Carol DiRaimo - Vice President, Investor Relations and Corporate Communications Lenny Comma - Chairman and Chief Executive Officer Jerry Rebel - Executive Vice President and Chief Financial Officer

Joseph Buckley - Bank of America John Glass - Morgan Stanley Brian Bittner - Oppenheimer Jeffrey Bernstein - Barclays David Tarantino - Robert W. Baird Chris O’Cull - KeyBanc Andrew Charles - Cowen and Company Jeff Farmer - Wells Fargo Karen Holthouse - Goldman Sachs Matthew DiFrisco - Guggenheim Bob Derrington - Telsey Advisory Group

Good day, everyone and welcome to Jack in the Box Fourth Quarter Fiscal 2016 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, Vice President of Investor Relations and C Communications for Jack in the Box. Please go ahead.

Thank you, Vince and good morning everyone. Joining me on the call today are Chairman and CEO, Lenny Comma; and Executive Vice President and CFO, Jerry Rebel. During this morning’s session, we’ll review the company’s operating results for the fourth quarter fiscal 2016 as well as some of the guidance we issued yesterday for the first quarter and fiscal 2017. In our comments this morning, per share amounts refer to diluted earnings per share and operating earnings per share is defined as diluted EPS from continuing operations on a GAAP basis, excluding restructuring charges and gains or losses from refranchising. Our comments include non-GAAP measures, including operating EPS and EBITDA and please refer to the reconciliations on our website. Following today’s presentation, we will take questions from the financial community. Please be advised that during the course of our presentation and 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 these expectations based on risks to the 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 will be attending Berkeley’s Eat, Sleep, Play Conference in New York on December 6 and KeyBanc Capital Markets Consumer Conference in New York on December 7 and the ICR Conference in Orlando on January 10. Our first quarter ends on January 22 and we tentatively plan to announce results on Wednesday, February 22 after market close. Our conference call is tentatively scheduled to be held at 8:30 a.m. Pacific Time on Thursday, February 23. And with that, I will turn the call over to Lenny.

Thank you, Carol and good morning. Operating earnings per share for the fourth quarter exceeded our expectations. Capping the year where we were able to protect margins and grow EPS despite sales growth that was lower than we anticipated when the year began. Before taking a closer look at some of our fourth quarter results, I would like to review some of the accomplishments we are proud to have achieved in fiscal ‘16. We are happy with the progress we made on our key strategic initiatives as we made significant headway on reducing G&A, increased our borrowing capacity to support our capital structure goals and began implementing plans to increase the franchise mix at Jack in the Box to over 90% of the system. Operating earnings per share for the year grew more than 25%, representing our fifth consecutive year of growth in excess of 20%. We stepped up menu innovation at Qdoba to further differentiate the brand and improve the quality of nearly 30 core products on the Jack in the Box menu in Q2. All the menu-related innovation and improvements are designed to drive long-term customer loyalty. Despite wage inflation and lower-than-expected same-store sales for the year, we maintained healthy company restaurant operating margins, which exceeded 20% on a consolidated basis. Protecting our restaurant level margins is one of our key metrics as it is critical to franchise health and their willingness to invest in and grow both brands. We returned more than $330 million of cash to shareholders through stock repurchases and dividends and yesterday announced a 33% increase in our quarterly dividend. Now, let’s take a look at some of our fourth quarter results. With system same-store sales growth of 2% in Q4, Jack in the Box exceeded the QSR sandwich segment by 130 basis points. We outperformed the categories in 11 of the 13 weeks in the quarter, and on a 2-year basis, we had a positive GAAP of 480 basis points. Our 2% same-store sales growth was also better than each of our major competitors in the burger category. Company same-store sales were modestly below our expectations. Since Q1 of 2016, we have seen same-store sales improve sequentially each quarter, which we attribute to our strategy of balancing premium products with compelling value messages. On the premium side, we introduced Jack’s Brewhouse Bacon Burger in July. And on the value front, our fourth quarter promotions included a $2.99 Jumbo Breakfast Platter that helps drive the increase we saw in breakfast sales, which was our strongest daypart. We have seen a nice uptick in Jack in the Box sales trends during the first 7 weeks of the quarter as our promotional calendar has been designed to combat heightened competitive activity around breakfast and continued aggressive value deals across the industry. Guests have responded favorably to the introduction of our breakfast menu in late September, which features indulgent new menu items like bacon and egg chicken sandwich on an English muffin, a brunch burger and a Southwest Scramble Plate. As with our entire menu, guests can choose these items anytime of the day or night. But we are not putting all of our freshly cracked eggs into one basket. We are balancing our Q1 marketing calendar with value-conscious product promotion, including the BLT cheeseburger combo priced at $4.99, which features many of the ingredient improvements we made earlier in the year. We are getting credit for quality improvements we have made to our menu with top box ratings on the taste of burgers, fries and drinks up several percentage points versus a year ago. For those of you in markets where we advertise, you are seeing a familiar face and voice back on television. Jack himself never really left, but the return of his distinctive voice has had a positive impact over the last two quarters. One of the primary goals we discussed in our Investor Day in May was increasing franchise ownership of the Jack in the Box brand to over 90%. Over the latter half of fiscal ‘16, we refined the process for selling restaurants and established specific criteria to evaluate before selling those units. This initiative is designed to fuel unit growth for the brand over the long-term as we tie development commitments to these deals, including growth in less penetrated markets. We believe we are taking a well thought-out prudent approach to refranchising that generates the most long-term value for the company and our system. The process has commenced on the first phase of stores we plan to sell and we should know more about the expected pace to refranchising when we speak to you on our Q1 earnings call in February. Now, let’s take a look the Qdoba brand. The increase in fourth quarter same-store sales at company-operated restaurants was driven primarily by transaction growth. For the full year, transactions at Qdoba company restaurants increased 1.5% and were positive in all four quarters. During the quarter, we introduced smoked brisket and featured it in a new Knockout Taco, our first extension of that popular platform since it launched at the beginning of fiscal ‘16. Our consumer research shows that guests are giving Qdoba more credit for several key points of differentiation, including menu variety and craveability. We are pleased with how guests are responding to our offerings and we see innovation that brings bold new flavors to our menu as a continued opportunity. We have a full pipeline of products queued up for 2017 and we believe the transition of Qdoba’s brand headquarters to San Diego will enable us to better leverage the culinary expertise at our innovation center. A key component of our brand evolution has centered on our restaurant design and remodel program. With both, the key objective was to create a place to be, not just a place to eat. And we think we have achieved that with our improved new restaurant design, which we released to the system in Q3. In some new restaurants, we have been testing an expanded alcohol offering that we are also incorporating into some remodels. The bottom line is that a new design is scalable, so the company or franchisee can determine the investment level based on the specific location. In fiscal 2017, we expect approximately 70 company Qdoba restaurants and a similar number of franchise locations to be remodeled. In addition to menu innovation of remodels, other drivers for same-store sales growth in 2017 included catering, marketing initiatives and delivery. Despite increased competition, catering remains a significant opportunity. We plan to continue growing this part of our business, which exceeded 8% of our company sales in 2016. As for marketing, in addition to clear messaging, we are planning to launch our mobile app and affinity program in December by focusing our communications on our 1.6 million active loyalty members. And finally, delivery channel, which is a growing area for the industry driven by convenience and accessibility. We have been testing delivery at both brands. It’s too early to extrapolate the results from these tests, but customers are clearly demonstrating demand for these services. In closing, we have made significant progress on the strategic initiatives we discussed at our Investor Day in May, which are intended to drive growth and shareholder value and we believe both brands are well positioned for the long-term. With that, I will turn the call over to Jerry for more detailed look at the fourth quarter and full year results and our outlook for fiscal 2017. Jerry?

Thank you, Lenny. Good morning, everyone. Before taking a closer look in some of our fourth quarter results, I wanted to take a few minutes to review some highlights for fiscal year 2016. Operating EPS for the year was $3.86 as compared to $3 last year. Excluding the $0.09 benefit from the 53rd week, operating EPS grew more than 25%. Adjusted operating EBITDA, excluding franchise gains and restructuring charges, increased to approximately $332 million from $290 million last year. System wide, same-store sales at Qdoba increased 1.4% on top of a 9.3% increase last year. Jack in the Box system same-store sales grew 1.2% on top of the 6.5% increase we saw in 2015. Consolidated restaurant operating margin exceeded 20%, with margins at the Jack in the Box brand improving by 50 basis points despite flat company same-store sales as lower commodity costs helped to offset wage inflation. Franchise margin improved 140 basis points to 52.9% due to higher franchise same-store sales. EBITDA from our revenue stream of approximately $95 million represented over 28% of our consolidated EBITDA. We returned more than $330 million in cash to shareholders during the year, including $292 million in share buybacks at an average price of $75.29 per share. Weighted average shares decreased by approximately 11% for the full year, which will continue to contribute to our future EPS growth. As of the end of the fiscal year, we had $408 million available under current Board authorizations for stock repurchases. In September, we amended our credit facility, which increased our borrowing capacity by $400 million to $1.6 billion. The amendment raised the maximum leverage ratio covenant from 3.5x to 4x and allows unlimited cash dividends and share repurchases at pro forma leverages less than 3.5x. At the end of the fiscal year, our leverage ratio for our debt covenants was 2.9x as compared to 2.3x at the end of fiscal ‘15. Let’s move on to the fourth quarter results. Operating EPS of $1.03 was $0.41 higher than last year, approximately $0.09 of the increase resulted from the 53rd week. Jack in the Box company margins were up 70 basis points versus last year, while Qdoba company margins were hampered by the impact of a greater number of new restaurant openings. We opened 35 company Qdoba restaurants in 2016 versus 17 restaurants in 2015. For Jack in the Box, the 0.5% increase in company same-store sales was comprised of mix benefits of 0.6% and pricing of approximately 2.9%, all set in part by a 3% decline in transactions. For Qdoba, Q4 same-store sales increased 0.8% system wide. The 1.2% increase in company same-store sales included a 0.3% increase in the average check, catering growth of 0.2% and an increase in transactions of 0.7%. Turning to guidance for Q1, our sales guidance going forward for Jack in the Box will be for system same-store sales as we believe it’s a better indicator of overall brand performance and to avoid trying to predict the timing and the impact of re-franchising specific markets on the company’s results. There is no change in our guidance for Qdoba same-store sales as the brand is more than 50% company operated. We will continue to report company, franchise and same-store sales and system same-store sales for both brands. We expect same-store sales at Jack in the Box system restaurants to increase approximately 2% to 4% for the first quarter. Sales trends through the first 7 weeks of the 16-week quarter are tracking nearly 1% above the high end of the guidance range. We expect same-store sales at Qdoba company restaurants of approximately flat to up 1%. Sales trends through the first seven weeks of the quarter are tracking slightly below the low end of the guidance range. And here is some thinking on some key items for fiscal year 2017 guidance. Same-store sales increase of approximately 2% to 3% at Jack in the Box system restaurants; same-store sales increase of approximately 2% to 3% at Qdoba company restaurants, consolidated restaurant operating margin of approximately 20% to 21%. This includes the estimated impact of the January 1 minimum wage increase in California from $10 an hour to $10.50, which we estimate to be about 70 basis points on the Jack in the Box brand for the full year or roughly 50 basis points on a consolidated basis. SG&A as a percentage of revenue is approximately 11% to 11.5% as compared to 12.7% in fiscal 2016. Since we have received some questions about how to translate that into the G&A portion, we anticipate that to be approximately $120 million to $125 million for 2017. We also don’t normally provide guidance for interest and share repurchases, but given the wide range of numbers we see in analyst estimates, I wanted to provide some indication of what is baked into our guidance. We are assuming $40 million to $45 million of interest expense in 2017. Our guidance for operating EPS of $4.55 to $4.75 assumes share repurchases of approximately $408 million during the year, representing the amount remaining under current Board authorization. That concludes our prepared remarks. I would now like to turn the call over to the operator to open it up for questions. Vince?

Thank you, sir. [Operator Instructions] Our first question is from Joseph Buckley with Bank of America. Your line is now open.

Hi. Thank you. Jerry, kind of a big picture question on the guidance, what you are giving is for 2017 related guidance, is that still consistent with thinking the fiscal ‘18 you can reach your $400 million of EBITDA target?

Yes, Joe, it is. And one of the reasons that we wanted to provide in this release our EBITDA from operations – our operating EBITDA was to give you some sense what that pathway could look like. So when you tie that in to our G&A reductions was another reason why we gave you specific G&A targets for ‘17, which we normally don’t do, is to help give everybody a pathway there. So we increased EBITDA in ‘16 by about $42 million. I am estimating around $7 million of that to be from the 53rd week. So absent that, it’s up $35 million and that’s on fairly modest same-store sales growth. So when you consider now 2 years of operating results plus additional G&A reductions in the amount that we have targeted, I think at that point, say to a pretty clear pathway to the $400 million by the end of ‘18.

Okay, that’s helpful. And just a question on Qdoba, obviously planning to open about 40 company units this year, have you kind of fine-tuned, you mentioned the new design being released in the system. Have you kind of fine-tuned what we can expect and you expect from new unit economics at Qdoba?

Yes. Joe, this is Lenny and Jerry may have a few things to add to this as well. I think what you should know is that when we finalized the designs for the Qdoba remodel, which also – or the same design elements that go into the newly constructed sites and then put in place the incentive program for new unit growth for franchisees, what we saw was an uptick in demand from our franchise community to be involved in both of those programs, both the remodel and growth. And particularly some of our franchisees that have been on the sidelines for quite some time have actually approached us to sign new development agreements. So, what we are happy about is that that demand, which was at a higher level than we expected this early on, has shifted some of the resources here in the near-term toward the franchise community to make sure that their needs are met. And so our growth targets around 40 for company operations really just reflects a shift in our priorities here in the near term and needing to satisfy the franchise needs. But we still have the same 5-year plan targets that we discussed with you in May and don’t really see any adjustments there, just maybe some light shifting from year to year. We are happy with more than doubling the growth from 2015 to 2016. And what gives us a lot of confidence over the long-term is when we look at our AUVs for the sites that we most recently built, those segments, 2015 fiscal year build, those sites on an annualized basis, are at $1.1 million AUVs, which is – and that includes also 2016 new openings as well, Joe, but annualized from 15.4 to be at $1.1 million in AUVs, which is really healthy, very close to our system same-store sales average. And what we need to focus on now is the operating efficiencies and that’s very typical for new restaurant openings that you are going to open up, less efficient and you need to drive those restaurant operating margins back up. But if you recall back in 2012, when we shared with the system, what our new store openings were, they were ranging around $700,000 on an annualized basis. It took about 3 years to get them even close to the system same-store sales average. So, we are real confident in the growth vehicle based on the sales that we are seeing and also based on the confidence the franchise community has in the Qdoba offering in some of the new demand for growth in that space. So long answer, but hopefully gives you a complete picture.

And Joe, let me just add a little bit to the length of that answer, but just couple of other points here. Where the sales are that Lenny mentioned about $1.1 million on an annualized basis for these new units, we target something at or better than a 1-to-1 sales to investment ratio. I think it’s important to note that the 2016 units, most of which were in the new prototype, were not cost engineered. And we are making great progress on cost engineering those things down. Now, we would expect that sales investment ratio actually to improve in most units to better than a 1-to-1 sales to investment ratio. So we are pretty happy with the progress made there. We still have some more work to do, but we would expect the newer units for ‘17 and going forward to be at lower overall investment cost to help with those returns.

And do you share any sense of how quickly the inefficiencies are weeded out, when the new units kind of get to an average profitability level?

Joe, I guess, a lot of that’s going to depend on the competitive environment that we are in. So, if we are moving into new markets where we are second to market, it’s probably going to take a little bit longer, because we are probably going to over invest in those facilities upfront, so that we can be extremely competitive. When we move into markets where we already have a presence and we have established infrastructure and brand awareness, we tend to be able to do that a little faster. So, I think it’s going to be a mixed bag. I wouldn’t want to peg a specific number on that, but certainly, a lot of focus in this area as we would like to make the growth vehicle as strong as possible.

And then Joe, one last thing, when we talked about restaurant inefficiencies, we know we have heard that phrase quite a bit here recently from other restaurant brands. We might as well use it here. That can really come in two forms, one being lower sales or higher cost structure. What we are seeing is the latter and it’s much easier for us to control the pacing of windows, those costs are reduced to Lenny’s point than it is trying to build up sales from a very low base when you start.

That’s helpful. Thank you.

Thank you. Our next question comes from John Glass with Morgan Stanley. Your line is now open.

Thanks very much. First, Jerry, just on the timing of the refranchising, you said you would get a better idea of the first quarter. Is that to assume then that you are not going to be able to refranchise, it’s going to happen later in the year or you think you will get transactions done throughout the year and you just don’t know until after the first quarter of the pacing?

Yes, that is the $64,000 question, John and it’s probably the most difficult one that we have, one that we have the least amount of certainty around. But let me tell you what we have assumed within our numbers and this isn’t to say that we won’t move faster than this. It’s just what we have assumed in the numbers you get a sense what we have included in there. To Lenny’s point, the primary goal with this is to drive additional new unit growth. It’s not to say that pace is not important, but pace is playing a supporting role to the unit growth at this time. That said, what we have assumed in our numbers is 90 franchise – excuse me, 90 restaurants being refranchised to franchisees during the year. We probably don’t expect anything to be closed in terms of transactions in Q1. And I think to Lenny’s point that will give a better update on where we are at the end of Q1. But within – what we said back in the May meeting at the Investor Day is that at least at the 90% level of refranchising, we didn’t expect to have those transactions in total have a significant impact on operating EPS, EBIT and EBITDA. And we still think that, that’s true and I think that’s what’s included in our target, in our guidance so far today, with the exception of following. We have included in there the franchise fees on these 90 units, which is about $4.5 million of franchise fees, probably incremental to what that was in 2016 and that’s worth about $0.08 a share in round numbers. So, that’s what we have that could be less, that could be more, but that’s how we thought about it thus far.

And just to be clear at the Analyst Meeting, I think you had said you thought most of the refranchising to be done in ‘17, but now it sounds like it’s going to be more split between ‘17 and ‘18, right, I mean, you still have to do more than that to get to 90%, right?

No, I think that’s right, John. What we said also though was I think it was at the Analyst Day and certainly after the Analyst Day in any webcast meeting that we have had was that we were going to err on the side of growth. It took a little longer to do that. We are willing to do that for the long-term growth strategy of the brand.

Okay. And then just one other on the – go ahead.

This is Lenny. One added comment I would give to the refranchising effort is this. If we simply wanted to focus on refranchising the locations with no growth associated with those transactions, we could sell all those sites in probably less than 6 months. Certainly, we could sell them all by the end of the fiscal year. The demand is there. We don’t have an issue with being able to sell the site. The only thing that is determining the timing outside of it – of the pace for this fiscal year to get it all done would be growth deals associated with it. Just to let you know where that lies.

That’s very helpful. And then Jerry just on the guidance, on the leverage targets assumed you were explicit about the buyback activity and how do you fund that and what’s the leverage target associated with the buyback activity?

Yes, we would expect to be somewhere north of 3, but south of 3.5.

Got it, okay. Thank you.

Thank you. Our next question comes from Brian Bittner with Oppenheimer. Your line is open.

Thanks. Thanks for taking the question. You provided us with some G&A numbers and I think on a percentage system wide sales basis for ‘17, that assumes 2.6% to 2.7% and that’s little bit above your 2.0% to 2.5% kind of long-term range, so does that suggest that after 2017 there is still opportunity to get more leverage out of G&A, is that how we should be thinking about it, that’s my first question? And then I have a follow-up.

Yes. Sure, Brian. That’s a great question and you are right. We had talked about at the Investor Day in May a larger G&A target reduction in that. But we also broke it up in three phases. The first phase being $25 million to $30 million, which we do plan to fully recognize between what we saw the reductions in ‘16 and then the further reductions that I have just described in ‘17. Then we had additional reductions related to our re-franchising activities. And then the third tranche would have been a G&A related to the normalization or the consolidation of our IT – of our restaurant level IT systems that we would have some additional G&A reduction there. The vast majority though happens through the Phase 1 approach, which is what’s included in the guidance and part of which we achieved in fiscal 2016.

Okay. And with – operationally, with Jack in the Box seemingly very solid, I did want to ask on the Qdoba side, your comp guidance for the year does assume that same-store sales accelerate very nicely from where the trends are now, but your comparisons don’t really ease or anything like that, so it’s really hard for us to understand kind of what you are seeing and why you are guiding us to a plus 2 to 3 on the Qdoba side, given where the trends are right now, can you kind of walk us through what you are thinking there?

Sure. Most of what we see, this is Lenny, is a much stronger new product pipeline in fiscal 2017 starting in Q2 and beyond and that’s really what build the confidence. So if you go back to just a couple of years back when we started to execute this strategy that was now going to innovate and this was after many years of having no products – new product introductions, we saw 7-plus percent sales increases by doing things like expanding our Queso line or bringing out Mango Mojo and various other salad options. And then we followed that up with completely new items that we are not attached to prior sort of menu equities, things like Knockout Tacos and brisket and some other burritos. When we look at 2017, I would say we probably had one of our strongest lineups from the standpoint of not only continuing to expand on existing equities that play for us really well, but also bringing some new craveable proteins into the marketplace, which should bring a lot of excitement and we think some new guests into the facility that would not have been attracted by the offers we had before. So we are pretty optimistic about what we have on the docket for the year and that’s really reflected in the guidance.

Okay. Thanks guys.

Thank you. Our next question comes from Jeffrey Bernstein with Barclays. Your line is now open.

Great. Thank you very much. Couple of questions on the Jack in the Box brand and I guess the first one just on the market share, I mean if you look back, it went from leading by an average of 300 somewhat basis points for a couple of years and I know in the first half of the fiscal ‘16, you lagged by 250 basis points and it was in line a quarter ago and now you have reaccelerated to north of 100 basis points again, so pretty wide swing, I am just wondering your expectation for coming quarters to maybe sustain that lead and by what magnitude maybe what you are assuming for growth in the broader QSR burger category versus yourself, just trying to size that up, especially when you think of the fact that it sounds like you are currently running maybe a 5%-ish type system comp and you guided the full year to more of a modest 2% or 3%, so that was my first question?

Jeff, let me – I guess I will share a couple of comments. I am not sure if I am going to be able to answer your question directly. Some of the detail I think we may not – may not have shared in the past. But I think the way to look at this is not what we have experienced in the choppiness you had expressed have to do with multiple factors. Some of it was competitive activity in the marketplace and some of the timing and some of the quality improvements that we needed to make. We made a long-term play. We learned some things in the process about the impact of some of the competitive activity out there. We made some adjustments along the way, but ultimately, speaking to our guns and focusing on bringing more creatable premium and mid-tier products to the marketplace as compared to skewing our entire focus towards value deals has played out exceptionally well for us. You can see it in breakfast and late night and our ability to mitigate some of the competitive threats that impacted us last year by bringing great new products to the marketplace, again not value oriented products that worked really well for us. So I think at times, any business is going to experience some choppiness, particularly if you have some competitive intrusion. But I think we have a proven track record of being able to respond to those things. And we are typically ahead of those things, so we want to be ahead of it most often. I think when you look at our 2-year comparisons, they have been pretty strong and they have substantially exceeded all other big players in Q4. I think that we would want to keep those 2-year comps somewhere in that neighborhood, but at the same time, we understand that when you are sitting this high above everybody else on a 2-year basis, that at times you are going to see that soften a bit, particularly if they start to respond and get more aggressive in the marketplace, try to make up for some of the market share they have lost. So I guess in a nutshell, we are confident we can compete, but certainly, understand that at times, we are going to see those numbers fluctuate, at least slightly.

Got it. And then my other question was just on, I guess the traffic side versus pricing and I think you mentioned that the Jack brand, the trough was down 300 basis points, but I guess is that perhaps not surprising for you maybe you are gaining more on the premium side than maybe losing some value on – maybe losing some traffic on the value side, I am just wondering how you think about that traffic and whether you have confidence in the reacceleration of that traffic in the short-term as you balance that with price and I don’t know if you have color just in terms of what pricing thought is for fiscal ’17?

Yes. I think a couple of things to note. One, overall category traffic is down and so we, like everyone else are experiencing some of that softness in traffic, what would make me really concerned is if we were losing that traffic to our direct competitors and we are not. What would also make me very concerned is if we didn’t have strategies that were connecting enough with the consumer to be able to, despite traffic declines, grow sales. And again, we are not in that position, so happy about that. I think the food at home versus food away from home price gaps is probably one of the bigger drivers where some of the traffic erosion is taking place in our space. And so it’s as I try to balance this whole thing out and the brand presidents and teams try to balance this out, I would say their priorities would be protect the margins, make sure you are not losing traffic to our direct competitors and make sure that you have sales growth strategies in place that despite traffic, keep us on a healthy trajectory with sales growth that flows through to the bottom line.

Understood. Thank you very much.

You’re welcome.

Thank you. Our next question comes from David Tarantino with Robert W. Baird. Your line is now open.

Hi, good morning. I guess my first question is on Jack in the Box comp quarter to-date, which found like they are running very strong, could you talk about what’s driving that momentum in your view, is it just a function of cycling lower comparisons or do you think some of these initiatives are really working. And I guess secondarily, why are you assuming that, why not continue in the balance of the quarter and balance of the year?

Yes. I think couple of things. What’s interesting about the question is last year Q1, we were lapping high compares based on some promotions that we have done in the prior year. And although we saw softness that was not contributed to our comparison, it was attributed to competitive activity. So I would say in the spirit of that, we will attribute our growth and confidence in Q1 this year to what we are executing, which is a great new Brunchfast offering as well as some other balancing value promotions in the marketplace as well at the $4.99 combo. And we would give most of the credit to those initiatives. When you look at the momentum we expect throughout the quarter and you ask why wouldn’t we anticipate that continuing, I think with any new products, you are going to get an initial trial from your consumers that is a little higher than what you know you will sustain, so we have simply built that into the guidance.

Thanks. That makes sense. And then Jerry is there maybe any chance you would be willing to share the EBITDA lanes that’s associated with your EPS guidance for 2017? I know you gave many of the pieces, but perhaps not all of them. So, could you perhaps let us know what you are assuming for EBITDA, so we can put that in context with your $400 million target long-term?

Well, I think some of that will depend on the refranchising, but what we try to do without giving you a number is to give you as many ways as we could possibly do to get you there, which is one of the reasons that we said exactly what the G&A targets are for 2017, which we normally don’t provide that at all. And I think the G&A for ‘16 was in the $142 million range on just the G&A number. So, you can look at that. I think that gives you a pretty good starting place right then and the rest of it is just sales and margin. But I would really rather not start giving EBITDA ranges with our guidance. But again, I think we did a lot more to help you guys get there than what we might normally do.

Fair enough. Thank you.

Thank you. Our next question comes from Chris O’Cull with KeyBanc. Your line is now open. Chris O’Cull: Thanks. Jerry, can you quantify the impact of opening new stores on the Qdoba margin for the quarter?

Yes, let me – I will get you close. And so if you look at the 220 basis point decline that we saw versus the prior year, Chris, I would really break it down in broad strokes like there is about half of that decline came from higher food cost, which I will talk about some of the reasons for that. And the other half – or the approximate other half was due to the new restaurant inefficiencies that we have talked about. Let me first talk about the food cost first. So, the obvious question is why would that be up in a deflationary commodity environment? One of the things that I think we ought to consider is we have had virtually no pricing on the Qdoba brand over the course of the past year. And we said that we were going to be very cautious and careful on taking price this year. We also – and so I believe back in our first quarter call that with – at least one competitor becoming very aggressive on discounting and promotions in bogos and the like that we were going to protect our traffic. And so we were actually quite a bit more promotional this quarter versus last year in the quarter and backtrack a little bit more than 50% more promotional there. So, that impacts food costs directly. And then we also hit with higher avocado pricing this year versus last year because of the shortage and the price on the avocados isn’t the only story. When the price goes up, then the supply goes down. You also tend to get a little lower yield on that, so which also impacts food cost there. And then we did also launch brisket in the quarter and that has a higher food and packaging cost than do most of the other proteins that we have. So, that’s what really drove food cost in the quarter. The new restaurant inefficiency really cost us about the other 100 plus basis points there. And that’s just really – it’s due to the higher cost that Lenny spoke about earlier. I think generally, as you open up restaurants, you are going to have higher food cost as you are getting into your cooking routines. You are also sampling products and the like and you also have substantially higher labor cost associated with that. I mean, we have certainly seen that occur. If there is any complaint on our part, it maybe that some of those costs have hang around a little longer than we had liked. But to Lenny’s point, we also want to make sure that we are able to sustain the higher level of sales volumes that we opened with. And then lastly, while 35 restaurants may not sound like a lot, it’s not when you are comparing to some folks who are growing 100 to 200 restaurants that is about 11% growth on company units from what we had last year. So, those lower margins, with 11% of the chain does have an impact to the margin rates that we are seeing and that’s something what we saw in the fourth quarter and throughout the latter part of the year, Chris. Chris O’Cull: That’s very helpful. Just as a follow-up, do you expect Qdoba to have a similar level of promotional activity in ‘17 that it had this year? And is there going to be any comparisons that we need to be thinking about quarter-to-quarter?

Well, I think couple of things to think about is one we are going to be launching a lot more new items this year than we did last year. So in the base case, we are going to have to invest some marketing dollars, promotional dollars in getting food in mouth, because the more we can get people to try the new items, the more opportunity we have to capture those guests. It does depend largely on what we see in our traffic and our traffic will probably be impacted mostly by competitive activity from one of our major competitors and/or the gap in food at home from food away from home. So, it’s probably going to be a little bit reactionary on the front of the competitive side of things and then we will be a little more proactive with some of our new initiatives like the new products and launching things like our mobile app and affinity program. Chris O’Cull: Okay. And then just lastly, what assumptions did you make regarding changes in beef prices for ‘17 to get to your flat to down 1 commodity guidance?

Yes, we are showing beef prices to be slightly deflationary. Chris O’Cull: Slightly deflationary?

Yes, slightly deflationary across both brands. Chris O’Cull: Okay, great. Thanks.

Thank you. Our next question comes from Andrew Charles with Cowen and Company. Your line is now open.

Great, thank you. Jerry, the consolidated restaurant level margin guidance represents modest improvement despite the refranchisings, benign commodities and low single-digit same-store sales. Obviously, as Qdoba becomes a larger mix of the company portfolio, that’s naturally going to weigh on margins, while promotional dynamics could continue at the brand. Can you talk about the dynamics that we should be aware of as we lump together the many moving parts of the consolidated restaurant margins?

Yes. Well, I think you hit the Qdoba margin pressure that we would expect to see as we launch more new restaurants. I think you would also though begin to see new restaurants comping at higher levels than what the existing restaurants do. And I think the key element though and the wildcard here in this guidance is the level of refranchising that we do. And if you go back to the main meeting, we said post refranchising, Jack margins would be greater than 25% or about 25% post refranchising. We are only assuming in our guidance right now about 90 restaurants being refranchised for Jack in the Box. So I think you would expect to see the Jack margins more than compensating for new restaurant margin impact of Qdoba brands post refranchising.

That’s helpful. And then Lenny, the gap between the Jack company and franchise comps widened basically the level that you saw back in 2015, so just curious about the dynamics around anything regionally that we should be aware of or anything else to contribute?

Yes, I think what we are seeing is really the impact of outlier company operation restaurants that are putting a drag on the company system. There has been softness in markets like Texas, but I think that exists for both company and franchise. So, I wouldn’t want to attribute too much of the sort of weight that gap to regional differences. So, I do think that it really comes down to higher volume locations for company operations needing to execute a little better than they are currently executing. I think there is an opportunity to see more growth of those sites than we currently do. And I know that brand President is extremely focused on that even to the point of making some changes in structure and leadership to drive some of the performance that she expects. So I think we are going to see and even some early signs already with some of those changes we are starting to see that gap close, which gives me a reason to feel confident in my hypothesis and also in the outcome.

Thanks guys.

Thank you.

Thank you. Our next question comes from Jeff Farmer with Wells Fargo. Your line is open.

Thank you. Jerry, you talked about Jack franchise fee expectations for FY ‘17, but I wanted to focus on the franchise rental revenue profit margin, I know that’s pretty granular, but looks like it was up 220 basis points to roughly 27% in ’16 and the question really is, so assuming you guys control the lease or at least – or potentially own the building on a lot of those nine new restaurants that you expect to re-franchise this year, where could that franchise rental profit margin stand after you sell those nine new company owned stores?

So Jeff, I think we will give you more color on that after we see what kind of progress that we are making in the quarter. We are expecting the rental margin and the franchise margin to go up based on the re-franchising. But until we get to know exactly which units we are going to sell and what their sales volumes are and what the underlying rent is, it becomes a little difficult to predict on that. So give us a quarter and we will see. We have enough information to give you better range of expectations for the full year. But what we did see in just in our Q4 numbers that we saw a nice up-tick on the margin rates for franchise margin on the 2.4% franchise same-store sales. So remembering that franchise – excuse me, that our underlying rate does not fluctuate on sales, we get a nice flow through on those incremental sales dollars on the rental income stream. So and I think what you saw there within – was in Q4. So even absent re-franchising, I would expect that margin rate to continue to grow as long as franchisees are growing same-store sales.

And then just one quick follow-up and I might have missed this Jerry, but how is the Jack in the Box system thinking about menu pricing in fiscal ’17, with everything that’s going on the backdrop of traffic declines, commodity deflation as a tailwind and then wage rate inflations, a lot of sort of pushes and pulls, how is this system, how are the conversations going about their plans for pricing throughout ‘17?

Jeff, I would answer that really for both brands, which is saying that we will be any price changes through a very cautious lend as we look at both the impacts to traffic right now across the industry. And then the impact that we are seeing in the gap from food at home versus food away from home, that’s probably the biggest driver that we have sort of moved cautiously with pricing in 2017.

Thank you.

Thank you. Our next question comes from Karen Holthouse with Goldman Sachs. Your line is open.

Hi. Thank you for taking the question. Jerry, I am aware you are talking about quality improvements for the Jack in the Box, are you seeing any change in customer mix or is that helping attract new customers versus something that’s more driver frequency within an existing customer? Thanks.

Yes. It’s probably too soon to tell whether or not we are getting a bunch of new customers that weren’t Jack customers beforehand. I think a couple of things we are seeing weeks early signed. One, we are getting more traffic from the existing customers as we improve quality. And also, those individuals that were maybe a little disappointed in Jack in the Box, that we need to capture back. We are starting to see some early signs that though folks are coming back, particularly with the quality improvement, so feeling pretty good about that long-term strategy. Going back to the research that we did that showed is the Jack in the Box is one of the few QSR players that had some brand equities in the areas of food innovation or food quality, meaning that consumers will tend to believe that we can execute our quality stuff as compared to many of our larger competitors don’t really survive or play well in that space. And when they have invested in quality improvements, you have seen and it’s particularly in the burger category, oftentimes it’s not driving the traffic and the up-ticks that they are looking for and they tend to gravitate back towards the value oriented promotions. For Jack in the Box and I would say some of our direct regional competitors, we tend to be able to play pretty well in slightly higher quality or QSR-plus space, which is really directionally where we want to go.

Thank you.

You’re welcome.

Thank you. Our next question comes from Matthew DiFrisco with Guggenheim. Your line is open.

Thank you. Just had a couple of quick questions here, one clarification, I think you said during the call or during one of the Q&A responses, $0.08 accretion from the 90 stores associated with the re-franchising and those were related to franchise fees, is that comparable to the, I think you originally said $0.15 accretion, so I guess, at the Analyst Day, so that $0.15 is divided up now between ‘17 and ’18, is that correct?

No. Well, you were half correct. So the $0.08 is correct. And I believe at the Analyst Day, what we were talking about was that this excluded franchisees because we didn’t want to muddy the waters as it were because they were not ongoing, they will be more one-time. I have indicated that the $0.08 was there as a way to just what you know what was within the guidance because the re-franchising estimates are fluid at this point in time [indiscernible] in the guide.

Okay. And then the $0.15 low should mirror the progression of the re-franchising, so rather than $0.15 accretion, in 1 year it going to be spread out and by the end of 2018, you will have that accretion?

That’s the idea, yes.

Okay. And then also I guess, just looking at your – the brand and the decision that you have made with Jack in the Box going back to I guess 2008, when you were more than a 50% company owned concept, your margins were in the teens then, why isn’t the Board also looking at this holistically for a long-term basis over your entire portfolio as far as the franchise SKU, why isn’t the lower margin company operated stores of Qdoba, also at this stage, being seen as a potential more so a valid franchise investment than your balance sheet, given that it is a lower margin store right now and it does seem to be a highly competitive environment with 700 stores already?

Yes. Let me give you a little bit of color on that. One of the things that makes the Jack in the Box re-franchising strategy historically so accretive on the deal was the fact that we have control of the real estate and we get both the rental income and the royalty fees on that. So that’s enabled us to re-franchise higher performing units and either have them being accretive to earnings or certainly not dilutive. Most other brands, when they re-franchise, those transactions are dilutive and it’s a balance sheet play versus more than an operating results and balance sheet play. When you look at Qdoba, we don’t control their real estate other than we are on the lease as the primary lessor. But because we were paying fair market value rents for those currently, there is no real rental value to us to re-franchise to franchisees. So you really swap thing out a fairly good cash flow for that restaurant to be only 5% of sales, which is what the royalty factor would be on that. So the math doesn’t work nearly as elegantly for us as it did on the Jack in the Box brand.

Okay, that’s very helpful. I guess then, along those lines, since your re-franchising now stores that you control the real estate of, but with this new re-franchising effort is also built off of future growth, those stores that will be built and as you get more meaningful growth, you are going to have franchise royalties grow at a faster pace beyond the re-franchising than you would your rental income, correct?

Depending on the growth rate, I think that could be a fair statement. But it would depend upon the growth rates, yes.

Okay.

But we are happy to have that because we have no investment in those new restaurants, so we are happy to have the royalty rates and we are happy to have the franchisees build quickly their new restaurants.

No, that’s definitely helpful. I guess does the re-franchising sort of deters some of that – the acceleration of the existing franchisees or you – it sounds like you are looking for new franchisees different than in the past where you used to sell company owned stores through existing franchisees.

No, I think you will see primarily existing franchisees not exclusively existing franchisees, but we would not expect that to dilute the current franchisee growth we expect it to be accretive to that.

And then just last, housekeeping, did you give a list on the same-store sales front what you expect from these remodels of the Qdoba brand?

Did not.

Thank you.

Operator, we are coming on extra time. We will take one question before we close.

Thank you. Our next question comes from Bob Derrington with Telsey Advisory Group. Your line is open.

Thank you for letting me under the wire. I appreciate that. Lenny, can give us a little bit of color on the color of what we should expect from the newer stores that you opened, specifically regarding Qdoba, I have seen a number of the restaurants that have varied a little bit, obviously versus the one that we visited – we all visited in Kansas City, should we anticipate that some percentage of these stores will open with some sort of alcohol mix and if so, will they have a bar element like Kansas City or how should we think about that?

Bob couple things, one the brand team has been testing the bar concept now for probably in the neighbor of six months. And they have also brought in some outside partners who helped build bar concepts to help them analyze the results and determine a go-forward strategy. And I am really happy with what they came up with. It fits right alongside what I said in my prepared remarks where the remodel as well as new builds would really be built in a way that marries up the demographics of the marketplace with the specific offering within that site. So for example, if we are in an area like the one you visited where we got a lot of foot traffic and we can support a full size bar, a lot of socializing happening there late into the night, then we will put in a bar offering that looks closer to what you experienced. However, we have lot of other sites that just have a great dinner and just post-dinner mix where we are going to get folks there that want to have a great meal with friends. Probably not a lot of foot traffic, so we can have a limited bar offering in that space that works better for that consumer and doesn’t have us over-investing in the facility. So I think the short answer is we would like to have an alcohol presence in as many of the sites as we possibly can and then the scale of that alcohol presence will really be determined on the local community’s needs.

Quick follow-up if I may, on the acquired restaurants, Qdoba I think it was the past quarter and again, forgive me if you made some comment in your prepared remarks, can you give us some kind of color on how those fit, were they geographically fit within the company’s footprint, good locations, how should we think about that?

Yes. No, I did not address it in the earlier remarks, Bob. So I appreciate the question. So you are right 14 restaurants, they are in Colorado. And so I think from an operational efficiency perspective, they fit well in with the heavy presence that we have on company restaurants in both Denver and Colorado Springs. I think that ties in nicely there. These units have above system average volumes and above system average restaurant level margins and we pay just under $20 million for that, around 5x cash flow.

Outstanding, terrific. Thanks Jerry and I appreciate it.

Thank you, everyone for joining us today. Have a safe and happy Thanksgiving. We look forward to talking to you at some of the upcoming conferences.

Thank you. So that concludes today’s conference call. Thank you all for participating. You may now disconnect at this time.