Although exciting growth is ahead, Harris wanted to manage expectations, especially with COVID impacting site selection, financing, permitting, and build out. Jack anticipates at least 18 to 24 months before it starts to show meaningful net new unit growth.
“We have new leadership in the development group with Tim Linderman who was recently hired,” Mullany explained. “We recently rolled out a new franchising website and then launched some of these early initiatives to get out and start getting interest for new franchisees coming into the system. As those development agreements get signed in the future, that's sort of the canary that indicates when that 18- to 24-month clock starts so to speak for those units that are announced in each development agreement. So we're actively pursuing it and are really optimistic about the early results.”
Some expansion plans are coming sooner than others. Jack recently finalized an agreement with REEF Kitchens to open up to eight ghost kitchens in three states this summer. The move is another step toward bolstering the chain’s digital business, which now features in-app ordering and a loyalty program. The digital channel mixed 7 percent in Q2, or a 150 percent increase year-over-year, and the customer database has grown by more than 60 percent in the past year and a half. More than 95 percent of restaurants are covered by at least one of the four major third-party delivery providers, and 80 percent are using at least three.
Harris said the loyalty program and growing database—along with a new digital marketing technology platform—unlocks an opportunity to offer more personalized messages and timely offers. In the past year, data indicates that Jack is attracting consumers with a higher income even as dining restrictions loosen.
“So we're in the very early stages of our digital strategy as we connect with our guests and enable one-to-one marketing, but we're seeing tremendous growth from digital,” Harris said. “We also are seeing some shifts—as we've talked about before on these calls—with our new customers. And what we're seeing is some of the higher income customers are holding steady, meaning, when we measured churn of customers compared to last year at this time and the rollover of COVID impacts, we're seeing that it implies that Jack has been able to successfully hold on to these new higher income customers that we acquired at the start of the pandemic. So that's also creating some encouragement on our part on how do we continue to comp.”
Jack’s Q2 results were driven by mix shift toward premium menu items including Chicken Strips, the Bacon & Swiss Buttery Jack, and Supreme Croissant. Mix shift was also lifted by LTOs like the Cluck Chicken Sandwich and the return of the Triple Bonus Jack. The premium offerings—in addition to strong attachment and add-ons—outperformed year-over-year, which includes a lap of the successful Tiny Tacos. Jack was positive across all parts of the day, with the late-night daypart experiencing the highest improvement and accounting for two-thirds of transaction growth. The brand saw strong sales across all geographies, including markets that have been reopened for several months. In Texas—a state that lifted restrictions in early March—the chain saw its best transaction trends, and stores are posting solid sales during the first few weeks of Q3.
In terms of the labor shortage, Mullany said Jack isn’t seeing a material impact on sales. Under 10 percent of company stores have been impacted, and he estimated a similar proportion for franchised units.
In Q2, operating earnings of $64.9 million increased 37.7 percent compared to $47.1 million in 2019. Net income of $35.9 million rose 43.2 percent compared to $25.1 million two years ago. Adjusted EBITDA of $75.8 million lifted 23.9 percent compared to 2019.
For the fiscal year, Jack expects high single-digit system same-store sales growth, adjusted EBITDA between $320 million and $330 million, and labor cost inflation of 5 to 6 percent.