Carol DiRaimo - Chief IR and Corporate Communications Officer Lenny Comma - Chairman and CEO Jerry Rebel - EVP and CFO

Dennis Geiger - UBS Brian Bittner - Oppenheimer John Glass - Morgan Stanley Chris O’Cull - Stifel Gregory Francfort - Bank of America David Tarantino - Robert W. Baird Andrew Charles - Cowen & Company Jeffrey Bernstein - Barclays Alex Slagle - Jefferies Jeff Farmer - Wells Fargo Matthew DiFrisco - Guggenheim Securities Jake Bartlett - SunTrust Robinson Humphrey

Good day, everyone and welcome to the Jack in the Box Incorporated Fourth Quarter Fiscal 2017 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, Natalie, and good morning, everyone. Joining me on the call today are Chairman and 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 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, restaurant operating margin and franchise margin. Please refer to reconciliations included in our earnings release. 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 plans to attend the ICR conference in Orlando in January and our first quarter ends on January 1st and we tentatively plan to announce results on Wednesday, February 21st after the market close. Our conference call is tentatively scheduled to be held at 8:30 a.m. Pacific Time on Thursday, February 22nd. And with that, I will turn the call over to Lenny.

Thank you, Carol, and good morning. As we noted in yesterday’s news release, our Board of Directors with the assistance of Morgan Stanley, have made substantial progress in its evaluation of potential alternatives with respect to Qdoba as well as other ways to enhance shareholder value. There can be no assurance that the evaluation process will result in any transaction or other specific course of action. We will not be taking any questions on this matter today and appreciate your continued patience. With that back drop, I’d like to use my time this morning to talk about the initiatives now underway or plan for fiscal 2018 to regain momentum in a highly competitive environment, while Jerry will add a little color around the fourth quarter results we reported yesterday. Let’s start with Jack in the Box. We are acutely aware that our competitors will remain extremely focused on value with the focus on price points below $5. When it comes to product promotions, expect us to deliver a consistent message on everyday value that leverages our unique capability of offering our entire menu throughout the day. To that end, in January, we will launch an LTO, featuring single and bundled products with multiple price points, ranging from $1 to $5. We won’t completely stray from our higher quality positioning, like the 100% ribeye burger which was introduced in October, but our value promotion will be our primary message on media. Although our performance for the coming year will be influenced by external factors, there are plenty of things within our control that can contribute to improving our results. At the beginning of fiscal 2018, we launched a holistic plan to transform our business by addressing key strategic imperatives to accelerate service improvement, leverage innovation to further differentiate Jack in the Box, elevate our brand image and enhance our additional experience. We work closely with our franchise community to identify and prioritize the areas of critical importance and we plan to focus resources on those with the highest impact. We continue to make steady progress on our refranchising initiatives. We sold a 178 Jack in the Box restaurants to franchisees during the year, bringing the system to 88% franchised at fiscal year end. We currently have non-binding letters of intent with franchisees to sell 32 restaurants and now anticipate the Jack in the Box franchise mix will approach the high-end of our previous expected range of 90% to 95% by the end of fiscal 2018. On the digital front, Jack in the Box has a mobile application that supports order ahead functionality and payment. We are currently testing this app in a few markets and anticipate rolling out mobile and web ordering across our system in 2018. We’re also continuing to expand delivery, which has generated an incremental sales lift in markets where it’s offered. Including more than 100 additional restaurants that came online in Q4, we are now delivering Jack in the Box food for approximately 42% of our system. By the end of January, we expect to further expand delivery to about 58% of our system that’s more than 1,300 restaurants. Moving on to Qdoba. Our Q4 sales trends were consistent with what we saw across the fast casual dining segment. To help drive transactions and sales, we know we need to increase awareness of our flavorful food and use of high-quality ingredients. So, we recently launched an integrated campaign called United by Flavor that promotes unity over division and celebrates the flavors that make the brand unique. You will see this tag line on digital media, social media, email, as well as in-store merchandising. The first product promotion to incorporate the new flavors messaging is our quesadillas. It’s been several years since we promoted quesadillas on a system-wide basis. With the new campaign celebrating our mission to bring flavor to people’s lives, we thought quesadillas were a great way for guests to express themselves by adding ingredients they love including guac and queso at no extra charge. We will continue to invest in catering and delivery to drive incremental sales for Qdoba. In Q4, we expanded third-party delivery to 62 additional company restaurants and increased the total number of company locations offering third-party delivery to more than 200. Including franchise locations, nearly 45% of our system was under contract with UberEATS, Grubhub or DoorDash at fiscal year-end. And we expect to bring even more restaurants online in the near future. We will also leverage our loyalty program which now has over 1 million active members. Development of nontraditional restaurants will continue to be a great way to generate brand awareness for Qdoba, particularly in underpenetrated markets. Qdoba opened 14 new nontraditional sites in fiscal 2017 and now has more than 50 restaurants operating in airports, college campuses, medical facilities, shopping malls, military installations and travel classes. In closing, we plan to provide guidance for fiscal 2018 following the completion of the Qdoba evaluation process. We know that you have specific questions around G&A, leverage and CapEx targets that we intend to update once this process has concluded. With that, I’ll turn the call over to Jerry for a more detailed look at the fourth quarter. Jerry?

Thank you, Lenny, and good morning. Operating EPS for the quarter of $0.73 was $0.30 lower than last year or $0.21 lower, if you exclude the $0.09 benefit with 53rd week in 2016. The benefits from lower G&A and our Jack in the Box refranchising initiatives were more than offset by lower-than-expected sales and margins, particularly at Qdoba. Q4 results were negatively impacted by about $0.07 per share related to Qdoba impairment costs and a higher tax rate versus last year that hurt the quarter by about $0.02 per share. We estimate the impact from Hurricane Harvey was about a penny with lost sales days negatively impacting system same-store sales by approximately 30 basis points, and company restaurant margins by an estimated 25 basis points. For Jack in the Box, the 2% decrease in Company same-store sales was comprised of pricing of approximately 1.5%, mix benefits of 1.9%, and a decline in transactions of 5.4%. Franchise same-store sales declined 0.7% for the quarter. Jack in the Box system same-store sales declined 1% in Q4, which was at the midpoint of our guidance. Through the first eight weeks of our first quarter, Jack in the Box system same-store sales are running approximately flat to slightly positive, despite lapping year-ago same-store sales growth of 4.7% for the comparable eight weeks and our competitors’ ongoing focus on extreme value. Jack in the Box restaurant margins of 19.2% decreased by 180 basis points compared to last year, including the 25 basis-point impact, I just mentioned, related to Hurricane Harvey. Margins were negatively impacted in the quarter by approximately 100 basis points related to the franchise restaurants that we took over earlier in the year. Wage inflation of nearly 7%, commodity cost inflation of over 3%, sales deleverage and higher repairs and maintenance costs in the quarter; these factors were partially offset by the benefit of refranchising during the year. Moving on to Qdoba, system same-store sales decreased 2.1% in the fourth quarter with franchise restaurants flat versus last year. The 4% decrease in Company same-store sales reflected a 1.6% increase in the average check; we took no pricing during the quarter, catering growth of 0.8% and a 6.4% decrease in transactions. For the quarter, catering same-store sales grew 10.1% and for the full year catering mix increased to 8.7% of sales. Through the first eight weeks of our first quarter, Qdoba system same-store sales are running similar to the Q4 results. Qdoba restaurant margin declined 610 basis points in the quarter to 11.2% of sales. In addition to the impact of the leverage resulting from the 4% same-store sales decrease, the following factors contributed to the decline in margins. Food cost increased 220 basis points, including approximately 100 basis points from the over 50% spike in avocado prices in the quarter. Labor costs were up 170 basis points and included roughly 6.5% wage inflation. And new restaurants opened over the last three years also negatively impacted margins. G&A was lower in the quarter and declined to approximately 2.5% of system-wide sales in the quarter and the fiscal year as compared to 3.3% in both periods last year. Our restructuring activities, lower incentive compensation and pension costs contributed to the decrease. Although, we did not repurchase any shares during the quarter, weighted average shares outstanding decreased by 10% versus last year’s fourth quarter. Our leverage ratio was 3.2 times as of the end of the year. That concludes our prepared remarks, I’d now like to turn the call over to the operator to open it up for questions. Natalie?

Thank you. [Operator Instructions] Thank you our first question is from Dennis Geiger of UBS.

Great. Thanks for the question. Definitely some interesting commentary on the value side of things. Can you comment at all on the performance during the quarter? The transactions under the $5 price point with some of the adjustments that it look like you made already during the quarter, did you see an improvement under that price point? And then, just looking ahead, it sounds like it will be a mix of kind of the single low price point and bundled products. Anything more you can say as far as thinking about that balance as kind of we go throughout the year on value? Thanks.

Yes. So, let me look forward first and then look back. And if you go back to some of the major promotions that the larger competitors in our space have run around value or when they’ve run promotions that were directly sort of in our face or against our equities like breakfast all day, when we see those major competitors putting the lion share, that marketing strength behind those promotions, we tend to see a negative impact within that particular quarter and then bounce back shortly thereafter. As we look at January going forward, we don’t want to be in position where we are reacting after the fact. So, you will see us have similar price points in the marketplace in January in anticipation of what’s to come from some of our major competitors, and we will put the value-oriented messaging as the primary messaging, which means it will be getting the lion share of the advertising during that time. As far as looking back, we have gotten some contraction on the items that we’ve priced below the $5 price point, particularly the Munchie Mash-Ups, as well as the Breakfast Platter have done well and also the Really Big Chicken Sandwich. So, we have seen contraction which gives us the confidence to be more aggressive here coming into January. So, I think we feel like we will fare pretty well in the coming environment.

Great. Lenny, if I could sneak one quick one, and just wanted to focus on the greater than $5 price point. I know in this environment that’s been challenging, but just anything you could say on performance, considering the environment on the premium innovation that you’ve done on the upgrades as you kind of transition to QSR plus. Again, factoring in the environment, are you pleased with what you’ve seen with what the response has been to some of those upgrades to some of the premium innovation that you run? Thanks a lot.

Absolutely. We -- as I said in the prepared remarks, we’ve got a 100% ribeye burger out there right now, which is performing exceptionally well. Jerry shared how we are doing through the first part of this quarter, which are really the biggest rollovers we’ll have all year long. And we’re doing that in the face of continued value and winning with ribeye burger and supported with some of the value messages beneath it. So, we feel really good with the strategy we have in place right now. The innovation is working and we’re getting attraction on the value front as well.

Our next question comes from Brian Bittner of Oppenheimer. Your line is open.

Lenny, you exited the year with the Jack in the Box business now 88% franchise and you deliberately said in the release and on this call that you want to move closer to that 95% range. So, what drove this change in thinking? First. And then, Jerry, just the 5% or so storage you plan on keeping, can you just give us an update on what the unit economics of those stores, that batch of stores looks like? Thanks. I have a follow-up as well.

Yes. So, we continue to see where we can create value by moving closer to the high side of the range previously communicated. So, it’s really in keeping with what we’ve always said. From the time we started the refranchising strategy we’ve been asked where -- what’s the end game, would you consider refranchising more. And we’ve always said, if we felt that refranchising continued to add value, we would do it. So, we’re in that place today and that really drives the decision.

And Jerry just on the…

Yes. Let me answer the question for you this way, as opposed to the restaurants that we would have at the 95% level. If you look at the restaurants in the fourth quarter that we had all year long, these were restaurants that were not impacted by refranchising, these are restaurants that we did not take back from a franchisee. It was just under 250 of those locations. And their margins were greater than 22% in the fourth quarter. And then, keep in mind also that we had the highest commodity inflation of the year, I think 3.3% commodity inflation in the quarter there. We also had wage inflation of 7%, almost 7% in the quarter, and that was driven by another minimum wage increase in LA, which went from $10.50 an hour upto 12 bucks an hour on July 1st. So, even with all of that and the sales deleverage from down 2% comp, we were still above 22%. I think as we would go from a 90 to closer to 95% franchise level, you would also see then the margin rates pick up also.

Okay. And just again on the comp for Jack in the Box, you are lapping 5 so far this quarter and you are saying things are flat to slightly positive. Do you have very specific things you can point to that’s driving that two-year improvement? And obviously, comparisons ease a lot from here, finally. Does that matter moving forward? Do you think that matters at all?

Well, I would say, right now, we’ve got the ribeye burger, which is arguably one of the better products we’ll launch this year and one of the reasons we’ve positioned it during this time of the year, because we knew we had these rollovers. And then it’s supported with the value item, the $2 breakfast pocket. So, I would say, we came out of the gates strong, knowing that we needed to have some of our best products in place this quarter. The remainder of the year, we have additional innovation that I think will be quite exciting. And I think the marketing approach is going to be pretty refreshing, and maybe little edgy as well. So, I would anticipate continuing to get that traction going forward. But, I would just say that as we lined up the products going into this year knowing that burgers -- and we have innovation around burgers just like we did with Buttery Jack that sort of rings true for the consumer, we tend to do well. We wanted to make sure that we came out of the gates with a strong burger product. Throughout the year, what you will see is we will have emphasis on burgers and other sandwiches but we will also bring some new news to the marketplace, new food that Jack in the Box has not offered in the past.

Our next question comes from John Glass of Morgan Stanley. Your line is now open.

Thanks. First, just following up on the improvement you saw both during the quarter and the fourth quarter as well as quarter-to-date, how much of that is the industry improving? I know you may now want to speak to specific industry numbers, but is your gap narrowing or maybe exceeding the industry or is this just the industry improving and you’re just getting that benefit?

Yes. John, unfortunately, we can’t share the industry data without prior approval. So, we can’t comment on that.

Even directionally, you can’t just talk about whether it’s gotten narrower or wider?

No, because some people will know where -- versus where we are tracking since we’re tracking flat to slightly positive.

And can you talk about the development pipeline for the Jack business as you refranchise? You put some hooks in there to get development going again. Is that something we will see in 2018 or is there a digesting period as franchisees are acquiring these units and that’s something more like ‘19 and ‘20? What do you know now you have development commitments for in the future?

With the restaurants that were sold in 2017, there were development commitments for 65 new restaurants. I don’t think you’ll see anything in 2018 because of lead time and permitting process and so forth and so on. But 2019 and 2020 would be the timeframe which you would begin to see some of those restaurants go online.

Okay. And Jerry, since on my first one you weren’t able to answer. You talked about the last 5% of restaurants being dilutive to earnings. Can you give a specific number about that? Obviously margins are lower, EVs lower today. Can you give a renewed view on the dilution you’d experience going to 95 versus 90?

Yes. So, I won’t be able to tell you what that dilution is, other than I can tell you that it is lower today than it would have been a year and a half ago for a number of reasons. And I just described that roughly 250 restaurants were at margin rates of above 22% in the fourth quarter. But they too were down from where they were in the same quarter last year. And so, I think as you get the wage pressure, particularly at some of the markets that we have that -- it does make that dilution little less noticeable. The other thing I would mention is that while EBITDA is a consideration, it’s not the only consideration, I think that getting closer to 95% helps us to become even more asset light than we otherwise would have at 90% level and it also should help with the higher free cash flow yield going forward also. And then, when we do guidance, John, we can provide some updates on what going to 95% can look like.

Our next question comes from Chris O’Cull of Stifel. Your line is now open. Chris O’Cull: Thanks. Good morning, guys. Jerry, how should we think about the margin impact and the check average impact of the new value menu? And then, I had a follow-up.

Well, I think the value products are specifically engineered to generate a reasonable margin. That’s why what you’re not -- all the things that Lenny talked about were not core products that we happened to be discounting; these were all innovative new products that were designed with a reasonable margin in mind. So, I would not look at these sales being dilutive to that margin rate. The other thing too is if -- as sales are negative, you start to get some dilution on with respect to fixed cost deleverage on those items here too. So, I think these sales, while I don’t expect them to be margin dilutive will also help to offset fixed cost, as you continue to keep people coming to the restaurants.

And Chris, I’d just add to that. Our goal is to drive transactions, we’ve experienced some transaction loss that we would like to mitigate, and at the same time to do it in ways Jerry mentioned that bounces out our margins. And so as I mentioned in the prepared remarks, what we will be doing in January at the price points from $1 through $5 will be a combination of both single and bundled products and offerings, so that we can achieve that appropriate margin balance. Chris O’Cull: Okay. And then, Lenny, in the past, you’ve indicated Jack has had difficulty breaking through kind of the advertising clutter out there with regards to value messages. Are you concern this could happen again in January when you roll this out?

No, I think what we’re putting on the table is so different from what we’ve done in the past that I think we will break through and I also think that in many ways the message goes right along with what’s going on in the marketplace and we would like to ride that wave. Chris O’Cull: That’s fair. And the weight will be much heavier?

The weight will be much heavier. And we don’t typically put our value items as the primary weighting for advertising; they’re typically the secondary message. These will be primary this time.

Our next question comes from Gregory Francfort of Bank of America. Your line is now open.

I just had two quick questions. The first is, do you think the industry shift to focusing on chicken that happened a couple of months ago, had any benefit to your sales; were you able to notice that impact? And I guess, the second question I have is, are Jack franchisees able to compete with some of the bigger brands on value? I guess, maybe can you update us on where franchisee cash flows are as of kind of the most recent time you’ve calculated them or time you’ve kind of put them out?

Let me address the chicken comment. I don’t know that the -- focus on chicken that we’re seeing something in our business that would tell us. The tides are shifting and we’re getting some new benefit associated with the focus on chicken. I will say that our product marketing teams are very focused on what we can do to bring new chicken products into the marketplace and improve our current line of chicken sandwiches that we will see a focus there because I think we all see that the chicken is becoming more and more popular and several new concepts are popping up that are exclusively focused on chicken. So, we want to make sure that as the opportunity grows that we are also taking advantage of it. But I don’t that we’re seeing something today that I could comment on. And the second part of your question -- so as far as the franchisee cash flow, I’ll just point to a couple of things, Chris. One is franchise -- sorry, Greg, sorry. I at least correct one name during each call. [Multiple Speakers] So, anyway, the franchisees did buy 178 restaurants during the year. And so, I think that’s probably the best sign of the health of our cash flow. Secondarily, and this is from our intelligence that we have from our franchisee cash flow is that it is -- their margin levels are similar to the company margin levels for the Jack in the Box brand and similarly down versus what they were last year also. So, they appear to be trending similarly to what the overall brand is. But it would appear to us be very, very healthy cash flow.

That’s helpful. Thank you.

I would just comment on that further to say, as I spent some time with the franchisees and our brand President Frances Allen, what we see is that the franchisees are concerned about how the future minimum wage increases will impact their business. I think they are seeing some impacts today and certainly that will bring a level of anxiety. But their biggest concern is how do we work together as a team to make sure that we mitigate those negative influences on our margin going forward. And I believe that in cooperation with our franchisees we can find efficiencies in the business that I hope to mitigate that. And we look forward to spending that time with them. So, we are focused on the right thing.

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

Just couple of quick questions. First on the franchise margins. I know there is a lot of noise going on in that line and they were down this quarter. Can you maybe explain why that was the case, given the mix of franchising was higher year-over-year? And then, Jerry, could you maybe help us think about how that line should trend as you move towards 95% franchise?

Let me speak about the first question first here. So, the franchise margins down, I would point to two items there. One is the franchise support costs were higher. Most of the increase in franchise support costs was due to Qdoba increased support cost around franchisee signs and remodel support. And that was about a $1 million of the increase in the franchise support cost. And then, on the rent line, couple of things to consider there, one of which is that last year’s numbers had the 53rd week in there. I assume everybody’s adjusted out for that as best as you can, based on the quarterly data. Beyond that, I would really point to the difference in sales performance for the franchisees last year versus this year than I would the increase in the cost of the rent on those lines. So, the rental cost is not that you would expect it to be so with the 178 restaurant that we sold. The revenue did not grow commensurate with that increase, and that’s really related to -- last year franchisee sales were up 2.4%. This year, they were down 0.7%. If you adjust for that and normalize that, you’d be about 1.7 million in rental revenue and also in rental margin on that. And then, when you calculate the margin rate on the rent, you get very close to what it would have been last year. So, what appears to be a cost issue, I really look at it as being a revenue issue because of the same-store sales decline versus last year.

And the part about how that might trend as you get towards 95% range, I know it depends on the same store sales but if you could just elaborate [ph] how that...

I think that we can provide more color on that when we are updating guidance for 2018.

And then, Lenny, I have a question. I think in your prepared remarks, you mentioned three or four factors that you’re focusing on in terms of transforming Jack in the Box, and one of which was brand image. And I was just wondering if you could elaborate on what you meant by that, and how that all plays into the premium QSR position and the value programs you have going on?

Yes. I think the first thing to recognize is that if you look at our buildings, they’re old, they’re tired and they’re probably in more need of a remodel than many of the brands we compete against every day. So, these are not -- these are rooflines that are four-year old roof lines. So, it’s not like we even have buildings that architecturally are in the right place or in the right generation, maybe we can paint them and move on. We’re really in a place where we need to invest significant dollars in these sites to change the rooflines, change look and feel of the locations and bring them to a more current state. And so, our franchisees are all signed on for a remodel program. Obviously, we’ve made the same commitment for our Company locations. And we will talk about the specifics of the investment levels and how this impacts our model when we update our guidance. But essentially, we’re going have to remodel our chain in order to compete. And so, you’re going to see a commitment from us in the coming years to do so. And this will be more than what we’ve done last round, which was more cosmetic in nature, this will be structural. So, that’s probably the broadest or the high level direction that I gave you. And we’re contributing to that both in the franchise and Company ops with our own investment dollars.

Our next question comes from Andrew Charles of Cowen & Company. Your line is now open.

Great, thank you. Lenny, obviously you recognize the sensitivity behind sharing plans, behind what the value efforts are going look like. But, can you talk more about the results from test markets around how widely it was tested and the confidence you have behind what you saw in results of the test markets?

Yes. I can’t comment too much on that. What I would say is this. What we’re putting in the marketplace, what makes it different is the fact that we will have multiple price points being promoted at the same time. And we think we need to do that in the face of what’s to come in January. But, if you look at the individual offers at each price points, those are things that we’ve done in the past. So, it’s the way we’re pulling the whole thing together that’s different and messaging it. Some of the bundles are little different than what we’ve done in the past. Even the single items might be a little different than what we’ve done in the past. But, they’re all close in to where our marketing department would have done to emphasize value in the past. We’ve now just put it all together in menu of options, unlike what we’ve done in the past. So, hopefully that makes some sense to you. It’s probably a little cryptic but necessarily so.

That’s helpful. Got you. And then, qualitatively, I was just looking for an update on the CFO search. And obviously, big shoes to feel in. I was curious if you’re in the stage of still meeting with new candidates or is it done with shortlist at this point?

So, we have met with several candidates. We are excited about several of them. I’m optimistic that we’ll turn the corner here to the shortlist. But, these situations are fluid. So, I don’t want to make any predictions. But, I’m optimistic that we’ll get this wrapped up in a very reasonable period of time.

Our next question comes from Jeffrey Bernstein of Barclays. Your line is now open. Q - Jeffrey Bernstein: Two questions. One kind of following up on earlier question about future unit growth of the Jack business. It would seem like the refranchising is going well with the 100 or so you units this year and obviously interest is high and franchisees have some capital to put to work. So, I’m just wondering with that as a backdrop, should we think about the Jack brand taking another step, moving beyond the West Coast over the next few years, obviously above and beyond just the units you already have in the pipeline from your refranchising but maybe what would keep you from seeing an uptick maybe gating factor or maybe learnings from past attempts that might keep you from encouraging the franchisees to push this brand more national over time? And then, I had one follow-up.

Yes. So, I think the way to look at it is just through a practical lens. In the short-term, we are going to ask our franchisees to spend a significant amount of time and money engaging in remodels. And if you just look at their sort of bandwidth, even if they have the capital to go beyond remodels at this time, they probably don’t have the bandwidth to go beyond that. So, I don’t necessarily think we will see an uptick in franchise growth over the next couple of years as they engage in remodels. I don’t necessarily think we will see a decrease what we’ve seen in recent years but I don’t see them growing beyond the current rates. When we get passed the remodel effort, then, yes, I would look forward to not only growing into new markets with our franchisees but potentially increasing or increasing the rates of new unit growth as well.

Is there any color on the remodel cost or the really lift you’ve seen from some of these you might have done for especially some of those older stores?

Let me say that way we’ve approached this is we have targeted return on invested capital for each one of the restaurants we intend to remodel. It’s based upon a sales lift which I won’t describe what that is right now. But it’s based upon a reasonable sales lift, one that you may have seen others report in the industry as we’re not going around talking about 20% of sales lift or any such imagination and so talking about return on invested capital. So, a lower volume store is like to be a get a heavier remodel than say a low volume store because each one of these remodels are based upon a tiered approach, based upon what we think the cash flow and return is going to be for each of these restaurants. So, I think it’s a very capital responsible way to approach to models. And the franchisee contributions that we will be providing for them are really around the restaurants that we control the leases. And since we are the landlord to them, we are able to offer what really appears to be or what is a tenant improvement allowance. And for that contribution for them, we’re extending the franchise agreement and also the lease term in there. So, we are getting extra term committed by the franchisees upon them agreeing to remodel the restaurant and then take the contribution from the Company on that.

Interesting, I didn’t realize that. And my other question was just on G&A, which Lenny I know you mentioned, and you have given update on targets longer term when you gave your new guidance. But specific to the Jack brand or rather than the system, I think you gave guidance for the system which was 2% to 2.5% of system sales and 35,000 per store. Can you give a directional color where you think the -- if you just look at the Jack brand, where we should assume that could settle in, in terms of either percentage of system sales or dollars per store, any kind of color on the Jack specific system?

What I would say is this, we do need to work through all of our current situations to get to a point where we can give you updated guidance, which will I think fill in all the blanks for you. It’s obvious to us, the areas of focus that the investment community has, and we do intent do brining up color to each of those areas to allow folks to see how the new go forward plans shakes out. And I would just ask for some patients around that. We certainly aren’t resistant to change and you’ve seen us continue to evolve the business model over time but we are also pretty deliberate and careful about the way we move forward to make sure that we do retain the capabilities within the Company and the two brands to compete. So, give us just a little more time to hash that out. I just don’t want folks to interpret the timing of that communication and what might be perceived to be a delay as a resistance to taking the relook at things. And it’s just that we do need to make sure that we approach all this the right way.

Our next question comes from Alex Slagle of Jefferies. Your line is now open.

Regarding that last question, is there any way that reflect back to the previous guidance around the three phases of G&A reductions? And give us an idea as how much has been accomplished thus far?

I’d say, virtually everything in phase one was accomplished. Phase two is in process through refranchising. And certainly, we’re almost at 90%, phase two is really primarily around getting us to the 90% level there. So, I think most of that’s been achieved as well. Phase three is in process. And we have indicated that most of those were around some IT -- normalizing the IT systems and that was going to take a little longer, and it is. But that is in process. And then, also, we did reduce our G&A because of -- system-wide by about 80 basis points versus where it was last year.

And then on the Qdoba, just wondering if you have any more commentary on what drove the deceleration in the traffic? And how much of that was competitive intrusion, distractions from the review or reduced discounting?

So, I think couple of things. One, the performance of Qdoba was very consistent with that segment of the industry, at the same time that we recognized what’s happening within the segment. I think as a company, we have always sort of prided ourselves on not just riding the industry or segment wave but actually breaking the trend. So, our expectation is that the focus that Qdoba is putting on, their marketing efforts as well as product innovation and an emphasis to insert everyday value into the menu is going to play well over the long term. And as far as any distractions from what’s happening at the end of the day, we never use that as an excuse, they certainly are distracting, but at the end of the day we expect it to perform. And what’s our folks are focused on.

Our next question comes from Jeff Farmer of Wells Fargo. Your line is now open.

Great, thanks. What has been the historical relationship between increases and decreases in your value messaging rate, and your Jack in the Box traffic and same-store sales numbers? I’m just trying to get a better understanding of how impactful these shifts and these media weights can be on your business.

Yes. I guess the way that I would describe it is that we -- the thing I would ask you to focus on is this, because I don’t know that sharing media weights is going to actually get you anywhere. And since we haven’t shared specific media weight information in the past, I would hesitate to share that now without sort of further discussion internally on the facts around that. But, what I would say is that -- I think the most important thing to recognize is that we are going to emphasize value during a specific period of time where we expect our major competitor to emphasize value. And we’re going to do it in a very similar way. And that’ not something that we’ve done in the past. So, we think it will play well. And I think that’s the biggest fit. What we typically said is we’re not going to jump into the fray on some of the aggressive discounting; we’re going to ride it out. And when our competitors slowdown on that value emphasis, we’ll bounce back. And you’ve seen to do that time and time again. But, there has been this sort of value-oriented discount drug that has permeated the industry in the last 18 months that doesn’t seem to want to go away. So, we’re going to go ahead and try something new. And we think it will play well. We’re not sure how long we’ll continue with this path, but we’ll remain flexible.

And then, just one quick follow-up sort of bigger picture. So, what percentage of the hamburger consumer set do you see as loyal more to a price point than a given concept or brand? Meaning…

When you get below the $5 price point, look at maybe a third or so of the consumers are not loyal at all to a brand. They’re loyal to price points. They chase the value wherever it is. And we see that. We trade customers with all of our major competitors within and outside our segment based on value promotions. So, we’re essentially looking to get our fair share here. But, one of the things that we’re doing a little differently from our competitors is we’re going to offer some products within our value offerings that are different from what you see across the industry. But, I don’t want to just focus on burgers and fries and how much of it I can jam into a box. I also want to have some other items out there that only Jack in the Box sells.

And then, just last thing, you touched on it a little bit but this franchise alignment, how quickly can you move? If you see an opportunity, how quickly can you get everyone on the same page and go forward from both the media standpoint and product standpoint.

So, let me start by saying, we have just little over a 100 franchisees, which means we have just a little lower 100 opinions. But our franchise community, they are competitive. And although they may have different opinions on how we compete, I think when we are able to balance premium innovation with single or bundled discounting, that’s where they would align. When we want to go 100% discounting or 100% premium, we typically run on the issues because those varying opinions and particularly when they are looking at the geographical impacts that they are competitive set is having on them, they are not all going to line up in the same space. So, the sweet spot for us is to make sure we are doing a little of both. I think they can be flexible on the media weights that are going to the offerings as long as they are seeing a return on that investment in the form of transactions and sales. But I do believe we can move faster than just about any other system out there. And I think that’s played well for us in the past. I think if you look at what we are doing in January, it is a reflection of us moving at hyper speed to put something in the marketplace that had not been planned up until just the recent months.

Operator, could you prompt for any additional questions?

[Operator Instructions] And our next question comes from Matthew DiFrisco of Guggenheim Securities. Your line is now open.

Just sort of couple of follow-up questions there, I guess with respect to the remodel and the Jack in the Box brand. I think it’s been a while since you sort of looked at just Jack on a CapEx basis. I know about a year and half ago at that Analyst Day, you had a progressively curtailed outlook for CapEx coming down. How does that remodel potentially adjusts that? I think we’re thinking 20 million to 25 million for the brand, and the CapEx number sort of running beyond ‘17, does that sort of now come off the books and that should escalate a little bit?

Well, the way that the tenant improvement allowance works, Matt, is that is not capital. What you will see there is there will be a cash flow impact but it’s not technically capital. But, we can provide that when we get into the guidance.

Okay. And then, I guess, was there any commentary about the quarter-to-date trends, was there an influence there from Texas or was Texas an outlier considering what hurt you sort of in the just reported quarter, potentially there was some rebuild activity down in the Texas market that might have been a benefit to the early start or are you seeing a consistent trend throughout the eight weeks so far?

We are really seeing strength across the brand.

Okay. And then, my last question. With respect to the support cost, I noticed in the segmentation reporting there, the support cost for franchises for Qdoba seemed very high on a relative basis in the third quarter -- I’m sorry in the fiscal fourth quarter just reported. Could you give us some color on what that was or what an effect that was…

Yes, Matt. That’s related to support costs to help franchisees with their new logo, signage, as well as remodels. I wouldn’t view that as being a permanent cost increase at those levels going forward.

Our next question comes from Jake Bartlett of SunTrust Robinson Humphrey. Your line is now open.

I had a question about your tech initiatives and you mentioned that you are going to be enabled with mobile order and pay. Maybe could you just give us the timeframe of that. I think you said before by the end of the year but maybe how it rolls out through the year? And then, any thoughts on kiosks? I know that some of your competitors are doing. I think you have tested in the past. Where do you stand on that kind of making the experience a little bit different?

Yes. So, as it pertains to tech in general, the way we will approach it is we’ll really start with the most basic offering that really provides for the most basic of consumer needs. And then we will build on the tech from there where we are most concerned about growing out stable platforms that don’t disappoint the guest by failing. And so, if you look at what the consumer needs now, they need mobile order and pay and they need in the future to be able to integrate things like delivery and loyalty programs. And so, you can expect the layering of additional features that will support that going forward. And then, as far as kiosks, we were one of the firsts to use kiosks in our restaurant environment. We believe that there could be a place for kiosks in our future, but what we are looking at in conjunction with our franchise base is how would we redefine the entire consumer experience, before we just land on a piece of technology. There is going to be an interesting sort of interplay between the use of mobile phones and the use of kiosks, and how far as you should go with kiosks versus how far you should with mobile apps, particularly as a payment source. In many ways, you will start to see mobile phone as really an extension of the POS system. And so, the question will be how much do we want to invest in from a consumer experience standpoint, technology within the dining room. So, we need figure that out. The good thing is we have experience in that area. We have seen the impact to our business in the past. And some of the impact with kiosks certainly can lead to a higher average check. We see similar things through the mobile apps. So, these things can potentially play well for us. But what’s going to be really important is to work with our franchisees who will run the lion share of our operations to put a service model in place that they think they can execute at a high level. So, more to come on that once we have a little more time with our franchise community, work through those issues.

And just to understand exactly how your mobile order and pay is going to kind of time with competitors? I mean, is this more of a fourth quarter story for you as you roll it out? I mean, should it have more of an impact by the end of the year or is it something that we should see maybe earlier? And then, I know you’re not giving guidance for 2018, I’m wondering just because it doesn’t seem specific to the things you are trying to figure out. But just an outlook on commodities would be helpful or anything on labor for the coming year would be helpful.

We’ll meet you halfway on that. Let me give you commodity. So, the Jack in the Box plan, we’re expecting commodity inflation of around 3%, was higher than that in the first quarter because the first quarter, we’re rolling over roughly 2% deflation last year. And on the Qdoba brand, we’re looking at commodity inflation of just under 1%.

As far as the timing on the rollout of the tech, we’re not going to share any timing, but the approach will be, we’ll move at a speed that marries up with the stability of the platform. So, if the testing goes exceptionally well and we see like it’s sort of unbreakable, then we’ll move at light speed. If we’re seeing different results, then we’ll slow it down a little bit. But one of the things we’re going to be really careful about is that internally, around tech, if you set very strict timeline, you can potentially compromise some of what you intend the consumer impact to be. The most important outcome here is a strong first impression with our consumers, not the timing of the rollout.

Great. Thank you very much.

I think that puts us out of time for today. Thank you for joining us and we look forward to speaking with you soon.

Thank you. And that concludes today’s conference. Thank you all for your participation. You may now disconnect.