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Financing

Supply chain and labor issues hurt Jack in the Box sales

The burger chain estimates that closing hours and problems getting products hurt same-store sales by 4% last quarter.
Jack in the Box labor and supply chain
Photograph: Shutterstock

Jack in the Box said on Tuesday that its same-store sales rose 0.1% in the quarter ended Oct. 3, a figure much slower than recent quarters.

But those sales were up 12.3% on a two-year basis, which was more consistent with its track record for the year and, executives said, particularly impressive given the company’s inability to find workers or get food delivered to its restaurants.

The company said labor availability hurt sales by 3%. Distribution issues, meanwhile, hurt sales by another 1%.

“I am extremely proud of the ability of this brand to remain strong in our performance during these interesting times,” CEO Darin Harris told analysts on Tuesday. “We navigated nicely through a unique and volatile top-line environment within the industry.”

Franchisees outperformed the company during the period. Franchisees’ same-store sales rose 0.6%, while company locations—only about 5% of the chain’s 2,200 restaurants—declined 4.4%.

Company executives blamed the problem on pricing. Franchisees were “more aggressive” on price increases than the company.

Those operators also did a better job of hiring and retaining workers.

Company executives said the biggest labor problems came late at night, a daypart that has been a problem for many chains but which is particularly important for Jack in the Box. Many restaurants have struggled to keep workers into the evening, which has led to early closures and low staffing levels.

Still, Harris said he remains “very confident that late night represents a tremendous opportunity, and we continue to see strong demand.”

“As these headwinds alleviate, we have an opportunity to not only take share and lead but dominate this daypart versus the competition,” Harris said.

Distribution issues also caused headaches. Executives said one of the bigger problems for Jack in the Box in the quarter was a staff walkout at one of the company’s distribution centers, which kept many of its restaurants from getting all their product.

“For about eight to 12 weeks of the quarter, we were working tirelessly with our franchisees to make sure that we could supply our existing restaurants,” Harris said. “We definitely felt that was the biggest challenge during the quarter, which we think is a one-time event, not a thing that is normal.

“It’s related to this whole environment we’re in.” He noted that the company and its distributor are adding “multiple layers of protection” to avoid a similar problem in the future.

Jack in the Box executives did note things were starting to improve. They said same-store sales so far this quarter are up in the “low-to-mid single digits” while two-year sales were on par with previous quarters.

Both labor and supply chain costs are expected to keep increasing next year. Commodity prices are expected to increase in the 6% to 7% range in 2022, while wage rates could increase as much as 10%.

Those higher costs have the company rethinking price increases. After keeping them lower than normal last year, Jack in the Box is planning “mid to high-single-digit” increases in 2022.

Even then, executives said, restaurant-level margins are expected to be in the 20% range, or about the same as it was in the chain’s 2021 fiscal year—which was 7% lower than normal.

“We took less price than others in the industry,” Harris said. “That’s one of the points that gives me clarity about our ability to take price. The data suggests that we have opportunity with price. It’s how fast we can take it to overcome some of the margin pressure.”

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