in on what moves the needle for the customer?

I think there will be a small reduction in SKU count, but the menu simplification is really not about eliminating products. Some will go because some really carry no sales with them at all, but it's really more about how we lay it out and how it needs to be easier for the customer to look at the menu board and not get panicked and be able to pick their meals or their favorite items with a little bit more ease. And that's really what it's about. I'm actually -- we're in our boardroom right now and I'm looking at a couple of these examples which are pretty, pretty awesome. So we're excited to get into that in 2027.

That concludes our question and answer session. I will now turn the call back over to Mark King for closing remarks.

Hey, everyone. Thanks for joining today. We got a lot of work to do here, but we're excited about it and we'll talk to all of you soon. Thanks for joining.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Jack in the Box Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Rachel Webb, Vice President of Investor Relations. Rachel, please go ahead.

Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our second quarter of fiscal 2026. With me today are Interim Chief Executive Officer, Mark King; Chief Financial Officer, Dawn Hooper; and Senior Vice President of Strategic Finance, Jeremy Korzen. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts.

Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at jackinthebox.com.

We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent Form 10-K to be part of our discussion. Material risk factors as well as information relating to company operations are detailed in our most recent Form 10-K, 10-Q and other public documents filed with the SEC and are available on our Investor Relations website.

And with that, I would like to turn the call over to our Interim Chief Executive Officer, Mark King.

Thanks, Rachel, and good afternoon, everyone. I really appreciate you joining us, and I'm really excited to be here today as Interim CEO.

Before I dive in, I want to start by wishing Lance Tucker well. On behalf of the Board and everyone at Jack in the Box, I want to say thank you for all Lance has done in the past year in laying a strong foundation and a clear strategic path to the JACK on Track plan, by simplifying this business.

So first, why am I here? Jack is an iconic brand with deeply engaged stakeholders and a business model that generates meaningful cash flow. Since I joined the Board of Directors, my excitement for this brand has only grown. This brand has tremendous potential, and we are only scratching the surface of the opportunities we have ahead of us.

The Board and I firmly believe that we are on the right path, and we have the right strategy in place. And as interim CEO, my focus will be on accelerating the JACK on Track initiatives already underway.

In addition to accelerating JACK on Track, one of the first things I've tasked the leadership team with is to operate with a renewed sense of urgency, an urgency to improve operating results and enhance shareholder value.

The leadership team here at Jack is strong, and I'm excited to work alongside them to get Jack back to positive same-store sales and transaction growth. By empowering our team members, employees and franchisees to obsess over our guests and a best-in-class guest experience, I'm confident we can capture incremental sales even in the current pressured consumer environment.

We've already made significant progress. Year-to-date, we've streamlined our marketing calendar, which has helped our operational execution in the restaurants. We have also better balanced our value and premium messaging, which improved our sales trends throughout the second quarter and into the third quarter.

Improving the guest experience is central to everything we do. Alongside the operational improvements Shannon McKinney, our COO, has already made, we are sharpening our focus on the quality of food and the appearance of our restaurants.

Mini refreshes are proving to be a high ROI lever, delivering measurable sales improvements with limited capital outlay. We've more than doubled our pace year-to-date and are accelerating the rate for both company and franchise restaurants that are benefiting from this mini refresh program. I'm confident that we can increase the pace of our progress by further simplifying and executing our strategic initiatives with discipline.

We also know our success is not possible without the success of our franchisees. We will continue to put franchisees at the front and center of every decision we make, driving stronger margins and profitability for our franchisees and for Jack in the Box. Helping to ensure franchisees thrive is not just one single initiative, but rather our core focus across all operations every day.

While we certainly have more work ahead of us, Jack in the Box is positioned to create sustainable value for our shareholders. I look forward to working closely with the Jack in the Box team and franchisees and engaging with our shareholders while Board members conduct a search for the company's next CEO.

I'll now turn it over to Dawn to walk through the details of our second quarter results. Dawn?

Thanks, Mark, and good afternoon, everyone. I will start by reviewing the details on our performance in the second quarter as well as provide more detail relating to our JACK on Track plan.

The second quarter same-store sales for Jack in the Box decreased 3.8%, comprised of a franchise restaurant same-store sales decrease of 3.9% and a company-owned same-store sales decrease of 2.8%. This resulted primarily from a decline in transactions, partially offset by menu price increases.

As Mark mentioned, second quarter results reflect a better balancing of premium and value promotions. We improved transactions quarter-over-quarter with our value offering of Munch Better Deals. This was balanced with check growth from our premium innovation in Smashed Jack Sliders. Sliders are available as a 1-piece add-on, a 3-piece combo, a Munchie Meal and a party pack, allowing guests to purchase them across different occasions. We also improved the offer lineup on our first- and third-party digital channels in the quarter, which drove higher, more profitable checks. This combination reinforced the barbell strategy is working, and we see that momentum continuing in our third quarter. So far, quarter-to-date, same-store sales are approaching flat.

Turning to margins. Jack's restaurant level margin percentage in the second quarter decreased to 16.4%, down from 19.6% Food and packaging costs as a percentage of sales were 28.9% for the quarter, increasing 110 basis points from the prior year. This was driven by commodity inflation of 5% in the quarter. We continue to see elevated beef costs and expect inflation to maintain at the double digits through Q3 and moderate in Q4. We also expect deflation in other commodities such as dairy to offset some of this pressure.

Labor costs as a percentage of sales were 35.6%, increasing 180 basis points from the prior year. This increase was primarily related to a change in the mix of restaurants.

Occupancy and other costs increased 40 basis points, driven primarily by sales deleverage and higher rent.

Franchise-level margin was $60.5 million or 37.9% of franchise revenues compared to $68.3 million or 40% a year ago. The decrease was mainly driven by lower sales driving lower rent revenue and royalties, a decrease in the number of restaurants as well as lower lease termination fees.

SG&A for the quarter was $26.4 million or 10.4% of revenues as compared to $28.2 million or 10.6% a year ago. The decrease of $1.8 million was primarily due to the market fluctuations of our COLI policies as well as lower legal costs, partially offset by higher stock-based compensation due to prior year forfeitures. Excluding net COLI gains, G&A was 2.3% of total systemwide sales for the quarter.

Our Transition Services Agreement, or TSA, following the Del Taco sale concluded in the second quarter. We generated income associated with the TSA of approximately $600,000 in the second quarter and $1.5 million year-to-date. This income is included in our reported G&A figures.

The effective tax rate for continuing operations for the second quarter of 2026 was 27.7% compared to 27.6% for the same quarter a year ago. The adjusted tax rate used to calculate the non-GAAP operating earnings per share in the current quarter was 31.1%.

Earnings from continuing operations was $12.5 million for the second quarter of 2026 as compared to $20.7 million for the same quarter of the prior year.

We reported GAAP diluted earnings per share from continuing operations for the second quarter of $0.65 compared to $1.09 in the same period of the prior year.

Operating earnings per share was $0.76 for the quarter versus $1.25 in the same quarter of the prior year.

Adjusted EBITDA was $51.3 million for the quarter, down from $61.5 million in the prior year due primarily to lower sales performance and restaurant closures.

As we have discussed, JACK on Track is focused on bolstering the long-term financial performance of the company by strengthening the balance sheet and positioning the company for sustainable growth. We continue to be focused on debt reduction. Our total debt outstanding at quarter end was $1.6 billion, and our net debt to adjusted EBITDA leverage ratio was 6.9x.

We are also in the process of withdrawing excess COLI funding of approximately $71 million, which is expected to be used along with cash on hand to prepay approximately $99 million of the August 2026 tranche early in the third quarter. Considering this prepayment, our pro forma leverage ratio is approximately 6.2x.

As you saw in today's earnings release, we are actively [Technical Difficulty] generated $14.7 million of proceeds year-to-date. We expect to sell additional real estate with proceeds of approximately $35 million to $45 million by the end of the fiscal year with the expectation that these proceeds, along with cash on hand would be utilized to pay down debt.

We do expect closures to accelerate in the back half of the year. In particular, as franchisees see the clear path to recapture sales, they have increased their desire to close earlier than their franchise agreement expiration.

We are also being strategic with our capital expenditures. Year-to-date through the second quarter, our capital expenditures were $34.5 million, which primarily included spending on restaurant information technology and new restaurants. As a reminder, roughly $5 million of this was due to timing of payments associated with the Chicago restaurant openings in Q4 of last year.

Given our year-to-date performance as well as expectations for the remainder of the year, we did update certain guidance measures as reflected in our release. For fiscal year 2026, we now expect same-store sales decline of low single digits. As expected, Q1 was our lowest point, and we anticipate a steady improvement through Q3 and further into Q4.

We're excited about the marketing lineup we have in the back half of this fiscal year. Our upcoming marketing campaign features a culturally relevant collab with Hot Ones, featuring 2 new Hot Ones Munchie Meals. We will also have consistent value, and you'll see us round out the year with premium innovation, further improving trends from a more balanced barbell strategy. We expect restaurant level margin of approximately 17%, which includes mid-single-digit commodity inflation and low single-digit wage inflation. We expect franchise level margin of $265 million to $275 million. This reflects our latest expectations about closures and selling real estate. As we've noted in our guidance, the timing of these elements could shift and as such, have an impact on franchise level margin.

With the TSA behind us, we now have better visibility into steady-state G&A for the Jack in the Box stand-alone brand. We expect G&A to be approximately 2.3% of systemwide sales. We anticipate SG&A, which includes advertising, to be between $115 million and $125 million. As a reminder, this excludes any gains or losses from COLI.

And lastly, we expect adjusted EBITDA to be between $225 million to $235 million for the year.

The rest of our guidance that remains unchanged is listed in today's earnings release.

In closing, we continue to make steady progress on JACK on Track, and we continue to build a stronger foundation for sustainable long-term growth. We look forward to keeping you updated on our progress throughout this fiscal year. Thanks again for your time this afternoon.

Operator, please open the line for questions.

[Operator Instructions] And your first question comes from Jeff Bernstein with Barclays.

Great. My first question, Mark, just curious, the skill set you think is needed to accelerate the turnaround plan. I'm just wondering maybe what are your top priorities for that new hire? And maybe in the interim role, what do you think should be, first and foremost, to accelerate the turnaround? And then I had one follow-up.

Yes. Well, thanks for the question, Jeff. First of all, I just want to say the JACK on Track is progressing nicely. When I was hired initially to be on the Board, brought on the Board, it was something that was a big part of the discussion. So certainly, I'm a big fan of JACK on Track.

I think short term, we really need to address transactions and same-store sales. I do have quite a bit of experience in the category and with driving sales and transactions. So for me, it's a holistic look at our innovation value and core products, how do we construct the windows and as importantly, how do we drive marketing around those. I think we have so much variety. It would be nice to really focus on a few key items that can move the needle a little bit. So those are my first thoughts. I've been on the job now for 72 hours. So -- but yes, those are my comments.

Understood. 72 hours seems like plenty of time.

Thanks, Jeff.

Yes. My follow-up question is just on the franchisee health. Obviously, you haven't been on the Board that long, but I know you've had lots of experience working with franchisees in the past. And I think we discussed this last quarter, but figured I would get your opinion, it would seem like the franchisee 4-wall margins and profits are under pressure. So beyond the JACK on track, I'm wondering if there's anything in the short term you can do or conversations you're having with franchisees to help them navigate the difficult environment, whether it's financial support or otherwise. It seems like you're asking them to maybe do some more refreshes or some more bigger picture remodels, but it just seems tough in this environment. So just wondering if there's any conversations around how corporate can potentially help franchisees in any way?

Yes. Thanks for the question, Jeff. Well, I do know that our COO, Shannon McKinney, has constructed a committee with -- made up of both franchisees and people from corporate to look at the challenge. I believe that a lot of the profitability will be in simplifying the menu, the back of house. And I think we have to move really fast. That's one of the areas, I think, that we haven't moved fast enough on. And I do believe that will unlock profitability, labor, some of the things that we can control short term. When there's price increases on commodities, there's not a lot we can do about that. So I think it's really around menu, it's around key items and it's around back of house. Those are short-term things that we'll address.

Your next question comes from the line of Brian Bittner with Oppenheimer.

This is Mike Tamas on for Brian. You called out the improving same-store sales in the third quarter, and you said they're approaching flat. So can you help us just unpack for us what you believe drove that improvement and maybe how that compares to the industry? And then I have a follow-up after that.

Yes, I'll take that question. So yes, pretty excited about the trends we're seeing, [Technical Difficulty]. We think the back half of the year is going to be strong. We think Q4 is going to be the strongest. And I think what really got started to see some momentum in Q2 was a more balanced barbell strategy. We have our much better deals that really hit and drove transactions. And then we balance that with our sliders, which are broadly appealing and can support different dining occasions. It can be used as an add-on, a 3-piece combo, Munchie Meal and party pack. So I think there was a lot going on there. And continuing with our barbell strategy this quarter, what we've seen just really reinforces that, that's the right thing to continue the momentum.

Additionally, I'd just say operationally, with Shannon and his team and their operations excellence, we're starting to see a lot of green shoots, I'll say, there from internal -- what we're seeing in internal measures on customer satisfaction as well as externally on just improving accuracy, friendliness, et cetera, like with those bright spots, those are lead indicators that things are getting better. And when you have good operations in your restaurants, that's going to help drive sales.

And then you did mention improving trends into the fourth quarter, thinking it will be the strongest. So I think the back half of the year implies sort of flat to above 4% comps and to get to low single digits for the full year. So what do you think are the catalysts and differences that would keep you at sort of like flattish in the back half, which is where you are now versus maybe achieving the top end of that implied outlook?

Yes. So I think if you look at the back half of the year, there's a lot of exciting things ahead. We know value is important. We continue to focus on value. We've got it in every window. We continue with our much better deals with a $5 price point. We also have an exciting World Cup FIFA event that we think is going to boost our sales in Q3. We're also leaning into nonfood items. Jibbitz were a hit. We're going to bring back Jibbitz -- we realize that, that's something that customers want and others have been successful at. So we're going to continue more with that. Collabs, we believe, are important as well. We have our Hot Ones promotion mentioned in our script, and that's coming in our next window. But just a lot of exciting things going on. And like I said, I think we're going to begin to see more in the back half of the year, the benefits from all the ops improvements that we've made.

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

Just on your comments about the store closures, has there been any change to the number targeted there, how you might think about that? Or is this just sort of a timing shift at this point?

Yes. No, the number is still the same. I'll tell you that the closures have been slower than we had initially anticipated. We do think closures are going to accelerate in the back half of the year, mentioned that franchisees are starting to show more interest in closing restaurants sooner. We are seeing a very attractive sales transfer benefit of about 30% on average. Also, we're going to be dedicating more resources to engaging with landlords on exiting the leases because we believe that's the biggest hurdle that's keeping franchisees from closing more underperforming restaurants.

Okay. Understood. Just as you have these refinancing conversations, I mean, -- what is -- what do you anticipate might be needed there? Or is this somewhat just about the cost of refinancing? Could you say anything more about how those conversations have proceeded or what steps you're taking to get there faster to the extent that you could talk about it?

Yes. Like I mentioned, we'll have more details to share later this summer, but we are actively working with our advisers and are regularly evaluating the market conditions. Obviously, there is a headwind on the cost side, but we're evaluating all available structures, and we'll optimize our solution based on market conditions.

Your next question comes from the line of Sara Senatore with Bank of America.

Austin on for Sara. Just thinking about the revised co-op margin guide, it implies a sequential step-up in the second half versus the first. Just squaring that with the unchanged commodity and wage inflation outlook and just how 3Q and 4Q are typically your weakest margin quarters. What -- could you kind of help me bridge getting to -- getting from current margins to around 18% in the back half?

Yes. So I'll say just from a commodity standpoint, obviously, beef is the most impactful and the leading reason why we're guiding to mid-single digit -- single-digits. Beef is up double digits Q1, 2 and 3. We do expect it to moderate into Q4 to low single digits. So we do expect to get some relief on that front.

Also, if you think about Chicago, the Chicago market, we talked about that in Q1. It was a new market for us, 8 restaurants company operated. We did have some, I would say, difficulties entering that market that caused our margins to be lower. The good news is that in Q2, we are seeing -- starting to see some upside in Chicago from a top line perspective and also a bottom line. And there is more momentum because as we get operations to where we need to be, there's a little more work to do there. We will add an additional sales layer by expanding operating hours.

All right. And then also just thinking about the revised comp guidance, where do you all feel like you fell short of expectations like within value, innovation, maybe a specific daypart? And I guess what's the current plan to address your weaknesses?

Yes. I think we started the quarter with a niche premium item. And so as you look to kind of where we saw the back half of the quarter land, the premium item, I already mentioned was our sliders and it had a more broad appeal to it. So I think that's where we started to see the trends turn, but that kind of niche premium item that we started out the quarter with wasn't as successful as we had anticipated.

Yes. Just to be specific, that was our Hot Mess Burger, which sold a little bit less as you think about that compared to like a slider, for example. And so as we move into the back half of the year, you'll see more broadly appealing options on the higher end of the barbell.

Your next question comes from the line of Christine Cho with Goldman Sachs.

Dawn, I think you noted the improvements to the offer lineup across both first and third-party digital channels in the quarter that drove higher and more profitable checks. Could you elaborate a little bit more, give us a little bit of an update on progression of digital sales, dynamics between transaction versus check growth and how these factors have contributed to enhanced profitability in the channel?

Yes. So one of the key things we've been digging into -- this is Rachel, by the way, digging into is looking at each channel's profitability compared to the others. And one thing that as we opt into potential promotions or our franchisees opt into promotions, it's really important that we get that balance between discounting to drive transactions with the higher check benefit right? And so we've taken over the past, I'd call it, 6 or so months to really dig in with our franchisees and understand all of the costs associated with these channels and the top line benefits from these channels to really find a better mix. And so we had some changes on our first-party platform to still have great offers for our guests, but not a such aggressive discounting percentage that it impacts profitability. And so obviously, there's a balance there. We've been working hand-in-hand with franchisees to make sure that the offer mechanics make sense. I think that answered part of your question. If I didn't answer it all, please chime in.

No, that's great. And just another one. I know you launched the new matcha drinks in February. Any early responses from guests and whether that signals a broader move towards more diverse beverage and snack categories?

Generally speaking, the beverage category has been a bright spot for the industry, and Jack can come to market in very unique ways, leaning into different flavors and different offers for our guests. And so you've probably seen matcha, you've seen a couple of others that are very unique to drive some trial. And so we have seen some good success with those, and you'll see us pulse those throughout the remainder of the year.

Your next question comes from the line of Chris O'Cull with Stifel.

This is Patrick on for Chris. Mark, I had a follow-up on marketing. Do you believe that there could be a need for the company to support marketing with maybe company-funded investments in the second half while you work to bend the curve on sales? Or do you feel like there's adequate resources at this point to do what you need to do for marketing?

So Patrick, I would say at this point, I'm probably not qualified to say that because I haven't really drilled in that much. But I don't think the issue is that we don't have enough money funded by the marketing fund. I think it's how we use it and how we be more efficient with it and how we're more integrated in telling the stories and having fewer items that carry more impact. And I think that's how we find efficiency. So I think we're fine on the marketing side -- marketing fund side.

Got it. That's helpful. And then I know the company reduced prices fairly recently on some of its core bundles in the core menu. I was curious if there's signs that, that decision is resonating with guests on the value front. And just as you guys think about the core menu, is there more work to do there? Or do you feel like the pricing architecture is where it needs to be from that perspective?

Yes. So I'll start -- this is Rachel. I'll start and then I'll hand it over to Mark. So in general, we had a few combos on our menu like you mentioned, that we had sort of capped pricing at $9.99 to be more affordable for our guests. And generally speaking, we've seen improvements in value scores, affordability scores. There's a handful of metrics that we monitor on a day-to-day basis. But as it pertains to the overall menu structure or value equation, I don't know if it's too soon, Mark, for you to chime in on that, but if you have some thoughts, feel free to share.

Yes. Patrick, I would say that one of the most important things in driving same-store sales is the pricing structure. So I think we have to look at how do we really become a relevant value brand so that we can compete with some of the other category -- some of the other competitors out there. Our core is really important and obviously, LTOs to drive interest in the different windows. So there's a real science to building a pricing structure that I think Katelyn, who came to us from Yum! Brands, our new CMO, will help a lot there because she comes with a lot of experience. So that's one of the first things we're going to look at really is how do we price in these 3 different areas, hopefully, to drive trends, but also then to drive profitability for the franchisees.

Your next question comes from the line of Lauren Silberman with Deutsche Bank.

I wanted to ask on quarter-to-date comps, nice to hear about the improvement. How much do you attribute it to company-specific initiatives versus easing compares? And just more broadly, a lot going on in the industry, macro headwinds, gas prices. Are you seeing any impact on the consumer? Any changes in how the consumer is using the brand or any differences you're seeing across regions?

Yes. Lauren, so I'll say we do think it's not just easy compares. Like I said, we do feel like we have a strong balanced barbell strategy in the second half of the quarter. And from an ops perspective, when you look at our internal and external scores, they're scoring higher. So that would lead you to believe that some of the sales is coming from our ops excellence. Sorry, I forgot your second question.

Is it -- all good. Anything on like related to gas prices and whether you're seeing any impact from the rising gas prices and whether that's coming out in terms of just regional differences in comps across markets?

I would say last year, we saw the largest headwinds from a consumer perspective. And so as we start to lap some of those, we don't expect a significant impact from the macro trends. And as Dawn mentioned, one of our misses early last year was the lack of value, and we've got that consistently this year. So we expect it to be a little bit more normalized of a trend as opposed to what we experienced in the back half of last year.

Are you seeing any differences across markets or pretty consistent across the system?

Yes. It's been pretty consistent.

Lauren, this is Mark, obviously, since I'm here with 2 women. I'd just like to say something about all these macros. I mean if you look in the last week or so, some of our competitors -- actually, quite a few of our competitors have had good comps year-on-year. And so there's no reason we can't. And yes, there's headwinds, but there's always some type of headwind. Our challenge really is how do we combat that? How do we construct the menu, the pricing, the marketing to be relevant in today's marketplace. And there's no reason we can't.

Your next question comes from the line of Logan Reich with RBC Capital Markets.

I wanted to follow up on the quarter-to-date commentary and the full year same-store sales guidance. Should we think -- or I guess, just thinking about the comps for Q3, you talked about flattish quarter-to-date, but you also talked about World Cup being an opportunity and some other initiatives. I guess just how should we think about Q3 comps in regards to that? And then anything specific you guys have planned for the World Cup as it relates to marketing or menu innovation?

Yes. So I mean, I'll say we do expect to see continuing momentum on the same-store sales side. As we exit Q3 and go into Q4, we do expect to be positive. Again, Q4 is expected to be our strongest quarter of the year. We do have a really exciting collaboration coming towards the end of the year that we cannot speak to, but super, super excited about it. And I think it's going to drive a lot of excitement with our customers as well.

Great. And then my follow-up is just on the ops. Any like low-hanging fruit or where do you see the biggest opportunity from an operations perspective in the business over the next few quarters?

Yes. Logan, I would say this. I think Shannon, our COO, is fantastic. And I think he's made a real effort to spend time in the marketplace. We're hiring people who will now work with franchisees out there on running their restaurants, finding profitability, training. I think the ops effort is really off to a great start, and that's one area that we probably need to double down on in terms of supporting and resources because that is what's going to ultimately drive franchisees and better operating standards and have standards that we can hold franchisees to, which in the long run helps them.

Your next question comes from the line of Jim Sanderson with Northcoast Research.

I just wanted to follow up to the quarter-to-date concerns. In the past, you talked about your exposure to Hispanic consumers and low income. How are those groups trending relative to your system averages, those cohorts?

Yes. So, so far, we've seen that the Hispanic consumers have -- the trends have improved stronger than the rest, which makes sense given what we're starting to roll over now. The other thing I would just say is within the quarter, we're rolling over so far quarter-to-date, the strongest hurdle from the prior year. And so that will also give us a little bit of tailwind as we exit Q3 in addition to all of the initiatives that Dawn outlined for the lineup of the remainder of the year.

Okay. So it sounds to me as if you're getting a little bit better traction from those cohorts. Fair to say?

Yes. That's correct.

And then another quick follow-up on the closures. I think you have guided 50 to 100. Given that we're past the halfway mark pretty much, where do we think that will land for the year? I'm assuming 40 to 60. Is that pretty reasonable for the second half?

Yes, I would say probably higher. We're definitely going to be in the range. As I mentioned, I think in the prepared remarks, we do expect closures to accelerate in the back half.

[Operator Instructions] Your next question comes from Gregory Francfort.

Mark, I guess I'm curious your perspective on how much do you think Jack's challenges have been an asset-based problem, a marketing problem or an ops problem? And maybe within the asset-based problem, how much of that capital improvement in dollars that need to get spent, do you think are Jack's responsibilities versus maybe the franchisees' responsibilities going forward? How do you encourage them to kind of come up with the dollars to do that?

Well, those are a couple of questions there, Gregory. But I mean, by definition, the capital investments need to come from franchisees. I mean it's how the system is actually constructed. I know right now, the system is challenged from a profitability standpoint. So we're trying to be very aware of that. So -- but from a capital investment, I think that is the franchisee responsibility.

I think where has Jack struggled? I think it's across the board. I don't think there's one area. I think we can shore up ops, and I think Shannon is off to a good start. I think bringing in a really talented CMO in Katelyn Zborowski is going to help a lot. We do not have a food problem. We have all kinds of innovation that we can figure out how to position. So I think going forward, it's what does the menu look like? How do we construct the menu and pricing to be able to drive people into our restaurants. And then the customer experience just needs to be better. And that comes from brand standards, franchisee execution, our helping on training and education. So I think it's all of that. And I think that will be my focus for the coming months.

One thing to add to that is we've had a reimage program in place with our franchisees. Now isn't obviously the time to do an extensive reimage, but we do have what we're calling our mini refreshes, which is a paint, re-striping of the parking lot, landscaping, given the majority of our business is outside the restaurant, there's a lot of excitement. The cost is low. We're seeing same-store sales benefits of low single digits after they're done. So a lot of excitement and something we can do in the short term to help boost our image and bring in customers.

And that concludes our question-and-answer session. I would now like to turn the conference back over to Mark King for closing comments.

Thank you, and thank you, everyone, for tuning in today and for listening. And I look forward to meeting all of you and seeing you in the coming months, and we will be back in touch within a few months. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Jack in the Box First Quarter 2026 Earnings Call. [Operator Instructions]. Thank you. I'd now like to turn the call over to Rachel Webb, Vice President of Investor Relations. Please go ahead.

Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our first quarter of fiscal 2026. With me today are Chief Executive Officer, Lance Tucker; our Chief Financial Officer, Dawn Hooper; and our Chief Customer and Digital Officer, Ryan Ostrom.

Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at jackinthebox.com.

We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion.

Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC and are available on our Investor Relations website. Additionally, on January 21, 2026, the company filed a definitive proxy statement and related materials with the SEC in connection with the 2026 Annual Meeting of Stockholders.

Our directors and certain officers are participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials as they contain important information, including the identity of the participants and their direct or indirect interest by security holdings or otherwise.

While we understand that there may be interest in our ongoing proxy contest, please note the purpose of today's call is to discuss Jack's first quarter earnings results and we ask that you keep your questions focused on our financial performance. And with that, I would like to turn the call over to our Chief Executive Officer, Lance Tucker.

Thanks, Rachel, and I appreciate everyone joining us today. I want to begin by thanking our team, our franchisees and our shareholders. This past quarter has been one of hard work, dedication and grit. It is a quarter critical in laying the foundation for 2026 and beyond. We remain focused on simplifying the business, and we've made visible progress since the last quarter.

On this call, I'll provide a brief update on our JACK on Track plans and how I'm thinking about the remainder of 2026 and then I'll turn it over to Dawn to walk through first quarter results. In December, we successfully closed on the sale of Del Taco, and we then made a significant paydown on our debt. We are doing exactly what we committed to do by simplifying the business and bringing down debt levels, and I'm really pleased with the progress to date.

With the transaction complete, only minimal separation activities remain and the team is fully recentered on strengthening the Jack in the Box brand and executing the remaining elements of our JACK on Track plan. As we entered 2026, Jack in the Box proudly marked its 75th anniversary, a milestone few brands reached. The response to our anniversary activations has been positive, reinforcing what we know to be true. Jack remains beloved by our customers.

Guests are leaning into the nostalgia that defines our heritage while embracing the differentiation and innovation that continue to move the brand forward. 2026 is about laying the foundation for sustainable long-term growth. which requires doing a lot of hard work right now. We're confident that the actions we're taking will lead to a stronger, more stable platform from which to grow. We are beginning to see early results that reinforce that we are on the right path but as a reminder, this is a multistep process and the benefits of this work will take time to fully materialize.

Turning now to first quarter results. Q1 results were choppy but broadly in line with our expectations. As we discussed on the last call, we're off to a tough start to the quarter. And while we did experience some bright spots throughout the quarter, the end of the calendar year didn't improve to the degree we were looking for. It really wasn't until January that we started experiencing consistent meaningful improvements to performance. And importantly, the improvement was on both a 1- and a 2-year basis.

January featured the launch of our 75th anniversary marketing calendar, including a throwback combo in the [ Chicken Supreme Monty ] meal, coupled with a new fan favorite, [ Jib ], a backpack charm. Customers have been trying to collect all 4 [indiscernible] and we've seen a great response, which drove an increase in sales of our Munchie Meals, which generate a higher average check.

Customers are still careful about where they spend and we remain committed to a strategy grounded in driving value for guests while protecting profitability for ourselves and our franchisees. You'll see us continue to feature price pointed value promotions but also drive our barbell strategy with add-on and upsells through technology. To reiterate, Q1 was in line with our expectations, and we knew the year would get off to a slow start. But as the reaffirmation of our guidance reflects, we expect to see steady improvement on the top line as we move through 2026.

This is really a year of getting back to our roots at Jack in the Box. We have been very deliberate in how we spend our time and capital, focusing on the fundamentals we believe are essential to sustainably improving the business. These efforts will take time to become visible in our results, but they are critical to improving consistency, profitability and long-term returns. And I'm more convinced than ever that we're moving in the right direction.

To frame up some of the early progress we're making on [ Jack's way ], which is designed to improve the guest experience. I'm pleased with the progress the team has made in improving operations. Last quarter, we identified a gap in field support and restructured that team. [ Shannon ] has moved to these changes decisively from desire to execution, meaning we have a greatly increased presence in the restaurants to give more real-time support to our franchisees and team members as they ultimately work to delight the guest.

Starting in Q1, the team aligned to training on our core [ Jack's way ] principles to further simplify the experience for our team members and reinforce the importance of fundamentals. For example, aligning with our [ Monster Murthy's ] promotion, the team was focused on doubling down on joyful service, and we will continue to see the fundamentals reinforced across every marketing window.

In Q1, we also enhanced our restaurant audit process to reinforce critical behaviors and standards to elevate the guest experience. We have additional high-touch training coming later this year, including in-restaurant workshops, and none of this would be successful without laying the foundation of a new field team to ensure it sticks. We are also making progress on enhancing our value proposition and menu strategies.

As we continue to celebrate our 75th anniversary, you'll see brand activations leading into classic fan favorites, while we also launched new products designed to drive customer interest in trial, leveraging innovation that can only be found at Jack in the Box.

Just last week, we announced the return of one of our most popular products, the Hot Mess Burger. This limited time offer is paired with another collectible or antenna ball featuring a meet [ Jack ad ] from one of our most memorable [ JACK ] commercials. We're also incorporating experiential marketing with an anniversary tour that kicked off in L.A. and his landing in Austin for Jack's actual anniversary later this month.

We've continued to simplify our marketing as well. We simplified our marketing calendar to have a more balanced and consistent focus between value and innovation. We've also reduced our media messages from 3 to 2, which allows our teams to focus on stronger execution of fewer LTOs and drive media effectiveness.

The final component of [ Jack's Way ] is modernizing our restaurants. The key takeaway here is that we're focused on a highly cost-effective refresh that substantially improves the [ core appeal ] of our restaurants. So far, by many refreshes we've put in market have generated a modest but meaningful uplift, and we remain encouraged by the limited investment they require.

Across roughly 20 restaurants and tests today, we're seeing low single-digit sales lifts. We're now expanding these efforts in Southern California markets, which allows us to capture additional upside potential as we see higher clusters of refreshed restaurants. As you recall, last year, we also modernized our technology within the restaurant, rolling out both new POS and back-of-house systems. We can now start leveraging these systems not only for cost efficiencies, but also better up-sell capabilities, which we expect will improve both the top and bottom lines.

Before I turn it over to Dawn, I want to reiterate just a few key points. First, we're doing exactly what we said we were going to do with regard to both the JACK on Track initiatives to strengthen our business model and also with our [ Jack way ] programs to improve operating results. Both are yielding tangible results.

Second, we're seeing early positive results from simplification efforts we've made across ops and marketing, allowing our teams to focus on what truly matters, driving trial, frequency and executing on a great customer experience. I'm confident that these changes will drive improved same-store sales as we move through the balance of the year.

And finally, I continue to be inspired by the efforts and resiliency of both our team and our franchisees and by the foundation we're building as we do the hard work to strengthen the business. These efforts are helping us to sharpen our discipline as a brand and position Jack to drive sustained profitability and long-term shareholder value as we move through 2026. And with that, I'll turn it over to Dawn.

Thanks, Lance, and good afternoon, everyone. I will start by reviewing the details on our performance in the first quarter as well as provide an update on JACK on Track. Before I begin, I just wanted to remind everyone that the company completed the sale of Del Taco on December 22, 2025, and the results of Del Taco are excluded from continuing operations and associated results for these purposes.

The first quarter same-store sales for Jack in the Box decreased 6.7%, comprised of franchise restaurant same-store sales decrease of 7% and a company-owned same-store sales decrease of 4.7%. This resulted from a decline in transactions and sales mix, partially offset by many price increases.

Jack's restaurant level margin percentage in the quarter decreased to 16.1%, down from 23.2%. Food and packaging costs as a percentage of sales were 29.7% for the quarter, increasing 380 basis points from the prior year. This was driven by commodity inflation of 7.1% in the quarter, the negative impact from rolling over a prior year beverage benefit and a change in the mix of restaurants.

Labor costs as a percentage of sales were 35.3%, increasing 200 basis points from the prior year. This increase was primarily related to a change in the mix of restaurants, driven by our Chicago restaurants. We expected Chicago to have elevated labor in the quarter, and while the market did improve throughout the quarter, there is still work to be done. Shannon and team are working with urgency to address this market.

Occupancy and other costs increased 120 basis points, driven by higher costs for utilities and other operating expenses. Franchise-level margin was $84.1 million or 38.6% of franchise revenues compared to $97.1 million or 40.9% a year ago. The decrease was mainly driven by lower sales, driving lower rent and royalty revenue and a decrease in the number of restaurants.

Turning to restaurant count. There were 6 restaurant openings and 14 restaurant closures in the quarter. SG&A for the quarter was $37 million or 10.6% of revenues compared to $41.2 million or 11.1% a year ago. The decrease of $4.1 million was primarily due to the market fluctuations of our COLI policies and the current period income from our transition services agreement, partially offset by increases in information technology expenses and digital advertising costs. Excluding net COLI gains of $2.4 million as well as advertising costs, G&A was 2.5% of total system-wide sales for the quarter.

Following the Del Taco sale, we are generating income associated with the transition services agreement, or TSA, and we received approximately $900,000 in the first quarter. We expect our TSAs to largely be completed by the end of the second quarter. For the full year, we expect the income to be nominal, no more than around $2 million. This income is included in our reported G&A figures.

Other operating expenses net were $8.1 million for the quarter, which include proxy contest fees and professional fees for a tax refund settlement, partially offset by gains on real estate sales. The effective tax rate for continuing operations for the first quarter of 2026 was 32.4% and compared to 30% for the same quarter a year ago.

The adjusted tax rate used to calculate the non-GAAP operating earnings per share this quarter was 31.2%. Earnings from continuing operations was $14.4 million for the first quarter of 2026 as compared to $31 million for the first quarter of the prior year. We reported a GAAP diluted earnings per share from continuing operations for the first quarter of $0.75 compared to diluted net earnings per share from continuing operations of $1.61 in the same period of the prior year.

Operating earnings per share, which includes adjustments for certain items, was $1 for the quarter, versus $1.86 in the first quarter of the prior year. Consolidated adjusted EBITDA was $68.2 million, down from $88.8 million in the prior year due primarily to the impact from sales deleverage.

Now for some specifics regarding JACK on Track. As a reminder, while Lance discussed elements of [ Jack's Way ], which focuses on operational and sales improvements, JACK on Track is meant to bolster the long-term financial performance of the company by strengthening the balance sheet and positioning the company for sustainable growth. I've already mentioned a few points in regards to our JACK on Track plan, but to put a finer point on it.

First, we simplified the company by selling Del Taco and successfully closing on the transaction in December. Second, we are focusing on franchisee economics by closing underperforming restaurants. In the first quarter, franchisees closed 12 restaurants. Based on closures so far, we have generally seen a roughly 30% sales benefit to nearby restaurants. This element of JACK on Track is moving a little slower than we would have expected as franchisees are evaluating lease dynamics and sales transfer benefits on a case-by-case basis.

Third, we are preserving our capital expenditures for technology and restaurant reimages. For the first quarter, our capital expenditures were $23.2 million which primarily includes spending on restaurant information technology. Approximately $8 million reported in Q1 relates to prior year expenditures primarily for our new Chicago restaurants that were incurred in fiscal '25, but paid in fiscal '26. This is solely a timing impact and does not represent incremental fiscal year 2026 spend.

Lastly, and importantly, our focus on debt reduction. During the quarter, we made a partial prepayment of $105 million on our August 2026 tranche. Our total debt outstanding at quarter end was $1.6 billion our net debt to adjusted EBITDA leverage ratio was 6.5x. Please note that this figure now excludes any historical adjusted EBITDA impact for Del Taco. We remain committed to paying down an additional $200 million in debt over the course of our JACK on Track plan.

As it pertains to real estate sales, we generated $10.9 million of proceeds in the first quarter with associated gains of approximately $6.3 million. We expect to sell real estate with proceeds of $50 million to $60 million by the end of fiscal year 2026, with the expectation that these proceeds, along with cash on hand, would be applied to pay down debt. We are thoughtfully assessing refinancing options related to our upcoming tranches, taking into account market conditions, interest rates and our long-term capital structure objectives. It is likely we will be in the market in the coming months. Lastly, as we mentioned in today's release, we are reiterating our guidance from November 2025.

In closing, this quarter reflects steady progress on JACK on Track as we continue to build a stronger foundation for sustainable long-term growth. We look forward to keeping you updated on our progress throughout this fiscal year. Thanks again for your time this afternoon. Operator, please open the line for questions.

[Operator Instructions]. Your first question comes from your line, Alex Slagle from Jefferies.

I wanted to follow up on just some of the trends you're seeing. I mean, it sounds like the initial response to some of the 75th anniversary work has been good. And January trends were improved. And maybe you could elaborate on what you saw. I'm not sure like how much there is weather that maybe came into an impact at all in your system into February if that's something we should consider also.

Sure, Alex. So kind of to your point, once we hit the beginning of '26, we did start to see some kind of meaningful improvements. Certainly, when we got off to the new window, that helped a lot. And as we got into Q2, because bear in mind, our quarter ended kind of mid-January as we got into Q2, we're really seeing kind of same-store sales play out the way we thought they would. We started the second quarter, really a couple of hundred basis points better than we were in the first quarter, and that's before the weather impact to your question about weather.

We're actually over 400 basis points better when you factor in the winter storm, which on a full quarter basis will have about a 60 or 70 basis point impact to the quarter. Since we're talking about roughly a month of impact, it's a couple of hundred basis points just for the month. So when you factor out the weather, we're really low single digits right now, which we're pleased with. We're not quite where we want to be. But [ $200 ] negative. Let me rephrase that. I think I misspoke there. We're not quite where we want to be, but we're certainly gaining on it, and we're getting really good initial response to our 75th anniversary of marketing.

Awesome. The Chicago performance and the efforts to recover from some of the labor inefficiencies there, what's the issue going on there? I guess, supply, is it still a drag? I would have thought it was more about the openings and staffing up and that would sort of be able to get out of that heading into the 2Q, I guess?

We're still working on it, as you can see from the results. I think from a top line standpoint, we're kind of performing reasonably well, particularly given that we have not yet turned on our 24-hour operations, we've not yet turned on digital. We don't have our full menu yet. So there's still a lot of upside on the top line.

We haven't turned those things on yet because we do still have some issues we're working through. And I think the easiest thing I can say about it is it's a tough labor market. We opened 8 restaurants in the span of under 3 months, which for us and our corporate operations sides a lot and we're just still dialing in the P&L there. So we -- it is one of the big priorities we have right now. We're spending a lot of time up in Chicago to get that fixed. I think it will be fixed in the coming months. And then you'll see us be able to turn on the sales side, full steam. And I think you'll see that market come around the way you'd expect to.

And the only thing I'd add to that, Lance, is we did expect continued margin compression of Chicago in our guidance that we provided, specifically in Q1.

Your next question comes from the line of Jeff Bernstein from Barclays.

This is Pratik on for Jeff. Lance, I had a question on franchisee 4-wall margins. They were presumably below the company margin at 16.1%, given the ongoing disparity in comp performance. Beyond JACK on Track, is there anything in the short term that you can do to help franchisees navigate this difficult environment maybe on the commodity side to secure better prices or maybe a release? And I have one follow-up.

So generally speaking, our franchisees have pretty good economics with AUVs still approaching $2 million. But you're right, we are seeing pressure on 4-wall EBITDA right now between the sales conditions and then beef inflation in particular. So at this point, no, we're not doing any kind of blanket assistance. But we are looking at what we need to do in those kind of one-off cases where we have a franchisee struggling.

But generally speaking, I mean, as you can imagine right now, particularly with where [ beef ] is, yes, the fall margins are not where they need to be, but we're doubling down, doing a lot on the profitability side. We just actually restructured our team to make sure we're more focused on profitability. We're doing things like rolling out a new soft drink dispenser. We're doing a number of things within the supply chain to try to cut costs. So yes, we're kind of putting a full court press on -- on our digital or all of our profitability. And then we're also making some revamps to our digital programs, including loyalty, that are going to add some profitability back in that channel as well.

Got it. And Dawn, it was encouraging to see the company traffic trend improve modestly on a 2-year basis. Believe you were at the mid-2% pricing range to close fiscal '25 and you ended this quarter at 3%, it looks like per the 10-Q. Just wanted to get your thoughts on how you think about the price value equation in this environment, while at the same time, protecting your margins and unit economics.

This is Lance. I'll start with that one and Dawn can come on in and jump in here as she needs to. We have been able to take a little more price on the company side. it's interesting. The franchisees have taken a little more price than we had historically. So our absolute prices are still lower. But throughout the quarter, we were able to take a little more price on the company side and still leave ourselves in a spot where we feel very comfortable with the value proposition we're getting to our guests.

The other thing we did do during the quarter was we took several of our bundles and make sure that we lowered prices kind of in one of our chicken bundles in one of our burger combos and a breakfast combo. We also added assets into the soft drink amounts. So we're doing a lot of things to try to make sure that we're showing that value to the customer, while at the same time, making sure that we're protecting profitability not only here on the corporate side, but ultimately to the franchisees as well.

Your next question comes from the line of Sara Senatore from Bank of America.

[indiscernible] on for Sarah. Just kind of touching on what you were just discussing. Anything specific as to why there was such a large gap in comp between the company restaurants and the franchise ones, maybe anything related to operations, tech, anything that you have there?

I'd say a couple of things. One is, we think, a little bit of pricing disparity, but I think probably the bigger factor is our company restaurants are pretty much 100% religious about opting into the offers that we do on the digital side. The franchisees tend to be a little more selective as to which actual promotions they're going to opt into. And so we've seen on the company side, a lot more overall effectiveness on the digital side than we have with the franchisees. And I think that's probably the biggest singular driver.

Got it. And then just kind of switching gears. Just thinking about how -- if you could give us a little color on just how you guys have historically competed against larger competitors just in periods of intense value competition and when you're thinking about scale, do you guys think more about the importance of competing nationally? Or do you view scale on a more local easier to compete kind of basis more?

Let me start with that, and then I'll ask Ryan to jump in and supplement me a little bit, too. But I think, first of all, we've always been smaller than some of these really big chains like a McDonald's or Taco Bell, Burger King, whoever it may be. I think in order for us to be successful when they're out there with heavy value, we've got to have our own consistent value.

And then we've got to lean into what really differentiates Jack which is innovation. We have a lot of innovation, both within our LTOs, but also within our core menu. And so making sure we've got our own consistent price that, that price is in a reasonable spot and that we continue to bring innovative products, I can't get somewhere else is the biggest piece, and I'll turn it over to Ryan, let him supplement that.

Yes, we know to be relevant where we have to have that price point of value, which we have in every single window moving forward, which is something we didn't have in '25. So that really goes up their value guests, but it's about the distinctive and ownable value that we have out there.

So when you think about Jack in the Box, it's really about that abundance value. It's about the Munchie Meals. We saw a great response to our [ Jimmy ], so adding some gift with purchase on our abundant meals have done really well. on top of aggressive quick hit value, I mean, we are an iconic brand that has tacos. And so our ability to pulse in some aggressive disruptive price points on tacos, celebrating our 75th like we are once a month with $0.75 tacos. We have a $0.75 Jumbo Jacks coming in next week or this Saturday.

These type of offers that are ownable and distinctive to us really drive a quick impact to drive traffic to our brand. But we also have to look at value differently and where we really need to compete is how do we improve value for the guests through quality. And so it's not all just about price points, it's about improving the quality of our goods. And we've already executed some of that in our latest window with improving our core grilled chicken.

And our next step is looking across our core platform and improving across our items to make sure that value for the money score that's really important to the guest, matches up with the product they're getting. And so you'll see a lot more quality improvements from our brand moving forward.

Your next question comes from the line of Andrew Charles for TD Cowen.

Dawn, you called out the 7% commodity inflation in the quarter. Can you just remind us what you're expecting for commodity inflation for the year? And really just how much of that 7% increase was in beef as well as the forecast for that within the '26 guidance?

Yes. So our guidance still stands. We had guided to mid-single digits back in November. Beef is definitely the most impactful. Q1 actually came in a little higher than we had anticipated but you can look to see beef up double digits. And as the year continues, that impact will moderate. It was definitely the highest in Q1.

Your next question comes from the line of Gregory Francfort from Guggenheim.

My first one just on weather. I guess there was some maybe drag later in January, but you guys have a lot of stores in the West Coast. Are you guys able to identify if it may have helped late December and early January?

We didn't see any meaningful improvements or benefits, I would say relative to weather. Certainly, everything we saw was more related, particularly with the big Texas footprint and where we are in the Midwest to I think it was called [ Fern ] winter storm, [ firm ] that impacted us by a couple of hundred basis points actually.

Got it. And then just maybe going back to kind of franchisee health and performance, how much is beef up now versus where it was a few years ago? And if that reverses, I guess what could that do to fancy cash flows? And do you expect that to happen over the next 12 to 18 months?

I think Dawn is going to look back and see if she can give a reasonable estimate as to what it's done for the last few years. I don't have that off the top of my head. Obviously, though, beef is trading very, very high relative to where it's been, and we would expect a fairly significant benefit. If it were to go down, as Dawn said, we expect it to moderate some throughout but I think, at least as far as the predictions I've seen in the next 12 to 18 months, we wouldn't expect it to become a tailwind.

Your next question comes from the line of [ Samantha Cheng ] from Goldman Sachs.

This is [ Samantha ] on for [ Christine Cho ]. I wanted to ask about breakfast. I know many of your competitors have called out the [indiscernible] as an underperforming part of the day as it tends to be more economically sensitive with some peers recently making breakfast optional for franchisees. Could you share an update on how you're thinking about breakfast and how this [ daypart ] has performed at Jack relative to the rest of the day, particularly following the launch of your [ much ] better deals lineup?

Sure. So breakfast for us has actually been pretty consistent. It's always been a big part of what we do at Jack. And of course, we have breakfast all day, which I'm sure you're aware. So from our perspective, as we look like at this past quarter as an example, it was pretty consistent with all our other [ dayparts ] with the exception of late night, which is where we really had some gains. So overall, we haven't seen much change. We are aware that other competitor given some optionality to their franchisees as whether or not they do breakfast, but we'll have to wait and see if that impacts us.

With us, it's all day breakfast is the core of our brand that's been around for -- since this brand has been around. So basically, it's something that we don't -- we take really serious in making sure that we continue to drive breakfast and an all-day solution to our guests.

Your next question comes from the line of [ Karen Holthouse ] from Citi.

This is [ Karen ] on for Jon Tower. Just going back to the remodel program, I don't know if you've shared or willing to share your guardrails around what you're thinking in terms of your cost per unit what are like the key elements you think are really driving that curbside appeal or change in curbside appeal? And how do your franchisees plan on funding this? Do they think they can do it through existing cash flows? Is there appetite for financing it? Anything on that would be great.

Sure, Karen. As I know, I said a couple of times here over the last few of these calls, our ultimate goal is to get a full-scale reimage program established and going kind of towards the end of the year. Really what we're doing right now, though, is much more of what we're considering kind of a mini refresh.

And the intent, honestly, is just to improve the curb appeal until we get to such point as we can do the full reimage program because, as you know, even if we kick that off within the next 12 months or so, it takes usually a number of years for those things to play out. So this is really more cosmetic as what I would tell you. It's paint, it's [ restriking ] and sealing the parking lot is cleaning up the landscaping, it's making sure the drive path looks good and that can be done for a very, very low cost.

I'm talking under $20,000 and franchisees tend to have a way of getting things done more cheaply than we do. So for them, it's probably under $10,000. So this is the kind of thing that really is intended just to give us a better curve appeal, get us through to the point when we are ready to get the full-scale reimage program going and do so at a tremendously economical price.

And then just a follow-up. When we get there end of this year, hopefully, talking about liking into a broader remodel program. Is your expectation that there would be some incentives tied to doing that or any sort of financial support for franchisees?

100%. We -- let me rephrase that. 100%, there will be assistance from corporate. Corporate will not pay for it 100%, figure I'd better clean that up. But the -- you know how these things can get taken out of context. But anyway, yes, we would expect to make a meaningful contribution to whatever reimage program we would eventually roll out. The most recent one we did was in the 35% neighborhood, if I'm not mistaken. And so I would think a little bit either side of that is what we'd be talking about.

Your next question comes from the line of Jim Sanderson from Northcoast Research.

I wanted to find out a little bit more about Hispanic consumer demand. I think you had called that out in the past to something that was unusually more difficult for Jack in the Box. Has that improved over the past year and most recently? And is it improving at a much richer pace?

What we've seen, let's say, over the last quarter is not a whole lot of movement. Frankly, we've seen both in the low income and the consumer and the Hispanic consumer segments. We've seen maybe the slightest amount of change, meaning improvement but not anything significant at this point.

Okay. So that's more or less trending with the sequential improvements you've observed across the board. Is that the right way to look at that? Nothing then?

It's kind of in that ballpark. Certainly, we're not seeing anything meaningful as far as improvement there yet.

All right. And if I could follow up on a question on -- you had mentioned some technology you were leveraging in store. And I was wondering, is that related to the new point-of-sale system to the kiosks? Anything there to call out that might be beneficial, especially in the back half to drive traffic or transaction?

Jim, there's a couple of things we've done, actually. So we completed the rollout of the POS system along -- I think it was about the end of August. And so as we continue to make [indiscernible] to that system and learn it, I would expect to see some benefit there. But the other thing we did, and this is a real tribute to the ops team as well as our IT team with a [indiscernible], we did deploy new back of house, both on the labor management side and the inventory side, and that was completed in November of '25. And so again, it's kind of very early days.

We're getting to know the systems. We're learning how to utilize them. But our focus for the balance of the year is really going to be how do we leverage those systems now that we've made those investments to get more efficiencies out of them, both on the top line and the bottom line.

Your next question comes from Jake Bartlett from Truist Securities.

Mine was about your regional performance. And as we compare Jack in the Box to the larger peers, it might be unfair just given your exposure to certain markets. So I'm wondering whether markets like California are particularly weighing the system down and maybe how you think you might compare to your peers within a big market like California?

Sure. I'll start with that, and then I'll ask Ryan to jump in if there's anything he wants to add or Rachel for that matter. California has been difficult for, I believe, most brands, at least from the information that we have. So I do believe that is a little more of a headwind, not only on the sales front, but certainly on the profitability front with some of the labor pressures that you see in California.

Now as we look at first quarter in particular, I think the weather, obviously, the weather impact we've already talked about was more Texas and Midwest phenomenon than it was in California. But just generally speaking, what we've seen in my time back here is that California has been challenging. And I think when you look at our over 40% of restaurants being based in California, we certainly have a little more of a headwind when you're looking at an overall consolidated number than some of our competitors may.

That concludes the question and answer session. I'd now like to turn the call back over to Lance Tucker, CEO, for closing remarks.

As always, I just want to say thanks, everybody, for your time, and we look forward to seeing you this time next quarter.

That concludes today's meeting. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jack in the Box Fourth Quarter Fiscal Year Earnings call. [Operator Instructions] It is now my pleasure to turn the call over to Rachel Webb, Vice President of Investor Relations. Please go ahead.

Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our fourth quarter and fiscal year 2025. With me today are Chief Executive Officer, Lance Tucker; our Chief Financial Officer, Dawn Hooper; and our Chief Customer and Digital Officer, Ryan Ostrom. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts.

Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at jackinthebox.com.

We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC and are available on our Investor Relations website.

Additionally, the company intends to file a proxy statement and related materials with the SEC in connection with the 2026 Annual Meeting of Stockholders. Our directors and certain officers will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interest by security holdings or otherwise.

And with that, I would like to turn the call over to our Chief Executive Officer, Lance Tucker.

Thanks, Rachel, and I appreciate everyone joining us today. I want to begin by thanking our teams, our franchisees and our shareholders. Fiscal 2025 was an eventful year for Jack in the Box, and I continue to be inspired by our stakeholders' passion and support for the efforts we're making to unlock the company's long-term potential. As we approach our 75th anniversary, we're committed to improving performance today while laying the foundation for sustained shareholder value over the next 75 years.

Throughout today's prepared remarks, I'll provide an update on our JACK on Track plan, the current state of the business and the actions we are taking to restore momentum at Jack in the Box and position the company for sustainable growth. I'll then turn it over to Dawn for a deeper dive into fourth quarter results, our 2026 outlook, along with how to think about the stand-alone Jack in the Box model going forward.

When we announced JACK on Track back in April, one of our key goals was to simplify the business and sharpen our investment thesis. I'm pleased with the progress we have made so far. As you saw in October, we announced the pending divestiture of Del Taco. This is a meaningful step that, when complete, will allow us to fully recenter our attention on strengthening the Jack in the Box brand and executing the remaining elements of our JACK on Track plan. I want to thank the Del Taco team for their partnership throughout this transition.

We've also made good progress on our closure program and have numerous real estate transactions in process, so these key components of the JACK on Track program are also progressing as expected. While we're pleased with our progress on our JACK on Track initiatives, we are clearly not satisfied with our 2025 operating performance, and we are rebuilding our operational discipline to drive growth and shareholder value in 2026 and well beyond. I'll speak more to this shortly.

Now turning to our fourth quarter results. Our fourth quarter was really a story of 2 halves. The first few weeks of the quarter started off rocky, as I alluded to on our last conference call. Our value equation was not resonating and lacked enough price point value, and we moved swiftly to address it with more demonstrable value later in the quarter. Coming out of August, we adapted quickly and implemented a true barbell promotional strategy. We pivoted media and marketing to feature our $4.99 Bonus Jack combo, a compelling offer that resonates well with our value-seeking guests.

We also featured our $5 Smashed Jack in a culturally relevant sporting event that included pulsing digital offers, all of which drove incremental trial of the best burger in QSR. The overall result, transactions improved throughout the quarter as guests opted into our value strategy, though check remained pressured, particularly as we continue to lap significant price increases from last year taken to combat big wage increases. All told, sales trends improved roughly 300 basis points throughout the course of the fourth quarter.

As we've moved into the first quarter, our barbell strategy continues, and we largely maintained similar performance to what we saw at the end of Q4. Though like many brands, we've recently seen a few weeks of downward pressure tied to the effects of the government shutdown as well as lapping several weeks of our own stronger results from last year. Beyond the promotions we ran in Q4, we've made several changes to our menu to improve everyday value. In early October, we rightsized pricing on 3 of our signature combos, making them more affordable for our guests. We've also increased our cup sizes on small combos.

While we know these changes won't improve results overnight, we are taking necessary steps to enhance how we improve our value perception, and we will continue refining our menu strategy. Over the past few months, we've pulled several levers to drive improvement, but there's still significant progress to be made. Our category is more competitive than ever, and consumers are very careful about where they spend. We are committed to a strategy grounded in driving value for guests while protecting profitability for ourselves and our franchisees, whether through boosting check or driving cost efficiency.

We also know the entire guest experience plays into the value perception, not just promotion or price. As we build the foundation for Jack's Way, we are focused on consistency, consistency across our operations, our food quality and an elevated overall experience for the guests.

First, we are making strides in operational excellence. We identified a critical gap in our field support and restructure our field teams to spend more than twice as much time in restaurants. This helps provide more real-time coaching to our team members and hold restaurants more accountable while also rewarding top performers. In the near term, we are retraining the entire system with a disciplined focus on getting back to basics. It isn't glamorous, but it is essential. And we have already received great feedback from our franchisees and employees on these efforts.

Second, doing things Jack's Way also means serving high-quality food and leading the way with innovation. Our priority is clear. We need to serve hotter, juicer burgers with greater consistency across the system. So we've challenged ourselves to rethink how we deliver starting with the fundamentals, cooking procedures, ingredients and training. Shannon McKinney is doing a great job driving rapid improvement in our ops fundamentals.

We've also reinvested in culinary innovation and welcomed our new executive chef, Ciaran Duffy, to lead the effort. He has already shared concepts that we believe will elevate both quality and craveability for our guests. As we celebrate Jack's 75th anniversary and bring back some of our customer fan favorites for a limited time, we will be ramping up our innovation and quality improvements that position us to exit 2026 in a much stronger place than we entered.

The final component of Jack's Way is modernizing our restaurants. We continue to work through the tenets of a comprehensive reimage program, and we'll keep you updated on our progress. Meanwhile, we are currently testing a proof of concept on a handful of restaurants with a mini refresh that can be executed quickly while generating modest uplift for the brand, so we can get some immediate learnings.

We know all of these things must work in tandem, the right menu, the right level of service and a welcome environment and an overall experience that meets the customers' expectations. As you can probably tell, but to put a little finer point on it, 2026 will very much be a rebuilding year.

Looking ahead to the next 12 months, here's what I expect Jack in the Box to achieve. First and foremost, expect same-store sales for Jack in the Box brand to return to positive as we utilize our barbell promotional approach throughout the year, enhance our operations and improve the overall guest experience. Second, I expect the Del Taco divestiture and associated TSA will be fully completed, and we will be well on our way to rightsizing the organization as a stand-alone Jack in the Box brand. Third, our restaurant base will be substantially cleaned up with the closure of many of our underperforming restaurants behind us. Sales transfer from closed restaurants will benefit our remaining restaurants and profitability will be improved. Fourth, later in the year, I expect us to begin actively executing a reimage program that will ultimately impact the majority of our restaurants, driving even stronger volumes and generating more guest excitement around the brand. And finally, we will have made significant progress in paying down our debt with a market improvement and reducing our overall debt levels.

As you can tell, there is real work ahead, but we have the right plan in place and the right leadership focus to execute our plans in the coming months. And while 2025 was a challenging year, Jack in the Box remains in a position of strength with AUVs approaching $2 million, a resilient and dedicated franchise base and core brand equities to leverage as we work to restore momentum.

You can continue to expect transparency from us on progress as we're building towards long-term sustainable growth. We expect to exit 2026 as a stronger, more disciplined and more valuable Jack in the Box, positioned to drive sustained profitability and create long-term shareholder value.

I will now turn the call over to Dawn to dive deeper into fourth quarter results and specifics around 2026 guidance.

Thanks, Lance, and good afternoon, everyone. I'll start by reviewing the results of the 2 brands individually and then will provide details on our fourth quarter 2025 consolidated performance and 2026 guidance.

Beginning with Jack in the Box, our fourth quarter system same-store sales declined 7.4%, with franchise same-store sales decreasing 7.6% and company-owned same-store sales down 5.3%. This result included a decrease in transactions and negative mix, partially offset by a 2.4% increase in price. As Lance mentioned, we did see improvement throughout the quarter ending Q4 roughly 300 basis points stronger than we started the quarter.

Turning to restaurant count. For the fourth quarter, there were 15 Jack restaurant openings and 47 closures, and we ended the year with 2,136 restaurants. Jack restaurant level margin for the quarter decreased year-over-year by 240 basis points to 16.1%. The margin decrease was driven by sales deleverage, commodity inflation of 6.9% and elevated labor costs as a result of opening 8 new restaurants in Chicago.

Food and packaging costs as a percentage of company-owned sales remained flat at 30.3% as a result of favorable funding from our new beverage contract as well as price increases offset by commodity inflation and negative mix as consumers shifted into price-pointed promotions, as Lance mentioned. From a commodity standpoint, our largest inflationary category was beef, consistent with industry trends.

Labor costs as a percentage of company-owned sales increased 100 basis points to 33.7%, primarily due to the elevated labor at our new restaurant openings in Chicago, partially offset by a reversal of additional FUTA taxes in California.

Jack in the Box opened 8 restaurants within 12 weeks in Chicago, which was 1 of the fastest new market openings we've completed in recent history. We are seeing excitement from customers around these openings, but there was a significant impact to our P&L for the quarter. The Chicago market had a negative 130 basis point drag on our overall company restaurant level margin.

We are taking swift actions to improve the margin compression driven by this market. While volumes remain strong, with annual unit volumes projected to exceed $2 million, labor costs were elevated this quarter as we staffed up the market to ensure first-time guests received the best possible experience.

Occupancy and other operating costs as a percentage of company-owned sales increased 130 basis points to 19.9%, primarily due to higher costs for rent, security and third-party delivery fees. Franchise-level margin was $62.6 million or 38.9% of franchise revenues compared to $70.9 million or 40.4% a year ago. The decrease was driven by lower franchise same-store sales and lapping $2.6 million of nonrecurring lease termination revenue from franchisees, partially offset by higher early termination fees collected in connection with our closure program.

For a quick update on JACK on Track, I'll start with the restaurant block closure program. In Q4, we closed 38 restaurants under this initiative, all of which were franchise locations.

Turning to real estate activity. We sold 3 real estate properties during the quarter, generating $4.8 million in proceeds, which will be used to pay down debt. We also continue to reduce capital expenditures sequentially as we remain focused on disciplined capital allocation.

And lastly, as announced in October, we entered into a material agreement to sell Del Taco. Overall, we are making progress on our JACK on Track plan every quarter.

Now taking a look at Del Taco results. For Del Taco, system same-store sales declined 3.9%, consisting of company-owned same-store sales down 3.1% and franchise same-store sales down 4.2%. This decline was driven by a decrease in transactions and an unfavorable mix, partially offset by a 2.8% increase in price. For the fourth quarter, there were 4 restaurant openings and 13 restaurant closures. Del Taco ended the year with a restaurant count of 576 locations.

Del Taco restaurant level margin was 6.8% as compared to 9.3% in the prior year. This decrease was primarily driven by the impact of opening 17 locations in Colorado, transaction declines, inflationary increases in commodities slightly offset by menu price increases. Food and packaging costs increased 260 basis points to 27.8% due to unfavorable mix and commodity inflation of 5.1%.

Labor costs remained flat at 39% as elevated labor costs from the reopening of 17 locations in Colorado was offset by a reversal of additional FUTA taxes in California. Occupancy and other costs decreased 10 basis points to 26.4%, driven primarily by favorable utilities.

Franchise level margin was $6.8 million or 30% of franchise revenues compared to $6 million or 26.5% in the prior year. The increase was driven by a lease buyout transaction and early termination penalties partially offset by lower sales and higher bad debt expense.

Moving to our consolidated results. SG&A for the fourth quarter was $36.6 million or 11.2% of revenues as compared to $30 million or 8.6% a year ago. The increase was primarily driven by the $5.5 million incremental advertising contribution we made during the quarter, higher information technology costs, the rollover of favorable insurance claim development factors from the prior year and a decrease in COLI gains. These impacts were partially offset by lower share-based compensation and reduced incentive compensation tied to performance. Excluding the net COLI gains, along with company-owned marketing expenses, G&A was $27 million or 2.4% of total system-wide sales.

For the quarter, we spent approximately $3.9 million in preopening costs. The majority of this investment supported new restaurant openings in Chicago for the Jack in the Box brand, with the remainder related to reopening the Colorado market for the Del Taco brand.

Consolidated adjusted EBITDA was $45.6 million, down from $65.5 million in the prior year due primarily to lower same-store sales at both brands. For the full year adjusted EBITDA was $270.9 million, inside of our revised guidance range. GAAP diluted earnings per share was $0.30 for the quarter compared to $1.12 in the prior year. Operating earnings per share, which includes certain adjustments, was $0.30 for the quarter versus $1.16 in the prior year.

Our effective tax rate for the fourth quarter was negative 30.4% compared to 29.2% in the prior year quarter. The negative rate this quarter was primarily driven by incremental nontaxable gains from the market performance of insurance products used to fund certain nonqualified retirement plans along with favorable state audit accruals recorded during the period.

The non-GAAP operating EPS tax rate for the fourth quarter of 2025 was 11.9% and was 25.4% for the full fiscal year. The lower non-GAAP operating EPS tax rate for the fourth quarter was primarily due to favorable state audit accruals recorded in the quarter.

Capital expenditures were $17.9 million for the quarter. Cash flows from operations for the quarter were $33.7 million, and cash flows from operations for the full fiscal year was $162.3 million.

We did not repurchase any shares in the fourth quarter. For the full year, we repurchased 0.1 million shares for $5 million. As of year-end, we had $175 million remaining under our Board-authorized share repurchase program. We ended the year with an unrestricted cash balance of $51.5 million. We also had available borrowing capacity of $96.8 million. Our total debt at year-end was $1.7 billion with our net debt to adjusted EBITDA leverage ratio at 6x.

As we look to 2026, we want to share the stand-alone Jack business model. Del Taco results will be reflected in discontinued operations in our Q1 2026 financial statements, pending successful close of the sale, which we expect to occur within Q1. Upon close, we will be required to file pro forma financials presenting a 3-year look back of what our results would have been without Del Taco. After this, we plan to host a call with our analyst community to walk through the stand-alone model and assumptions in more detail.

Before getting into specifics, I do want to reiterate the primary source of uncertainty in our 2026 outlook, the timing of our JACK on Track initiative. Restaurant closures may shift based on factors such as franchisee readiness, lease dynamics and market conditions. Similarly, while we do expect real estate proceeds during 2026, the exact timing of those transactions will depend on market conditions and our pace alongside our debt paydown plan.

Both of these add a level of variability to our sales, restaurant counts and franchise level margin estimates for the year and thus impact our overall adjusted EBITDA expectations. Please know our guidance reflects our current best assumptions. We will provide more color on this throughout the year as our assumptions update.

Now to specific guidance. We expect to end fiscal 2026 between 2,050 restaurants to 2,100 restaurants. We expect same-store sales of negative 1% to positive 1% versus the prior year. Please keep in mind, as you model company sales, that you factor in our new market of Chicago, which will not be included in same-store sales but are expected to have AUVs above $2 million.

We expect company restaurant level margin of 17% to 18%. This includes mid-single-digit commodity inflation largely driven by beef. Keep in mind, we are also rolling over a favorable beverage contract benefit from 2025. Restaurant level margin guidance also includes low single-digit wage inflation and our expectation for continued margin compression in the first quarter driven by our Chicago market.

We expect franchise level margin of $275 million to $290 million. Franchise level margin is the most impacted area on the P&L from JACK on Track through both closures and real estate sales. Like we mentioned on our last call, we expect a negative impact to franchise level margin of approximately $80,000 per closure. With a closure range of 60 to 100, this equates to roughly $4.8 million to $8 million on an annualized basis. As a reminder, franchise level margin also had a benefit in fiscal 2025 of $5.2 million tied to rent spread monetization transactions with franchisees related to right of first refusals.

We expect SG&A expenses of $125 million to $135 million. Accounting for roughly $31 million in Del Taco-specific G&A and advertising as well as impact of incremental Jack in the Box marketing spend, COLI gains, favorable share-based compensation and lower incentive compensation in 2025, a comparable SG&A figure for fiscal 2025 is $134 million. For fiscal 2026, G&A, excluding selling and advertising, is expected to be approximately 2.5% of system-wide sales. We expect this to remain elevated for the first half of the year and then improve into the back half as we restructure following the sale of Del Taco.

Similar to prior divestitures, we will enter into a transition services agreement, or TSA, and we expect income to offset some of our G&A as part of that agreement. This guidance does not reflect that benefit, and we will share more as we learn the total TSA amount and timing. We expect preopening costs of less than $0.5 million and depreciation and amortization of $45 million to $50 million.

Adjusted EBITDA for the full year is expected to be $225 million to $240 million. And finally, as part of the JACK on Track plan, we expect to pay down $263 million in debt by retiring the August 2026 tranche of our securitization with proceeds from the Del Taco divestiture, cash on hand, proceeds from real estate sales and potentially borrowings on our VFN to preserve flexibility.

We recognize that rebuilding takes time, and 2026 is about executing against JACK on Track and restoring momentum for the Jack in the Box brand. You have our commitment to transparency and to maintaining financial rigor as we make decisions that impact our guests, employees, franchisees and shareholders. We look forward to speaking with you again in February as we release first quarter results.

And with that, operator, please feel free to open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Brian Bittner with Oppenheimer.

Just as it relates to your '26 guidance for same-store sales down 1% to up 1%, you talked about how you anticipate comps to remain pressured in 1Q and then sequentially improve. Can you first talk about what are the main drivers of this improvement throughout the year? Is it comparison-driven or something else? And maybe you could help us understand how you are thinking about the shape of the recovery in '26, maybe first half versus second half so we can get -- all get on the same page with that.

Brian, it's Lance. So first of all, we do expect the first quarter to be soft, as we've mentioned, and you guys see credit card data probably just like we do, so you're already aware of that. As we get into the second quarter, though, which for us begins in kind of mid-January, we'll be entering our 75th anniversary, where we have a number of pretty exciting things going on relative to ads and innovation and bringing back some old customer favorites.

We'll also -- we will have some softer compares, particularly as you get into the second half of the year, that will contribute as well. And then there are a number of kind of other things that we're doing. We'll be obviously working on the value equation and continuing to make sure that we've got the barbell strategy correct. We expect to continue to see sales benefit as we continue to improve on the operations side. Tech modernization, as you guys know, we've put a lot of time into tech modernization. It is ongoing, and I think it will build throughout the year and help us a little bit.

And then we do have, again, some interesting innovation coming. We have a new chef, a restructured kind of innovation team and structure that we think is going to drive some interesting things. So we have a lot of things that we're excited about as we go into 2026, but it's more calendar '26 comment than it is necessarily here in the first quarter.

Okay. And just a quick follow-up is on the EBITDA guidance. I think you guys said the biggest wild card there is just as it relates to JACK on Track plan and as you execute against that. What's the assumption in the current EBITDA guidance? Is it for no real estate sales? And no block closures as of now? And then as those happen, that impacts the EBITDA relative to this initial guidance? Or how would you frame that dynamic up for us?

No, we have block closures built in, first of all, to start with that piece. I'll let Dawn give you the exact number, but I believe looks like we've said 60 to 100 in total '26 closures. So that does include the closure program, as you would expect when you see that number.

And on the real estate sales side, we do have real estate sales. I think there -- we're a little bit limited in how fast we can go on the real estate sales because of the dynamics of how we're able to pay the debt back within the securitization, but there is between $50 million and $70 million of real estate sales built into that guidance number.

That's right.

Your next question comes from the line of Alex Slagle with Jefferies.

First, I just wanted to clarify on Brian's question and the commentary around the first quarter same-store sales trends. It sounds like a modest improvement versus the reported fiscal 4Q just given the cadence you talked about but then I guess some degree of slowdown recently. Is that the net-net for the first quarter-to-date? Is it similar to the 4Q? Or has it improved a little bit even after a few weeks of softer trends?

Yes. I'd say we kind of -- as we got into the back half of Q4, we were seeing some improvements. As we entered the first quarter of '26, we maintained and we're probably seeing even a little bit of improvement beyond how we would exit Q4. The last few weeks, as we've not only gone over our own kind of stronger compares but also had some impact from the government shutdown, things have slowed down a little bit. They're normalizing again or beginning to normalize. I don't want to go into a lot more depth than that.

But again, when we kind of made the change to make sure we had some price point value and we've got things kind of at both sides of the barbell, the consumer has reacted better to that than what we were doing before. And I think you'll continue to see us run that playbook.

Got it. And the $5.5 million incremental marketing spend in the fourth quarter, you could kind of talk to if you're happy with the return you saw there and things you maybe do the same or different or if there's an opportunity to do more of that in '26.

Yes. That's a good question. I can tell you -- first, let me kind of tell you where the spend went actually. So we did obviously spend behind our value and digital offers, and primarily that was the Bonus Jack that we brought in kind of at the low end of the barbell. And then we also pretty heavily spent against the $5 Smashed Jack for about a week within our app. That was actually tied to a sponsorship we had also invested in with part of that money, which was for a culturally relevant sporting event. That was the Crawford-Canelo fight, where we got really a lot of benefit.

So -- and then some of the spend also went to shortfalls. Obviously, our sales fell a little bit shorter where they would in the beginning part of the -- or where we thought they would in the beginning part of the year. And so when you think about that $5.5 million, think a portion kind of half or a little less was really going to make sure that we shored up our marketing fund and the remainder was incremental. That's the way I think about that.

As far as the benefits we got, we did see improved transactions. We also kind of got the opportunity to introduce a bunch of consumers to the best burger in QSR at a really good price point at $5, and then we made very significant impressions with 1 of our big demographic groups. So overall, would we consider doing that again? I mean our goal would be that we wouldn't need to do another significant contribution into the marketing fund because we would certainly expect that results are going to be better than what we saw in 2025.

With that said, I am happy with the results. I think Ryan would echo that. And if we needed to do something again, we'll always keep our options open.

Your next question is from the line of Sara Senatore with Bank of America.

I guess a follow-up question on the top line outlook and then a question on G&A. So the top line, I know your same-store sales guide is predicated on company-specific initiatives, and it sounds like you're very confident in those. Do you have any kind of underlying macro assumptions that you're making? I mean, we've seen -- I know you've talked about sort of exposure to different income cohorts. Anything that might signal, I guess, a sort of expectation that things improve in sort of the macro backdrop?

And then the G&A guide, I guess, it's flat on an adjusted basis. I just want to make sure I understand that the second half, is that more -- that will be lower. So is that the right run rate that the sort of lower G&A in the second half is actually the right run rate and so perhaps a little bit below that 2.5% of system-wide sales. It's just the first half is more -- you might still have some stranded costs or still be working on restructuring, so as a go-forward basis.

Sara, I'll take the first one, and then I'll ask Dawn to pitch in on the G&A question. But relative to kind of the macro conditions, really, the assumptions we've made are certainly that is not going to going to get any worse but that it's going to remain pretty flat kind of throughout the year. We didn't build in a significant tailwind from anything going on in the environment that would necessarily be a benefit. So the numbers you kind of see are largely a status quo is what I would say. We've seen just the slightest bit of sequential improvement kind of both in the low income cohorts and in the Hispanic cohorts but still a lot of work to do on both, and so not enough that we felt comfortable building any tailwind into that guidance.

Dawn, on the G&A, I'll let you run with that piece.

Yes. And on the G&A, you're exactly right. As we rightsize the business and we exit the TSA and eliminate those stranded costs, you're going to see Q2 -- the second half of the year come in, in like the 2.3%, 2.4% range, which would be more realistic going forward.

Your next question is from the line of Jeffrey Bernstein with Barclays.

Great. My first question is just on franchisee sentiment. Lance, you mentioned the category is more competitive than ever, and currently, I know you're running similar to peers, but large negative traffic. Just wondering how those conversations are going as you focus on kind of more singular brand, asset-light model. Maybe what are they asking for? Are they still showing willingness to invest in the JACK on Track plan? Kind of any broader sentiment you can share since you are a, again, a primarily franchise business model and there's lots going on there, but profitability is likely under pressure? And then I had one follow-up.

Sure. And you're right. I mean, when you have a difficult year like we had in 2025, that does, in fact, put pressure on franchisee P&L. What I would tell you is the kind of sentiment and what we're hearing from them. First of all, they want the same things that we want, right? They want sales to be positive just like we do. We want them to be positive tomorrow. And so yes, of course, we hear that, and it's understandable.

When the sales are difficult and the bottom line results are difficult, the conversations are going to get more pointed. But again, that's kind of what you expect. And while they're pointed, they're also respectful. And they also are willing and able to support the team and support the brain, and they're doing everything they can on their side as the primary operators of their restaurants to drive our results.

And so look, we spend a lot of time talking to franchisees. We listen to them. We don't always agree, and I suspect that's the same across most systems. But with that said, we assume their positive intent, and they assume our positive intent. And so we are working together to try to drive the business forward.

As far as investing, I do think, as we get towards the end of the year, and I said this in the prepared remarks, I do want to be rolling out some sort of -- some kind of reimage program. I think we're going to need to do a comprehensive reimage program, and that needs to start sooner rather than later. But as we also mentioned, we are testing kind of a mini reimage that would be much more affordable, get out there very quickly and bring some instant kind of modest benefit to the brand until we get to a point where we can do a broader reimage because franchisees with the financials, where they have been for the last year, will need a little more time before they're going to be in a position probably to reinvest in the brand the way we all want to.

So kind of a long answer to your question but I guess I want to kind of end with 2 things. We do still have nearly a $2 million overall AUV within our franchise community. And so yes, when you get to some of the smaller franchisees and some of the less well-capitalized franchisees, there are some pressures, and there's pressures across everyone. But it still overall is a pretty reasonable picture.

And then we're actually going to be out, the executive team is in December doing kind of road shows in several markets to talk to franchisees, and they hear what they have to say. And make sure that we're being as transparent with them as we are with you along this call. So a lot of conversations.

Understood. And then just the follow-up, as we look past the transition to a single brand, asset-light model, presumably maybe we're thinking more like fiscal '27. But just as you look out, like what are the reasonable assumptions that you think about for top and bottom line even if it's directional only? I know unit growth gets the most attention because there's often talk about an acceleration in that growth and having a national footprint 1 day. But how do you think about that directional trend over the next number of quarters or years or however you think about it in terms of top and/or bottom line growth for the Jack story?

Sure. Yes. Well, first of all, we'll give long-term guidance once we're a little further into the JACK on Track program. I would -- I'm not going to put an exact time frame on that, but I would tell you, we realize the need to go out and update that long-term guidance sooner rather than later. Obviously, in the meantime, and you kind of referenced this, the unit guidance number that's out there, given the closure program that's going, is a number I wouldn't pay a lot of attention to.

I think as you think about the long-term algorithm, I mean, I think it's not going to be too far off, I don't believe, from what you would expect, which is to say asset-light model, primarily franchise openings, reduced CapEx, moderate G&A by low single-digit comps. We are going to want to get into a growth story on the unit side. That's probably a couple, 3 years away. We'll give better guidance on that when that happens.

And then kind of responsible unit openings with units that have really good overall unit economics. We are driving cost out of the building right now. We need to continue to do that before it makes sense to be out building just a whole lot. So we'll give more firm long-term guidance, as I said here, when we're a little better positioned to do so. But with that said, it's not probably an atypical algorithm than what you would have expected.

Next question is from the line of Gregory Francfort with Guggenheim.

I have I guess 2. The first is you made a comment a couple of questions ago about maybe holding off on bigger remodels and doing smaller remodels in the near term. I guess if the stores need larger remodels, why would you do that? And would you consider maybe instead raising equity capital if these are the right things to do from either reimage or your struggling franchisees you need to buy in? Is that something that's on the table here? Then, I have a second question.

No, I would not expect we would be doing an equity raise, so I'll largely put that one to bed. I think we're going to have plenty of franchisees that are able to go full speed ahead with the more comprehensive reimage. But I think we are going to need to have an alternative for those that are not.

So I'll reframe my answer just a little bit and say I do expect at the end of the year to be moving forward with a full on reimage program. But I think we do need to make sure that we've got programs that are attainable for everyone. And as I said, when we were talking about kind of franchise health, I think, by and large, we're going to have a large number that would be able to move ahead and plow ahead. But we are going to need to make sure we have some options that give some relatively modest to median impact while giving the franchisees time to plan for those expenditures going forward.

Got it. Okay. That's helpful context. And then just the other question I had was on value scores. There's, I guess, a debate in the industry that some of the softness might be just the consumers balking at higher prices for a lot of brands just because labor costs were up a lot. I -- have you seen your value scores more recently change either for the better or for the worse? Just any thoughts on the direction of where that stands and where you want it to be?

Yes, we actually have seen our value scores increase a little bit. And by the way, you're hearing the same thing, I believe, we think and that we all think. I mean there is just an overall feeling that prices are too high out there, though with some of the pivots that Ryan and team made on the marketing side and I think you'll continue to see some improvements in our scores as we move forward given what we have planned for the calendar, which is to make sure that we do have kind of at that more value end of the barbell that we make sure we do have some good choice out there while also having some things at the more premium or [ above net ] value side as well.

Your next question is from the line of Dennis Geiger with UBS.

I wanted to come back to that value topic again. And maybe, Lance, just if anything else, it's great to see the value scores are improving some. Could you share sort of where maybe value incidence was in the quarter or if it had been improving through the quarter? As you mentioned, sort of value was driving some improvement in the trends.

And then I'm sure you don't want to give too much away. But as it relates to next year, maybe where are some of the biggest gaps? Clearly, the barbell approach but some of the biggest opportunities from a value perspective in '26, is there anything to share a high level there?

Yes. So we don't typically share the absolute kind of value scores. I can tell you, particularly as we got into the second half of Q4, though, it was sloped upwards. I don't want to get into a whole lot more detail than that. And then as for next year, I think from my perspective, and I'll ask Ryan to jump in here when I'm finished, if he has anything to add, but I think the biggest thing we need to do is be consistent with value and make sure that we have something at the -- at kind of both sides of the barbell that we try to play in so that the consumer always knows, hey, I can go get some price point of value if I need to. That is not the place where we want to build all our sales. It's not the place where we want to drive the business. But we do recognize that we've got to consistently be there with some fresh innovation and some -- frankly, some good value literally every window, every week.

Ryan, am I missing anything?

Yes, that's correct. It's making sure we have that consistent bottom bell part of the barbell strategy on value, and that is something we've kind of missed in a few windows before. So as we're looking at our '26 calendar, we are making sure that consistently shows up in our messaging and marketing.

Terrific. One more then, if I could, maybe just another on remodels or the reimage program. Is there currently a prototype? I know over the years, there have been various prototypes, Lance. It seems like you're still kind of working through what the more comprehensive reimage prototype will be. So I just wanted to confirm that.

And then maybe if there's any context that you provide, looking back historically on -- we've seen that, I believe, some fits and starts as it related to a remodel program. And just looking back relative to the go forward on why going forward, there's going to be strong demand to get this done and what will be different over the coming years maybe than looking back as it relates to getting the reimage done.

Sure. So first of all, yes, we do, in fact, have an image. I mean we still are tinkering a little bit around the edges, but we have reimages, frankly, in process right now. It's not as big a full-scale program, but the kind of the crave package and the reimage packages that we have, we're actually very happy with. The real change from my perspective is making sure that we've got the right contribution coming from the company for those and making sure if there's an aspect or 2, we want to make sure that we're really focused in on that we're getting those done in these reimages.

So there are certain things that if the company is going to put in significant dollars, we want to make sure are present in these reimage packages. And you can imagine what those things would be. They'd look like the drive-through. They'd look like signage. They'd look like some form in all likelihood of a digital menu board, whether a hybrid or a full.

So there's things that we want to make sure focused on the gas and focused on driving sales. They're going to be more important. So we're still thinking with a little bit around that -- with that around the edges. But generally speaking, yes, we do actually have the image, and we're happy with it.

As far as -- there have been fits and starts, and that's actually a good way of saying that. The reality is we haven't done a full on reimage in a number of years. And I think there's -- probably the biggest singular difference that I'm going to tell you that I see going forward is going to be leadership focus. So this is something that we're going to have to focus on and do. It's just been too many years. In all the data we get, it shows up strikingly that we're losing on the appearance of our buildings. And we've kind of gone to the point where we just almost have to do this. So that is why it's an initiative for me. I just, frankly, have to make sure from a company standpoint that we're a little further along in JACK on Track and have the kind of the cash to pay down the debt first, and then we can start with some pretty significant contributions on the company side.

But we're going to drive this as one of our very top priorities, if not, our top priority once we kind of get beyond JACK on Track. And so that is, I think, going to be the primary difference you see versus what you've seen in the past.

Next question is from Brian Harbour with Morgan Stanley.

I had just sort of a bigger picture question. What -- in the work you've done, I mean, what is it that you think customers want out of Jack right now? I mean you made the comment yourself that people are very selective, and so I think there's relatively few brands that are kind of taking share in that environment. So what is it that you think would really move the needle with your customers over the next year?

I think when you think about Jack in the Box, one of the things you think about, we've always delivered a solid value, and we've always delivered a lot of innovation and variety. And so I think we're in a unique position to make sure that we can deliver kind of satisfying meals at a good value and some innovative things that you can't find just everywhere. And that's everything from breakfast 24 hours to a lot of our side items like your curly fries or your egg rolls or churros or certainly, Two Tacos, which we're most famous for.

So I think the consumer is looking for that. And I think the consumer is also looking for a little bit better experience from us. And that's where, I think, from an ops improvement standpoint, we can really make inroads quickly. And as I mentioned in my prepared remarks, Shannon and team on the offside, we've done some restructuring. We're going to have people out there training much more than they have been. We're going to have a lot more field presence to make sure that we're delivering on that better ops experience. So a little bit of a long answer to your question, but that's what I think we can deliver.

Yes, that makes sense. I guess I was going to ask about that, too. I think -- did you pick up like -- is it like a quality perception gap that you think has emerged maybe as a result of some of those inconsistencies? Or what do you think needs to be done better there?

I think there are kind of 2 or 3 things. So to answer your question directly, I don't think our quality perception is as high as we think it should be, and there are steps that we need to take to fix that. So one of them is ops improvement. And again, it's just making sure that we're giving a good, consistent, friendly, what we call joyful experience to the consumer every day. We need to make sure the accuracy is there. We need to make sure that as they're coming through the drive path that the restaurant is clean, that the drive-through looks good. We need to make sure we have the right innovation and all those things kind of wrap into quality perception.

And so yes, we have kind of picked up that we don't think we're getting the credit we think we should. Some of that's self-inflicted. Some of that is just a lot of things that we need to do better, and so that's why you see us focusing on our innovation. That's why you see us focusing on wanting to clean these drive paths up and do some work on the buildings themselves and certainly, why what you see us focus on this, make sure we've got the right ops experience because that's better than any marketing you can do. You get people the right experience to get hot burger, prepared the way they want it in a reasonable amount of time. They're going to come back. It makes Ryan and team's marketing job much easier.

Your next question is from the line of Andrew Charles with TD Cowen.

Dawn, just one housekeeping and then my real question. First, can you comment on what your franchisee store level cash flow was in '25 and the change versus '24? The quick math just looking at company stores is about a 15% decline year-over-year, but hoping you can confirm that's aligned with the system.

And then my real question for Lance or Dawn is what cash-on-cash return are you going to target from the smaller scope remodel. And really, how can franchisees fund these just given the challenged state of industry cash flows?

Yes. So I'll take the franchise profitability first. We don't disclose that, but it should be in line with what you're seeing on the company side. I wouldn't expect it to be different.

And then on the cash-on-cash returns, I mean, we're talking very modest investments here of under 20,000 -- under 25,000 depending on if you -- depending on what you're doing. So those certainly in the -- even in the context of a difficult year, whether it's for us or anybody in the industry, we're talking very modest kind of investment here, more of a spruce up if you want to think about it that way. And that's the kind of thing you put -- you do it the right way. You put just a little bit of marketing behind it. You would expect low single digits. You're not expecting huge returns on that, but you are expecting kind of a pretty modest return.

Your next question comes from Logan Reich with RBC Capital Markets.

Just on the Jack in the Box company-owned store, same-store sales relative to the franchisee, it looks like company stores are outperforming the franchisee base. Is there anything behind that? It looks like compares got a little bit easier on the company stores, but I'm just wondering if that's a result of some of the operational changes you guys are making and not showing up in the company-owned restaurants first or if there's something else you would attribute the outperformance to.

I'll start, and I'll let others jump in if there's more to add. But certainly, there was a little bit on the compares. I also think, over time, that the company's pricing probably has looked a little more favorable than franchisees in a lot of ways, meaning franchisees are, generally speaking, taking more price. So our absolute pricing at company restaurants right now is a little bit below many franchisees, not all. But we think given the markets where we have company restaurants head to head with franchisees, that's what we're attributing most of the difference there.

Next question is from Jim Sanderson with Northcoast Research.

Just trying to look more closely at your current performance and the outlook into fiscal '26. Maybe you can provide some learnings on what worked best that generated that sequential 300 basis point improvement in comp, if that was a consumer reaction among any specific income levels, regions, dayparts, any texture on what really worked well relative to the promotions you offered.

Yes, Jim, I think more than anything else, we really came out of third quarter and started fourth quarter with not quite enough price-pointed value. I mean the biggest singular driver of that move by far was when we pivoted and put dollars behind the Bonus Jack and more price-pointed value.

When you think about geographies, there weren't great differences in geographies. There weren't great differences in the various income or other demographic cohorts for that matter. I think it really was just a matter of we had a lot of abundant value and we thought what we had was good value, and I still believe it was. But it wasn't price pointed. It won't bringing people in as much. So when we made that switch, that's what drove that 300 basis point change.

Okay. And then just a follow-up on the discussion of kind of long-term outlook and cash on cash returns. How do you see the store margins at Jack in the Box evolving? They're quite a bit lower than they were pre-pandemic. Is there a new normal out there related to store labor and new stores, things like that, that might adjust what we should expect out of the store going forward?

I would expect certainly improvement from what we saw here in the fourth quarter. We opened the Chicago market. We opened 8 restaurants in a span of 8 or 9 weeks and frankly, really kind of overstaffed those. Particularly with it being a brand-new market to us, we wanted to make sure we were providing really good service. So -- and we overstaffed them to a degree. It actually did kind of move the overall consolidated labor number and restaurant labor margins. So -- our restaurant margin rather.

I do think, as we move forward, we're working on our supply chain. We are working on labor initiatives. So I would expect it to improve. I don't have the 2019 or '20 numbers in front of me to tell you it is or isn't a new normal. What I can tell you is I would expect improvement in restaurant level margin, both for us and our franchisees.

Your final question comes from Jake Bartlett with Truist Securities.

My first was on Jack in the Box performance versus peers. I think, clearly, you're underperforming, but I'm wondering whether in your core California market, there might just be general pressure and you're not underperforming as much as I might have seen by looking at the national numbers. So if you can frame out how you're performing versus peers and then I have a follow-up.

Yes. I think versus peers, we certainly, as we started fourth quarter, I think we were lagging more, and then we closed that gap as we got towards the end of the fourth quarter. Again, I hate to keep beating a dead horse, but as we adjusted what we were doing a little bit, so I think that we're certainly closing that gap. When I think about California versus the rest of nation, California itself is, I think, a struggle among many, many brands. And so I have a feeling that we would be certainly no worse off in California and probably a little better off than when you compare national to national just given the concentration we have.

Got it. And then my follow-up was on you mentioned some of the moves you're making to increase affordability and you mentioned lowering or tweaking some of the combo pricing, increasing the size of the drink in the small combo. The question is about the franchisees' willingness to make those moves. Other brands that have done similar things have had to kind of really make some deals with the franchisees and incentivize them to do so, so encouraging that it sounds like they're agreeable to doing something like that. So that's one part of it.

And then the next part is just whether that should continue. Are there other opportunities you see within '26 to meaningfully increase the affordability within the -- maybe even the core offering?

So I would say on the franchisee side, they have, in fact, been willing to make the moves that we've talked about. They were very onboard with the cup change. They were onboard with making sure that we had some price-pointed combos that were in the area they need to be in, in order to make sure that we're staying competitive. So we really did not have to -- it's not that we didn't have discussions and every franchisee is a little bit different. But with that said, by and large, we really didn't have much pushback on that front. So I think I can confidently say they were -- it's not 100% onboard. They were largely onboard most certainly with making those changes. And then what was the second part of your question, Jake, I'm sorry?

Yes. Just whether you're going to do more of that sort of thing in '26, whether increasing affordability of the core menu is something that you're going to still try to build upon.

I believe that, first of all, something you're always evaluating, you're making sure that you think you're in a relevant price point for the consumer you're trying to reach. I think there's probably some places where we could reduce prices, probably a few places we could take price to. So as we look into '26 and kind of our menu pricing strategy, I think, from my perspective anyway, we'll be looking are there a few more price points we need to have out there that are eye catching, so to speak. But then again, for every one of those, I would expect there's going to be a couple of places that we can smartly take price to where you wouldn't see a huge impact on the P&L.

I will now hand the call back over to CEO, Lance Tucker, for closing remarks.

All right. Well, thanks, everybody, for your time. We look forward to being in touch with all of you soon. And for those of you we don't speak to, have a wonderful holiday season. Thank you.

Thank you for joining us today. This does conclude today's conference call. You may now disconnect.