Jack in the Box Inc. (JACK) Earnings

Management highlights

### Interim CEO Engagement & Strategic Clarity - Interim CEO Mark King completed a period of listening across the business, meeting with nearly all franchisees, corporate employees, and working shifts in restaurants to gain firsthand insight into operational challenges and opportunities. - Five core priorities aligned around the overarching goal of delivering consistent same-store sales growth were identified, based on input from franchisees and frontline teams. ### Core Strategic Priorities - **Customer obsession**: Revisit customer research to increase engagement with current and lapsed customers, to inform menu, marketing and innovation decisions. The company will strengthen its positioning around quality and value, which are increasingly demanded by consumers. An updated menu layout will be tested in fall 2026, with a new brand campaign launching ahead of a broader 2027 rollout. - **Product quality improvement**: Test a new premium burger platform with higher quality ingredients, improved prep, presentation, and packaging; early test results are encouraging, with a system-wide launch planned for 2027. - **Restaurant experience upgrades**: Offer a $2,000 per restaurant contribution to accelerate modest restaurant refresh projects; 25% of franchise locations have already signed up within a few weeks of announcement, with refreshes scheduled over the next several quarters. A broader long-term remodel strategy is planned for the future. - **Operational simplification**: Reduce promotional complexity, cutting the number of promotions per marketing window from three to two in 2026, with further simplification planned for the 2027 marketing calendar. The operations team has rolled out company-wide retraining on basic service standards and consistent shift execution, though the menu and kitchen workflow remain overly complex and work continues to improve consistency. - **Franchisee profitability improvement**: All priorities are focused on driving stronger restaurant-level economics, as healthy franchise profitability supports reinvestment and unit growth. Franchisee profitability remains under pressure from multiple quarters of same-store sales declines and ongoing inflation; plans to stabilize franchisee economics will be shared alongside 2027 guidance. ### Operational Q3 Response & Early Q4 Performance - The underperforming Hot Ones promotional window was ended early after the polarizing product offering failed to meet expectations, with adjustments made to reduce trade-down and pull forward the Philly cheesesteak platform launch to start Q4. - The early Philly cheesesteak launch has driven strong customer interest and higher average checks, with Q4 to date same-store sales up low single digits, indicating the new balanced premium-value promotional strategy is working. ### Jack on Track Progress - The company completed its planned refinancing in the quarter, fully paying down the August 2026 debt tranche and substantially reducing the February 2027 tranche. Cumulative debt reduction since Jack on Track launched in April 2025 totals $244 million. - 40 underperforming restaurants have been closed year-to-date, with franchisees increasingly willing to close locations ahead of franchise agreement expiration to streamline portfolios.

Guidance

The company updated full fiscal year 2026 guidance, with the following key updates: - Expected total Jack in the Box restaurant count of approximately 2,100 at year end. - Expected full-year restaurant-level margin of approximately 16.5%, which incorporates mid single-digit commodity inflation and low single-digit wage inflation. - Expected full-year franchise-level margin of approximately $265 million, reflecting updated expectations for restaurant closures and real estate sales, with timing variability that could impact the final result. - Expected full-year SG&A (excluding gains/losses from Coley policies) of between $112 million and $115 million. - Expected full-year adjusted EBITDA of between $225 million and $230 million. - Full-year interest expense is expected to be approximately $81 million, including $1.3 million in debt extinguishment costs from the refinancing. - 10 to 20 additional restaurant closures are expected in the fourth quarter, with elevated closures extending into 2027. Additional detail on long-term plans, franchisee profitability stabilization, and 2027 guidance will be provided on the November 2026 earnings call. All other unmentioned guidance metrics remain unchanged from prior announcements.

Segment performance

Jack in the Box operates as a single integrated franchise restaurant system with no separate reported product segments. For the third quarter fiscal 2026: system-wide same-store sales decreased 1.1% overall, with franchise restaurant same-store sales decreasing 1.2% and company-owned same-store sales decreasing 0.9%. The sales decline was driven by lower transaction volume, partially offset by implemented price increases. Restaurant-level margin was 17.6% (down from 17.9% year-over-year). Food and packaging costs were 29.3% of sales (up 70 basis points YoY) due to 5.4% commodity inflation, led by elevated beef prices. Labor costs were 33.7% of sales (down 80 basis points YoY) due to the roll-off of elevated California unemployment taxes from the prior year. Occupancy and other costs increased 30 basis points YoY due to sales deleverage and higher rents. Franchise-level margin was $60.3 million, or 37.4% of franchise revenues, down from $66.2 million (39.3% of franchise revenues) YoY; the $5.9 million decrease was driven by $1.7 million from lower same-store sales, $1.5 million from fewer system restaurants, and $1 million from higher bad debt expense. SG&A was $17 million, or 6.6% of total revenues, down from $20.6 million (7.8% of revenues) YoY, driven primarily by a legal reversal benefit and lower stock-based compensation. GAAP earnings from continuing operations were $21 million, or $1.08 diluted earnings per share, compared to $22.8 million ($1.19 EPS) YoY. Adjusted EBITDA was $61.2 million, up from $57.1 million YoY due to the favorable SG&A decrease, partially offset by lower sales performance and restaurant closures. Total debt outstanding at quarter end was $1.5 billion, with a net debt to adjusted EBITDA leverage ratio of 6.3x, down from 6.9x in the prior quarter.

Risks & headwinds

- Multiple consecutive quarters of same-store sales declines and ongoing inflation have pressured both company and franchisee profitability, limiting franchisee capacity for reinvestment in new locations and remodels. - Elevated commodity prices, particularly for beef, are expected to remain high in the near term, putting pressure on food and packaging costs. - Achieving consistent operational excellence across the entire 2,100+ location system is a major ongoing challenge due to variations in back-of-house layout across older restaurant models, requiring sustained coordination with franchisees. - Lease obligations for closed restaurants can create financial burdens that slow the pace of underperforming location closures, delaying portfolio streamlining and margin improvement. - Digital and delivery sales have a higher mix in newer markets like Chicago, and the profitability of digital transactions remains a work in progress, pressuring margins in these emerging locations. - Actual results may differ materially from forward-looking guidance and expectations due to a range of market and operational risks, which are detailed in the company's SEC filings.

Analyst Q&A

• Q: Q4 to date same-store sales are positive; will this trend continue for the full quarter, and how does promotional simplification balance complexity reduction with traffic driving goals? /

  A: Management expects full-quarter Q4 same-store sales to land between flat and slightly up. The promotional simplification strategy is designed to improve focus rather than reduce opportunities to drive traffic. Historically, too many concurrent promotions prevented strong execution across all initiatives, so focusing on fewer high-quality promotions should deliver better overall results.

• Q: What is the breakdown of underlying franchise margin pressure versus impacts from restaurant closures, and what is the outlook for digital channel profitability? /

  A: Closures are the largest driver of lower franchise-level margin guidance, with each closed underperforming franchise location reducing annual franchise margin by approximately $80,000; real estate sales to date have not had a material impact. Digital sales represent 22% of total sales this quarter, but work remains to make all digital transactions profitable for both the company and franchisees. The digital strategy will shift from promotional focus to more brand-aligned, engaging content to improve profitability.

• Q: Among the five core strategic priorities, which are lower hanging fruit versus longer-term heavy lifts? /

  A: All five priorities are already underway, with quick wins emerging from customer insight work, menu re-layout, and the small-scale restaurant refresh program, which has already gained 25% system participation in weeks. Operational excellence and consistent execution across all 2,100 locations is the biggest long-term challenge, due to inconsistent back-of-house layouts across older restaurant models, requiring sustained training and coordination with franchisees.

• Q: Why has the pace of restaurant closures been slower than expected, and when will it accelerate? What is the update on the Chicago market's performance and long-term ownership plan? /

  A: Closures slowed because remaining lease obligations on closed locations are sometimes more financially burdensome than continuing to operate the underperforming restaurant. A third-party firm has been hired to prioritize and exit leases, so closure rates will accelerate, with elevated closures expected to continue into 2028, beyond the initial 2026 target. Chicago has improved labor and food cost performance, but AUVs remain below system average, and higher digital sales mix has pressured margins from fees. Stable new leadership is in place to turn the market around, and the long-term plan remains to seed the market and franchise it once performance improves.