As Harris has noted for several months, rising sales and traffic have motivated franchisees to entertain more development opportunities. Jack finished Q3 with 2,219 restaurants systemwide—2,080 franchises and 148 company-owned. Four stores opened in the period while 13 closed, but Jack anticipated this as it worked to build communication with franchisees. The chain doesn’t expect the rate to outpace historical averages. Additionally, most of those closures include agreements for offsetting locations, meaning those stores continue to pay royalty and rent contribution until the new, offsetting units become operational.
Jack has painted a much brighter future. During its Investor Day at the end of June, the company said it was capable reaching 4 percent unit growth in 2025, operating in 40 states by 2030, and expanding beyond 6,000 restaurants in new and existing markets. In 2021, Jack has completed development agreements for 64 restaurants, which will be spread out over time. Harris said it will take between 18 to 24 months to see Jack’s growth strategy truly come to fruition, but the beginning stages should start in 2022.
“We will get there by learning from our past to improve fundamentals, solidifying our unique brand position to potential guests in a strong fashion, and most importantly providing a franchise opportunity like no other in [the quick-service restaurant segment],” Harris said.
“ … With the improvement in our economics year-to-date we're up about $90,000 in just overall unit economics. The franchisees are aligned," he later noted. “They're showing the desire to grow. And I anticipate another good quarter with more development agreements coming.”
In terms of dealing with the volatile costs market, Jack saw commodity inflation of 5.7 percent in Q3, compared to an increase of 1.7 percent in Q2 and 1.6 percent in Q1. Despite the inflation, Harris said the brand is in a good position because it serves multiple proteins, allowing it to utilize a variety of promotions to run business effectively and profitably.
When it comes to labor, inflation was 8 percent, rising from 6.3 percent in Q2 and 4 percent in Q1. The CEO said Jack has spent the majority of its time focusing on staffing dayparts in which demand is present.
"Like everyone in the industry, I would love to be making sure we could service and keep our stores staffed at all levels of the day, because we would take these results and improve them even more than what they already are," Harris said. "But the industry as a whole as you know are challenged by this. " ... If we know that we can staff late-night or hours when our business is there and the demand is there, we want to make sure we're staffing it."
Total revenue in Q3 rose from $242.3 million last year to $269.5 million. Restaurant level margin remained flat at 25.4 percent or $23.4 million, while franchise level margin improved to 43.3 percent or $76.9 million. Net earnings increased to $40 million for the third quarter versus $32.6 million a year ago. Adjusted EBITDA was $79 million in Q3 compared with just under $73 million from the prior-year period.