Jack in the Box Inc (JACK) 2018 Q1 法說會逐字稿

Good day, everyone, and welcome to the Jack in the Box Inc. First Quarter Fiscal 2018 Earnings Conference Call. Today's call is being broadcast live over the Internet. A replay of the call will be available on the Jack in the Box corporate website starting today. (Operator Instructions)

At this time, for opening remarks and introductions, I would like to turn the call over to Carol DiRaimo, Chief Investor Relations and Corporate Communications Officer for Jack in the Box. Please go ahead.

Thank you, Teresa, and good morning, everyone. Joining me on the call today are: Chairman, CEO, Lenny Comma; and Executive Vice President and CFO, Jerry Rebel.

In our comments this morning, per share amounts refer to diluted earnings per share and operating earnings per share is defined as diluted earnings per share from continuing operations on a GAAP basis, excluding gains or losses on the sale of company operated restaurants, restructuring charges and the impact of tax reform on the company's deferred tax assets as well as the excess tax benefits through share-based composition arrangements, which are now recorded as a part of income tax expense versus equity previously.

Adjusted EBITDA represents net earnings on a GAAP basis, excluding discontinued operations, income taxes, interest expense, gains or losses from the sale of company-operated restaurants, impairment and other charges, depreciation and amortization and the amortization of franchise tenant improvement allowances. Our comments also include other non-GAAP measures, including restaurant operating margin, restaurant level EBITDA, franchise margin and franchise EBITDA. Please refer to the non-GAAP reconciliations included on the last page of the earnings release.

Following today's presentation, we'll take questions from the financial community. Please be advised that during the course of our presentation, in our question-and-answer session today, we may make forward-looking statements that reflect management's expectations for the future, which are based on current information. Actual results may differ materially from those expectations based on risks to business. The Safe Harbor statement in yesterday's news release and the cautionary statement in the company's most recent Form 10-K are considered a part of this conference call. 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. These documents are available on the Investors section of our website at www.jackinthebox.com.

A few calendar items to note. Jack in the Box management plans to attend at the UBS Global Consumer and Retail Conference in Boston on March 8, the Bank of America Merrill Lynch Consumer and Retail Technology Conference in New York on March 14, and the Telsey Advisory Group's Spring Consumer Conference in New York on March 21. Our second quarter ends on April 15, and we tentatively plan to announce results on Wednesday, May 16, after market close. Our conference call is tentatively scheduled to be held at 8:30 a.m. Pacific Time, on Thursday, May 17.

And with that, I'll turn the call over to Lenny.

Thank you, Carol, and good morning. We're continuing to work with Apollo on completing the sale of Qdoba, which we're expecting will occur by April, though we will not be discussing that brand's performance during our comments this morning. As for Jack in the Box, our financial performance in the first quarter was solid overall and in line with our expectations. System same-store sales decreased slightly in Q1 as we rolled over a 3.1% increase last year, which was our best quarter of fiscal 2017. But we saw a sequential improvement in both sales and traffic in Q1, and importantly, company restaurant margins remained strong as a result of our refranchising efforts, which offset both commodity and wage inflation. In addition, G&A continued to decline as we focus on becoming a more nimble organization.

This morning, I'd like to talk about some of the restaurant initiatives underway to drive traffic and sales, and to update you on some leadership changes at our company, as well as how I see the flattening of our organizational structure impacting G&A. When it comes to service improvements, whether we're enhancing our restaurant facilities or developing digital solutions, it's imperative that we meet our guest's evolving expectations. Within our restaurants, we believe there are ways to find efficiencies to ensure that our 4 walls economics makes sense for our franchisees over the long term. Though we'll be working with them to accelerate the testing of several pieces of new equipment and processes.

As for digital, we know that if it adds complexity to our operations, we've made a mistake. The app we've been successfully testing does exactly what consumers want today. They can easily view our menu, order, schedule pickup and pay. We also want to be able to easily integrate other features with the app when appropriate, such as delivery. We're heading in the right direction with our app, and we believe we'll be in a position to roll it out systemwide by the end of the year.

Next, innovation. In the past, you've seen us focus most of our menu innovation around premium products, like the ribeye burger, which helped drive sales in Q1, or the food truck sandwiches that Martha Stewart helped us launch during this month's Super Bowl. What you'll see going forward, is that we're going to continue to innovate our own premium products, but also value-based products. The $2 breakfast pockets that we promoted in Q1 as a secondary value message are a great example of being in your value messaging to the menu with a completely new item.

When it comes to value, we typically offered value bundles that are promoted via second-tier messaging to the marketplace. However, in January, we began promoting several bundled offerings ranging from $1 to $5 price points as our primarily media message. Most of the traffic loss in Q1 continue to be driven by transactions less than $5, but our value promotions, including the $2 breakfast pockets, helps drive an incremental improvement in under $5 transactions versus Q4.

Delivery is another important initiative that we're making great progress on. Since the end of Q4, we've expanded the delivery to include an additional 478 restaurants. We're now delivering Jack in the Box food from nearly 63% of our system. And we're expecting additional restaurants to begin offering delivery over the course of the year. We continue to see an incremental sales lift in markets where delivery is offered.

Another major restaurant initiative is elevating the brand image though remodels and new construction. We have about 600 restaurants that I'd kindly describe as mature. These restaurants typically have roof lines more than 40 years old, that date the branch and really need to change. The investments that we'll make will largely be tiered, depending on sales levels, meaning locations with lower AUVs will get less investment than those with higher AUVs. You'll see us in partnership with our franchisees implemented over the next 4 years.

Moving on to refranchising. We sold 22 Jack in the Box restaurants to franchisees during first quarter, bringing the system to nearly 89% franchised at quarter end. We have approximately 60 restaurants with signed LOIs, and continue to expect the Jack in the Box franchise mix will reach approximately 95% by the end of fiscal 2018.

This morning, I'd like to update you on the leadership changes we recently announced, and our plans to continue flattening the organization as we evolve our company. Our leadership team is already looking different from what it was at the beginning of the year. Earlier this month, Frances Allen resigned after leading the brand as President for more than 3 years. She anticipated the need to flatten the organization, and graciously suggested that the elimination of her position, so that we can more quickly begin restructuring the brand (inaudible).

Another important change was the addition of Marcus Tom, who joined us this month as Vice President and Chief Operating Officer. Marcus brings significant restaurant industry experience in operations leadership position, and will be a key piece of our refocused executive team.

And finally, I want to acknowledge that this will be Jerry Rebel's final call with us. As you know, Jerry informed us last year of his desire to retire and move to Texas so that he could be closer to his family. I'd like to take this opportunity to thank Jerry for nearly 15 years of service to the company, and to wish him all the best in honing his golf game in Texas.

Thank you, Lenny. It's been an honor to be part of the Jack team for all these years.

Our new CFO, Lance Tucker, starts at the end of March. Lance will be joining us from Papa John's International, where he is currently Senior Vice President, Chief Financial Officer and Chief Administrative Officer. Following the expected sale of Qdoba, we'll still need to provide services to that brand until it becomes completely independent. When that happens, we'll be in a better position to continue restructuring the company and focus exclusively on the Jack in the Box brand.

As we continue to restructure the business, we believe we can lower G&A to less than 2% of systemwide sales. As we approach the back half of the year, we expect to be ready to discuss the timing of G&A reductions and other long-term guidance, including free cash flow targets.

And with that, I'll turn the call over to Jerry for a more detailed look at the first quarter and an update on guidance for the year. Jerry?

Thank you, Lenny, and good morning, everyone. As we noted in the press release, there were several items that made this quarter a bit messier than usual. When you get beyond the noise, it was relatively clean quarter from an operating standpoint. But before I get into the operating results, I will quickly summarize the items that created the noise. First of all, Qdoba results are shown as discontinued operations for all periods presented, including the Qdoba direct level G&A. However, shared service G&A, which supports both the Jack in the Box brand and the Qdoba brand, remains in continuing operations.

Second, was the impact of tax reform, which lowered our statutory federal tax rate but resulted in a one-time noncash charge, relating primarily to the revaluation of our deferred tax assets. This negatively impacted GAAP EPS by $1.03 per share. Third, there was an accounting change that requires us to now treat excess tax benefits from share-based compensations as a component of the tax provision versus additional paid-in capital in the past. This positively impacted GAAP EPS by $0.03 per share.

And lastly, with the increasing focus on EBITDA, we have reclassified all depreciation and amortization to a separate line on the P&L. You can see how this impacted our previously reported metrics, including restaurant operating margins and franchise margin in the non-GAAP reconciliations included in the press release.

Moving on to our operating results for the quarter. Operating EPS was $1.23 as compared to $1.07 last year, driven primarily by a lower tax rate, a reduction in the share count and a decrease in G&A, which were partially offset by the impact of refranchising. The tax act reduced our federal statutory tax rate from 35% to 21% effective January 1, resulting in a blended statutory federal rate of 24.5% for each quarter of our fiscal year, including state taxes, our adjusted Q1 effective tax rate was 28.8% and our estimated tax rate for the fiscal year will be approximately 29%.

Jack in the Box system same-store sales declined 0.2% in Q1. This 0.2% -- the 0.2% increase in company same-store sales was comprised of pricing of approximately 1.6%, mixed benefits of 1% and a decline in transactions of 2.4%. Franchise same-store sales declined 0.3% for the quarter. Jack in the Box company restaurant margins of 22.2% increased by 60 basis points compared to last year, with wage and commodity inflation each above 5% in the quarter. Restaurant operating margin for the stores we intend to keep after refranchising is complete, was 24.6% in the quarter. Excluding depreciation, company restaurant level EBITDA increased by 20 basis points to 26%.

Franchise EBITDA increased by 8.5% to $76 million, due primarily to refranchising. In G&A, excluding depreciation, declined to approximately 2.4% of systemwide sales as compared to 2.7% last year. Our leverage ratio was approximately 3.3x as of the end of the quarter. We are working with our advisors to adjust our capital structure to reflect a less capital-intensive business model. As we said previously at a 95% franchise mix, we are comfortable taking our leverage up to 5x EBITDA as opposed to the 4x we are limited to under our current credit facilities. Although we did not repurchase any shares during the quarter, weighted average shares outstanding decreased by 8% versus last year's first quarter. We have approximately $181 million remaining share repurchase authorization from our Board, and we plan to resume buying back our stock.

Moving on to guidance. Our systemwide sales guidance range for the second quarter is down 1% to up 1%. Through the first 4 weeks of our second quarter we are tracking within the range guided.

Fiscal year guidance we provided at ICR, and January is unchanged.

That concludes our prepared remarks. I'd like to turn the call over to our operator to open it up for questions. Teresa?

(Operator Instructions) Our first question is from Brian Bittner of Oppenheimer.

Lenny, you mentioned working with advisors to adjust your capital structure pro forma. So if Qdoba closes in April, what do you think you may expect acting on that in the capital return strategy? And when do you think we will get an update from the management team on -- you think about (inaudible) long-term financials in free cash flow targets going forward?

This is Jerry. Let me handle the capital structure piece question first. I think you would expect to have some update from us, assuming like you said, the -- the day the transaction closes in April, I would expect that you'd see something in terms of capital structure within the May meeting, and I think Lenny will take the second part of that question.

Yes. If we look at long-term guidance overall and any update to -- with our strategic planning, what you can expect to see happen is in conjunction with Lance joining the company at the end of the March time frame, the closing of Qdoba in April, you'll see a sense of urgency from us to update those plans and be able to get information out to all of you as soon as possible. But we do want to take one step at a time, get our new CFO in position and work through the close which is targeted for April, but we'll make sure that, that happens before we update any long-term plans. So you'll see, as you've seen in the past from us, whether it be with a restructuring or G&A reduction effort, a sense of urgency on our part to move quickly, to get to our new state.

Okay. And just last question, can you just talk a little bit more about your same-store sales guidance of 1% to 2%, what's driving that full year outlook, given it is better than the flattish 1Q results and kind of the flattish 2Q guide, and just any comments on how your single price point value strategy is going would be helpful.

Yes, let me handle the single price point strategy. It's -- I would call it a tactic more than a strategy. We had major competitive activity in, particularly in January that we wanted to make sure we were proactive in addressing versus, wait until the end of the quarter to see how it played out. So, I mean the tactic worked well for us, something that we'll repeat if necessary in the future, but it won't be the only tactic, so. And I don't believe that will be consistent with a multiple price point value promotion going forward, but it certainly has shown us that we have some other tools in the tool belt that we can pull out when necessary. Beyond that, when you look at the confidence for the back half of the year, I'd say is, I've just spent the last 2 days and what's interesting about what I'm about to say is, it's fun being a CEO of this company, it's been a great company to work for, but one of the things I've missed the last few years is my involvement in the day-to-day operations and marketing decisions which, with Frances' departure, I'm now extremely involved in and getting more intimate with. And the last couple of days I've had a lot of fun with my franchisees in the kitchen, working alongside my marketing group and my R&D group to shore up the back half of this year's marketing calendar. And we look at what we're going to do in Q3, we've got 2 great offerings. One would be a completely new offering that the we've tested, it's a snack item that will come in at a lower price point, but it's a nice quantity of food with pretty exciting packaging and also very indulgent line of products. So we'll offer that. And then on top of that we've got a great bundle item that we'll put together. We're not sharing specifically what we're going to do at this time, for competitive reasons, but we're all excited about the line up in that quarter, and in addition to that, the franchisees agreed to have the entire system focus on an average check builder, that we'll be doing through upscaling at every restaurant. It will be some items on our menu that are unique to Jack in the Box. So when we get the type of engagement from our operators, it's reason to be optimistic and excited. And then in the last quarter of the year, we're going to move away from sandwiches and promote some of the things that we think we have a license to promote, as a QSR player that has a pretty huge variety on its menu. And so we're going to do things that are differentiated and that make us stand out and we're going to actually extend one of the offerings that we currently have to bring some new news and excitement to an old product. So really excited about that, we're going to bundle that as well in a combo meal. And again, when you look at what will be in that combo, besides for the drink, the other items that will be in that combo are unique to Jack in the Box, so. When we look at a lineup like that, and engagement from our operators, this is where we get excited about the back half of the year.

Next question.

Our next question is from Dennis Geiger of UBS.

Thanks for the question, and Jerry, congrats and best of luck. Lenny, just wondering if you could talk a bit more, maybe about franchisee sentiment and profitability right now, maybe some of the perceptions around the new value construct, what they're saying? And then, just building that on that, just as it relates to what you're seeing from a development commitment standpoint? I know there was some commentary, but just how you're thinking about that associated with the refranchisings as we go through the year?

Yes. So I'll answer the last part of your question first. When we look at the refranchising effort that we're currently initiating, there may be some development agreements that happened with that but that's not the major thrust of that activity. So unlike what we did last year, where we actually slowed down the refranchising activity in order to get development deals signed, this won't look a little different. So we may marginally get some, an uptick in development, but I wouldn't expect that to be a major driver of our business. When you look at franchisee sentiment, essentially, what they're experiencing is rising labor costs and it's putting pressure on their P&Ls, and their major focus is really to drive sales and transactions, to allow them to lever their business positively. So we, and -- I'm not -- that's one of the reasons why I've been excited to get close to the business and close to them, in working through those issues. So again, I said, when you see the type of engagement we experienced over the last 2 days, I mean it was beyond just the back half of the year, it was also examining what the product pipeline would and could look like going forward into 2019. I would say that our franchisees are optimistic about the future, but also concerned about their current financial health and want to make sure that the franchise owner is working side-by-side with them, to ensure that they will have a healthy business over the long term.

As far as -- one last thing with the franchisees. As far as their interest in refranchising, that has not waned, and their overall financial health is good, but they certainly don't want to see any deterioration in their margin over time, but we still have a significant interest in -- from our franchisees in getting the remaining sites that we'll be refranchising.

Next question is from John Glass of Morgan Stanley.

Just first on the current -- the commentary on the current trends, I think you're rolling over some fairly weak comparisons from a year ago. So maybe you could just remind us how the quarter, a year ago progressed? And therefore, if you've faced other comparisons in the back half just of this quarter, how you plan to handle that? And Lenny, I think in your comments, you talked about tactics in January sort of like, it was contained to January from a competitive intensity standpoint. You don't necessarily have to be as intense going forward. Is that the case? Do you feel like the discounting intensity has waned as we've gotten into February? Or is that -- was that not a correct read of that.

I don't think the discounting intensity has waned, but I think we're seeing a couple of things that would tell us it may wane. So first off, what happened in January was really just us playing a little bit of defense and making sure that we didn't get caught standing flat-footed in the face of what we knew to be is a pretty extensive, competitive activity. I don't think that the activity is necessarily going to wane overall. But the tactics that we may deploy against it may be a little different. Our franchisees, what they're seeing is that when we launch premium products well, that's a transaction driver, and it's also a sales driver. And so for them, it's really important that there's a balance over time, as it is for us, the balance over time and focusing on value and premium. And in many cases, we found that when we lean into premium, such as when we launched the Buttery Jack, we actually are getting more success with that than what seems to be a more [possessive] play when we lean into value. So I think you're going to see a healthy balance going forward. When you look at Q1 transactions for our company stores, it improved from down 5.4% to down 2.4%, so we think what we did was the right thing, to sort of protect our business and regain some share. But ultimately, when you look at the trend throughout this quarter and into the back half of the year, with the lineup that we have in place, we remain optimistic that we can deliver.

In this comment about the second quarter a year ago, when I think you were down like 3% this time a year ago, so you're rolling over easier comparisons, how does that rest of that quarter unfold? And are you already lapping tougher compares, if you will, so that you've got better confidence of that 0 or plus or minus 1?

Yes. So John, the trends that we're tracking in the guidance, that is range versus that down 3%. So there was a lot of chatter last year this time about the delay in tax refunds and from what we can see thus far this year, there hasn't been any improvement or degradation in those trends, but the back half of the quarter was obviously, much more positive than the first part of the quarter last year.

Okay. And if I could just sneak one more. The G&A targets you're giving now is just the pure G&A versus -- that had some D&A in it before. So it's not an enormous number, but maybe it's $8 million on an annualized basis. So are you looking more favorably on your G&A for the year? Or is that just within the wiggle room of the 2.5% to 2.7% of system sales, so it's not really material to call out?

Yes, John, it's Jerry. It's within the wiggle room that we provided within the range. If you look at what it was last year, it was just under 20 basis points of D&A, which was in the G&A category. So the target that we have, the longer-term target that we talked about at ICR is less than 2% of systemwide sales, I'd consider that to be cash G&A. So we have excluded the depreciation and amortization, and we also think that, that's a very consistent reporting approach within the period, within the industry here. So that's how we're looking at it.

Next question is from David Tarantino, Robert W. Baird.

My question, I just want to come back to the comps outlook and I know you mentioned, Lenny, several factors that give you confidence in the second half, but I guess a question about the environment. Are you assuming that the environment changes or gets better as you move through the year? And I guess related to that, consumers are starting to see lower taxes on their paychecks, so I was wondering if you are assuming any benefit from that, or if that would be upside relative to your current plans?

Yes. So current plans do not assume that there's some catalyst that drives performance. We do expect the environment to be just as competitive in the back half of the year as it's been, really, over the last couple of years. And so if you look at what we're planning to do in Q3, for example, the two things that we'll be promoting. One, more on the premium side, and one more of a sort of snack or value item. Both will be price point promotions, which we don't typically do. We typically have one price point promotion out in the marketplace and another that's sort of unpriced, typically focused on premium. We will, in this case, have competitive pricing on both of the offerings as really some of the additional sort of drivers, or the offerings. So I think our expectation is that it's going to be a competitive market and we really can't afford to take our foot off the gas.

Great, that's helpful. And then on the G&A reductions, I know you mentioned that we'll more clarification on the timing of those. But I guess, can you give some high level perspective on how that transition services arrangement works? Is the right way to think about this that you could have sort of minimal or low G&A reductions over the, relative with our current run rate over the next year, and then you'd see a step down after the transition services arrangement ends?

So let me talk about the transition services and fees first. So -- well as I mentioned in my prepared remarks, the our shared service G&A, even that which currently supports Qdoba, is in our continuing operations. Right after we close the deal, we will begin to receive proceeds from Apollo for the shared services that we're providing for them as part of transition services agreement. It's likely that, that will be shown to offset the G&A the way we would report that, but even if it doesn't, if we try to figure out exactly how that's going to look going forward, we will be very transparent about showing you what the income level is, or the offsets is to that G&A from the transition services compensation that we're getting from Apollo. So you will see a reduction related to that and at least, the back half of the year or post closing.

And David, the way you can think about this, what we'll be working through with Apollo is, once we are able to close on the deal, over time we'll understand more details about their plans to become independent, sort of department by department. And as we understand that, it -- then will be a catalyst to us putting our go-forward structures in place.

Next question is from Chris O'Cull with Stifel.

Jerry, let me join others on congratulating you on a very successful career. My question relates to the tenant improvement investments. And Jerry, would you describe how the company is evaluating the return on their portion of the investment? And if there's any changes to the rental rate charged to the franchisee after the investment's been made?

Yes. So the second part of that question, first. There is no rate, there is no change in the rental rate on the extra rental flow-through would come from the increase in the same-store sales that we would get from, resulting from the remodel. The way that we looked at the tenant improvement allowance, I go back to one of the things that Lenny said in his prepared remarks, which is this tiered approach on the overall investment cost, which is based upon sales of higher AUV restaurants, they're going to get a higher investment, they'll get a higher tenant improvement allowance, then and of course, the opposite would be true for lower performing units. But the way that we looked at this is, we applied the same investment threshold for the tenant improvement allowance for us that we did for our own remodel investment cost for the company-operated restaurants. And so, and the hurdle that we were looking at there was a 15% return on that investment, whether or not it's a tenant improvement allowance or a CapEx for company locations, Chris.

Chris, I just want to add about beyond the, beyond just the financial sort of hurdles that we set for ourselves. It's also important from a competitive standpoint to recognize that many of our peers are accelerating remodels in order for our brand to remain competitive and relevant in the consumers' minds. We're going to have to make sure that we do invest in these sites.

No, I understand. And then Jerry, I heard you say the stores you're keeping had a 24.6% margin this past quarter, can you tell us what that margin was last year for those stores, and how it's been trending?

Yes, I can tell you what the -- at the Analyst Day, the Investor Day, that we had, what -- almost a couple of years ago now, we were showing those to be around 300 basis points higher than what they're currently trending, and that is primarily related to significant wage inflation. And then, within the quarter, there's some impact on commodities. Let's say the structural change is in the labor model. The commodities will go up and down over time.

Our next question is from Gregory Francfort of Bank of America Merrill Lynch.

I had 2 questions. One is just on, what will the tax rate be, kind of on a normalized go-forward basis by just -- is 25%, 26%, which is what I'm backing to, kind of a fair number on a go-forward basis. And then the second question was just a follow-up to one that was just asked. I -- what will be, I guess, the stores you keep, post refranchising, what do you expect their restaurant level margins to be now on an ongoing basis, given the change in the D&A, is it just, it's taking 4% and adding it on to sort of what had previously guided a fair way to think about it?

Yes, so Greg, the restaurant operating margin that we been talking about today is all apples-to-apples to our prior guidance, that's when we talk about the restaurant EBITDA, that depreciation gets added back. And I think we showed that slide at ICR, which I think I have right in front of me. The -- if you look at fiscal '17, the stores that we intended to keep at the end of the refranchising would have had a store level margin for fiscal '17 now before the labor and commodity inflation of 26.1%.

So I take 26.1%, add on maybe roughly around 4%, and then take out some margin for inflation, that's the right way to think about long-term margins for the company business?

Yes. About long-term EBITDA margin for the business, yes. And then, on the first part of your question, which is by far, the easiest of the 2 questions, by the way, you would be looking at that 25% to 26% range, 21% for federal, and then roughly 4.5% for state would be what an ongoing rate would look like, everything else being equal beginning in fiscal '19 for us.

The next question is from Alex Slagle of Jefferies.

Just a couple guidance questions. One on the one-time franchise fees related to refranchising, I want to know whether are those baked in the guidance, I know maybe in the past you had excluded some of those?

Franchise fees are in the guidance for this year, Alex. And of course, with revenue recognition, accounting change that will be effective for us in our fiscal 2019. You'll see a very different reporting structure where we haven't yet determined which method of adoption we're going to apply yet, but as we get closer to that implementation, we'll describe what that looks like, and how you should expect to see what it looks that going forward. And also, what it would look like in the rearview mirror.

Got it. And then on the refranchising, the cadence, I mean, which we assume the remaining transactions are sort of evenly split over the next 3 quarters or with the nearly 60 signed LOIs, I mean, perhaps a little bit more show up in the second, third quarter, rather than the end of the year?

Yes. It's not a bad way to model it, going -- throughout the balance of the year, some were ratably, but if you look at, with these roughly 60 LOIs that we have, we have, plus or minus 60 more restaurants to sell beyond that. So it may be a little faster paced than the end of the year, but modeling it evenly is not a bad way to go at this point.

Next question is from Andrew Charles of Cowen and Company.

Jerry, congratulations on a well-deserved retirement. Lenny, you mentioned the new snack item in the bundled deal coming in Q3, could you talk about your optimism behind these initiatives, in light of the underlying deterioration in sales in January when you utilized a similar tactic?

Yes. We didn't utilize a similar tactic in January. In January, we put out products that essentially already existed, put price points on them, $1 to $5. When you look at what we're doing going forward, the snack item's a completely new item. It has been tested, and it tested very favorably in the marketplace where we tested it. It's also a significant amount of food, provided at very reasonable price. So we can see consumer sentiment about it is very positive. It's also extremely indulgent, and sort of true to Jack. Something that we can deliver from our menu that many others can't. So I wouldn't say that it's anything like what we've done in January, new news tends to play a lot better for us than just price promotions. So that's why we get a little more optimistic about this one.

Got it. And Jerry, would G&A at 2.4% of system sales in 1Q is obviously below the full year guidance range and before obviously, the final tranche of your franchising, sort of plan for this year, really kicking in. What drove the reiterated guidance for 2.5% and 2.7% besides conservatism?

I really call it primarily timing. If you look historically, the Q1 G&A tends to be lower than the full year guidance that we just started to ramp up some of those initiatives and whatnot. So -- and then there's always some play with respect to what mark to market on those nonqualified retirement plans do, so there's always some fluctuation there. And then we had a little delay in some equity grants, which changed the timing of that amortization over the balance of the year, with a amortization of those costs in Q1.

Got it and if I can sneak one last one in. What drove the heavier CapEx in 1Q '18 versus 1Q '17, with your company restaurants. Does that reflect the new equipment that you talked about testing?

It's really more of the remodel activity that we have within the quarter, both on some of the remodels that have been completed, some that are ongoing, and then also some of the IT investments around digital.

It's not a big impact at this point. We've got just a small handful of company operation sites that are testing equipment. At this point in time, we'll have somewhere around 15 franchise locations that will get involved in that testing period in the short term, but those will all be marginal in comparison to what, the weight of the remodel on overall capital.

Your next question is from Jeff Farmer of Wells Fargo.

Just want to add my congratulations to Jerry, impressive long career. Moving to the question, just circling back to one of the first questions, just for some clarity. So what was asked that one that could all the sales complete, what type of information you guys will be providing for us over sort of the longer-term guidance framework? And a lot of times, we look at what was provided at that May of 2016 Analyst Day, and to the best of my knowledge, that was just was a lot of information about Future CapEx levels. So I could have read that quickly and wrong, but will you be providing both operating cash flow and CapEx numbers, so we can really get a much broader understanding of what the free cash flow picture will look like, '18, '19, '20, '21, for example?

Generally, the answer to that is yes. We'll provide all of that clarity. And I think the timing of providing that clarity, won't fully be determined until we have Lance onboard. And have -- and give him an opportunity to work with us on designing all that, but you'll have everything from the details on free cash flow to EBITDA, CapEx, same-store sales margins, G&A. You should be able to build out your models pretty readily.

Okay, and then last question, unrelated. Any surprises or I would say, lessons learned with how your customers were using, I believe, those called value Jack's way menu, basically the $1 to $5 price point menu? Anything that surprised you? How are the customers using it, anything that you can use as you move forward in terms of sort of balancing more of the premium products versus and dispersing it with value?

I guess what I would say is, we've been doing a fair amount of research on where consumers historically find the most value on our menu. And not surprisingly, our taco offering has been quite popular, it also turned out to be quite popular within our $1 to $4 offering. And if there are lessons learned, it would really be along the lines of what we can do to enhance our sales through featuring tacos. And so, that's sort of one big thing. As far as the other offerings, when we have things like breakfast pockets that are sort of new news, they're a sort of innovation for us, but they're also show up in our value price point. We tend to do a little bit better with those products as well. We tend to take existing products and since we discount them, although we'll get a higher take rate, we also have to be careful about what the impact is to margin, so those aren't necessarily the most preferred method. And when we bundle items with a drink, a side and an entrée, that historically, had been our best play. So I think when we come out of this $1 through $5 price point time frame, some of the things that we've seen are right in concert with what we've sort of always known. When we look at, behaviorally, the consumers' take rate on our taco offerings within that $1 to $5 price point, it gives us some optimism about what we may be able to do with tacos in the future.

The next question is from Jeff Bernstein of Barclays.

A couple of questions. One, just on the unit growth. I mean, I think we're in the 1% range, driven by franchisees this year. As you think out over the next few years, should you see stable fundamentals, I have franchisees, some tax savings, I'm assuming there is some significant refranchising opening commitments. What's kind of your outlook over the next few years. Obviously, you'll give guidance at some point, but directionally, should we just assume a steady uptick in that growth rate and maybe could provide some context, how many franchise open commitments do you actually have, or for how many units do you have commitments at this point so we know what's already in the bag?

What I would say, overall, we should wait until we update guidance, provide more clarity on that. What I will say is that the vast majority of the growth that you see right now is Jack in the Box brand, almost all of it is franchise growth. So the commitments there, and I think that franchisees are optimistic about the business over the long term, so I don't expect that their commitment will wane. At the same time, they need to know that, they need to see those numbers show up and I think what you can see us boasting on, about testing a new equipment that can drive efficiencies in our kitchen, as well as focused on driving top line sales through product innovation, those are the things that give them a sense of security, that their investments pay off over the long term. But I would say, we'd be a little premature to model you any significant uptick in growth. I would wait until we have enough to really update the long term plan.

Got it. And then, Lenny, just the broader thoughts on the multi-brand portfolio. I mean, many of your peers contemplate whether a single brand or a multi-brand portfolio is the right strategy, going from multi to single. I'm just wondering what do you think are the greatest benefits you're going to lose from going back down to single? On the opposite side of that, I guess, what would be the biggest benefit you think you'd gain from not running a multi-brand portfolio?

I think if we, if we really take -- if we're being completely transparent and honest, The Street never fully embraced Jack in the Box being a multibranded concept. And so, we grew this thing from 86 units to 700-plus units in that entire time frame, 10-plus years. We never fully got acceptance of this business model. At the end of the day, you had competing interests, right? On the one hand, you want at the asset like business. And on the other hand, you have this growth business. And they don't, from an investment community standpoint, work hand-in-hand, they're not clean. So if there's one lesson learned about it, it would be that this type of model, in a publicly-traded situation, probably doesn't make sense because it's just too complex. And so what we lose, I think we lose EBITDA, right? At the end of the day, the -- look, you have a business, was generating some positive cash flow for us, that created some efficiencies on the G&A side and we're going to have to relook at how we, you know, run the model going forward. But I think, outside of those things, net-net, moving to one brand will turn out to be a very positive thing for our business.

We're going to be a much more agile company, with a leaner structure with fewer layers to go through to get things done. And that's sort of what our roots are, it fuels a lot of our innovation. And I experienced that this week, right? We've already begun to engage franchisees differently. We have all these committees that existed for both brands that got managed by brand services leaders, as well as brand leaders, and that all flattened down to essentially me and my direct reports working directly with franchisees on the future of the company. It seems easy, it seems like we can move much faster than we typically do. And we sat around this same table that I'm at today, talking to you, talking to franchisees about the future and product innovation and also equipment testing. It was amazing how open they were to taking risks that would help us to accelerate our performance. So from that standpoint, I think yesterday, when I walked out of 2 full-day sessions with franchisees, several folks are saying, how are you doing? Are you tired? You seem extremely energized at this point. I mean, I am, because my franchisees are excited, they're engaged, we're moving much faster. It seems that what has taken us weeks or months to make, we made in 2 days. And so net-net, I think our leadership teams would tell you, and I will tell you, this will turn out to be a net positive for us. We're just much closer to the business, and I'm excited personally, to be much closer to them.

The next question is from Matt McGinley of Evercore.

My first question is on the trend in the remodel process. I understand there's a lot of factors that go into, when you would do that, given franchisee profitability, your contributions, the type of remodel. But how do you think that trends over the next 4 years? Is that something where you do a lot of cheaper, lower AUV remodels up front? Or is it something that just takes 4 years, and you just do a quarter of those remodels per year?

So we -- it won't work the way you described, where we kind of do cheaper up front. It'll be dispersed in a way that really had some of the more expensive remodels happening earlier in the process. And then later in the process, I think we'll not only be faster at getting them done, but they'll be the less intensive ones. And really, what that comes down to is some of the buildings that we will remodel early in the process just require more work and more time. So they're a little more costly, and they have some downtime associated with them. Some of the sites that we will remodel later in the process, we won't have to shut those sites down completely. The drive-thrus will remain open, and we can sort of work around the drive-thru to get that work done. So maybe a little more intense and expensive for the earlier remodels, is the way you should think about.

Got it, and for Jerry, I have a question on the tax rate guide for the year. If the adjusted effective rate was 28.8%, I believe you said in the first quarter. In the full year guidance, still 29%. But in the first quarter, you would've had, most of that quarter would've had the higher 35% federal rate. And for the rest of the year, you should be at the lower 21% federal rate, why is the guide for the year still 29%?

The way that you have to do this is, you're really looking at the overall blended rate for the entire year, and that's what the rate is for each quarter. And so what you basically are seeing is, for the year and for each quarter is, 1 calendar quarter at 35%, 3 calendar quarters at 21%, but that is shown evenly throughout the year, for each quarter. It's not logical, but that's the way that you have to do it.

Next question is from Robert Derrington of Telsey Advisory Group.

Lenny, can you give us a little bit of color about your thought process as you look at the recent food truck series sandwiches you introduced? And kind of what the thought is there? And what your initial impression is of what they're doing with the business, as far as sales go?

Yes. So we, so first of all, I'd say, the food truck series really represents 2 things: One, I'd say from an advertising standpoint, Jack's got his swagger back. I mean, we had gotten, I think, a little too conservative in the way we use Jack in our advertising. Frances really, along with our Chief Marketing Officer, [Ivana], started pushing for us to get a little more aggressive and back to the old personality for Jack. And I think it played really well, and I think bringing in Martha Stewart played really well. It's more in line with the persona that helped us cut through a lot of advertising noise, even though we're a regional player. So I think the first headline is on an advertising side, has worked extremely well, and it's also indicative of what you can expect to see from us going forward. As far as product development, really happy with the food truck series. It has done well for us, but I think we can do even better, and after spending a couple of days with my franchisees, if we were to evaluate the food truck series today, versus the months passed before we launched it, we may have actually doubled down on even more protein on those sandwiches than we're currently offering, in order to ramp up the quantity in the sandwich. And we looked at similar sandwiches and even line extensions for food truck series these last couple of days, where all of us were aligned around really wanting to knock the customer's socks off when they bite into these sandwiches. So that might mean price points have to change in the future, in order to achieve that level of quality. But I think, if we're going to have to be aggressive on the value side, we don't want to lose our brand equities that we've built up on the quantity side, and so it's going to be important that we continue to put these wild products out there. I would say on a scale of 1 to 10, food truck series, maybe it's a 7, and I think we can get to a 10 if we're willing to commit fully to high-quality items going forward.

That's great color. And Jerry, congratulations. But before you retire, can you give us some restated quarterly number, to match up with the way you're reporting?

So thank you, first of all, Bob. But -- so look, we understand the need for the restated quarterly numbers versus Qdoba, as discontinued ops and more importantly, the Jack standalone piece. We will get something out there to you, we just can't commit to a time at this point, but we understand the need, and we'll get it to you as soon as we can.

Next question is from Karen Holthouse of Goldman Sachs.

One quick housekeeping question on the model. If I try and reconcile for 1Q '17 G&A that was -- or SG&A that was reported last year versus the restated number this year, it looks like it's about $15 million lower. Taking out the DNA that got reallocated and Qdoba advertising, I end up with about a little over $6 million, that seems to be allocated to Qdoba. But I'm trying to reconcile that with what you said it was sort of a $14.2 million Qdoba allocation back at ICR, because it would seem like that $6 million would annualize to something a lot higher.

Yes, Karen. So actually, I appreciate getting that information before the call, so I was able to a look at it. The roughly $6 million that you had is allocated, it's really not allocated. I had a slightly different number, but we're in the ballpark. That was direct Qdoba brand G&A, and that would be consistent with what the direct Qdoba brand G&A was for the full year, because I think we said, that was $14.2 million. The reason that you can't annualize that is because the first quarter of last year, Qdoba had a cost in there for an assumed incentive payment at their target levels. And by the time we got to the end of the year with the Qdoba performance, there was no target level or there really wasn't much of an incentive compensation payment at all. So you really can't look at the roughly $6 million of direct G&A in Q1 and extrapolate that, so. But the $14.2 million was the right direct Qdoba G&A for last year. I think you're close enough for the quarter.

Okay, that makes sense. And then one of the things we were talking about at this point last year was some weakness in the Hispanic consumer on the back of the election. I know that's a demographic that you over indexed to. What are you seeing there? And then you -- is there, sort of what are you seeing in the trends there? And how do you think about, sort of spending patterns last year in the, call it, Hispanic consumer comparison in the coming months, versus where we are now?

I don't think that we're seeing anything currently, that would create concern about the strength of the Hispanic consumer, more so than the concerns we would have over an abundance of value in the marketplace, and the high take rates associated with that value, and its difficultly in breaking through some of that noise, at times. But I don't know the specifics about the Hispanic consumer's strength, but we certainly don't have any data points at this point in time that would tell us that something has changed dramatically, but it's certainly is something we'll continue to take a look at.

Operator, I think we have time -- we're right at up on the time, but we have time for -- we'll take one more question.

And our question is from Matthew DiFrisco of Guggenheim Securities.

I just had a clarification, not a question. I just -- did you guys specify earlier in the call what the Jack in the Box brand in 2018 is going to give as far as either operating cash or free cash flow in correlation with the CapEx and EBITDA numbers?

We did not, Matt.

Okay. I guess, also in, Lenny, when you're looking at the remodels and in years past, other companies, not necessarily you guys, you've done a great job of not having a lot of closings, but other companies that had some closings pick up when they have remodels and the context of the inflation that's out there and the value promotion, do you model in there with the longer-term growth projections the potential for a pickup and closings, or have you already sort of vetted the temperature of the franchise network?

I'm not sure if I fully understood your question.

Maybe I'll take that one. So Matt, with the refranchising that we've done, that's really where a lot of the vetting in terms of closing discount. Our guidance that we give on unit growth is gross and not net. It's typically the stores that we're closing are obviously much lower volume. But when we look at the remodels, we're not going to put in a lot of capital into a store that we think is not worthy of those sorts of investments, that's it's not going to be in the long-term plan.

Yes. Matt, I would look at this as not necessarily closing because of the remodel, but on some lower performing units, you may see that franchisees choose not to want to slide up for the next lease extension, if it is a substantially lower cash flow generating unit.

Exactly. So to that point, has that -- is that another thing to be updated on later, as we go further down?

I don't -- I think Carol's right. The -- in the uptick, you see it's really related to refranchising some of the lower-performing markets, but the other thing I just described is the usual and ongoing, and I wouldn't expect to see an uptick from that at all.

Thanks to everyone for joining us, and congrats to Jerry on his last earnings call. He can go hit the course here shortly, when Lance joins. So we look forward to seeing all of you in New York and Boston in the next few weeks.

Thank you, speakers. And that concludes today's conference call. Thank you all for joining. You may now disconnect.