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Jack In The Box Inc (NASDAQ:JACK)
Q4 2019 Earnings Call
Nov 21, 2019, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Jack in the Box Inc. Fourth Quarter Fiscal 2019 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. During the question-and-answer period, please use your handset when asking a question. Please do not ask over a speaker phone.

At this time, for opening remarks and introductions, I would like to now turn the call over to Rachel Webb, VP of Investor Relations and Strategic Analysis for Jack in the Box. Please go ahead.

Rachel Webb -- Vice President of Investor Relations and Strategic Analysis

Thanks, Jennifer, and good morning everyone. Joining me on the call today are Chairman and CEO, Lenny Comma; and Executive Vice President and CFO, Lance Tucker. In our comments this morning, per share amounts refer to diluted earnings per share. Operating earnings per share is defined as diluted earnings per share from continuing operations on a GAAP basis, excluding gains or losses on the sale of Company-operated restaurants, restructuring charges, loss on early termination of interest rate swaps and debt extinguishment, the non-cash impact of the Tax Act, and the excess tax benefits from share-based compensation arrangements.

Adjusted EBITDA represents net earnings on a GAAP basis, excluding discontinued opertions, income taxes, interest expense, gains or losses on the sale of Company-owned restaurants, impairment and other charges, depreciation and amortization, and the amortization of franchise tenant improvement allowances.

Our comments may also include other non-GAAP measures such as restaurant-level margin and franchise-level margin. Please refer to the non-GAAP reconciliations included in yesterday's 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 the Q&A session, 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 this morning, Jack in the Box management will be attending Barclays Eat, Sleep, Play Conference in New York on Tuesday, December 3, and our first quarter ends on Sunday, January 19. We tentatively plan to announce results on Wednesday, February 19, after market close.

Our conference call is tentatively scheduled to be held at 8:30 AM Pacific Time on Thursday, February 20.

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

Leonard Comma -- Chief Executive Officer

Thank you, Rachel, and good morning.

Before Lance recaps some of our fourth quarter highlights and reviews guidance for the coming year, I'd like to acknowledge all we accomplished in 2019 and how we plan to build on this success into 2020.

2019, March, Jack in the Box has returned to being a single branded entity, now 94% franchised and asset lite. We exited our transition services agreement with Qdoba, officially completing our restructuring efforts, and establishing a lower cost structure. We completed our strategic alternatives process, leading to our new capital structure in the form of securitization and have now obtained our target debt-to-EBITDA ratio of approximately five times. Since implementing the securitization, this July, we've returned over $190 million to shareholders through share repurchases. By the time and resources devoted to implementing these structural changes, the team remains focused on driving performance across the system of Jack in the Box restaurant.

In 2019, we achieved our ninth consecutive year of same-store sales growth with the strongest performance since 2015. And as we look to 2020 and beyond, we plan to build on these achievements. Team and I are focused on the long-term growth of the Jack in the Box brand through same-store sales and net new units. For same-store sales, we are encouraged by our performance improvement throughout the year, especially as it pertains to product innovation, compelling offers and operational execution. And we know there is a lot more room to grow in these areas.

In fact, just this week, we launched compelling new LTOs in the form of value bundles and add-ons. Continuing our strategy of using bundles to appeal to value-oriented guests, we launched a White Cheddar Cheeseburger Combo.

To capitalize on past success with credible snacks and sides such as sauced and loaded, we just launched our $3 Mini Munchies, which featured guest favorites such as onion rings and curly fries, as well as the return of mozzarella sticks. This promotion provides value to those seeking it and a nice add-on opportunity to support average check. With Feast Breakfast, top of mind, we've introduced a new Breakfast Jack featuring chicken with the offer to $3. This innovative new breakfast sandwich allows us to capitalize on the growing success of chicken, while remaining relevant in the breakfast daypart. As we look to future quarters, we are excited about the addition of a new menu item that will reestablish everyday value that we lost, when we raised the price ceiling of our popular two for $0.99 taco offering.

While these compelling menu additions and promotions bring guests into our restaurants, our single largest focus for 2020 is improving the guest experience. As I mentioned on previous calls, our VP of Operations Services and Field Performance Support, Shannon McKinney, and his team, have really taken a fresh look at our operation.

Having made significant speed improvements at other brands, he and his team have already identified minor equipment adjustments such as retrofitting our holding cabinets to preserve the temperature and quality longer, and other back-of-house changes such as simplifying build logic to build sandwiches more consistently, both of which will remove complexity in the restaurant and improve the speed of service for the guests. We've quickly gone to tests with these changes and have already seen speed of service improvements in these locations.

We remain committed to becoming a minute faster on average by 2021. 2019, we tested many of the components associated with enhancing our drive-thru experience. We tested things such as new branding elements, digital menu boards, and designated parking for pickup and delivery. As we start to see the crossover between the benefits from this test, combined with the speed enhancements we've been testing separately, we're getting to a point where they are starting to converge. As we've said previously, we expect to finalize the elements of the upgraded experience and begin rolling that program out later this year.

While we are committed to low-single-digit percentage unit growth for our long-term guidance, we're working to accelerate new unit growth in the coming years. For 2020, we expect both our growth and net new units to exceed 2019. We're in the final stages of revisiting our capital plan and will give you more color on any changes in February, but now, we wanted to let you know how we're thinking about capital allocation. First, we are prioritizing return-oriented investments in the restaurants, mostly related to the guest experience, which I spoke a bit about earlier. Second, we are investing in drivers of same-store sales, particularly unit growth such as enhancing our unit growth incentives, which we will discuss more in February. In conjunction with these items, we'll remain committed to enhancing shareholder value. We expect to repurchase approximately 30% of our outstanding shares over the next five years.

With that, I'll turn the call over the Lance for more detailed look at the fourth quarter and our expectations for the new fiscal year. Lance?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Thank you Lenny, and good morning everyone. I'll hit a few highlights from the fourth quarter and fiscal year 2019, and then move into guidance for 2020.

Operating EPS for the fourth quarter was $0.95, as compared to $0.77 last year. This 23% increase was driven primarily by lower G&A as well as share repurchases. Our systemwide comparable sales increased 3% in the fourth quarter, Company comp sales increased 3.5%, comprised of check increases of 280 basis points and transaction increases of 70 basis points. Franchise comp sales increased 3% for the quarter.

Completion of our refranchising initiative last year, fourth quarter of 2019 was the first quarter of our year-over-year performance compared to the same 137 Company restaurants without impact from refranchising. Company restaurant-level margin decreased about 190 basis points to 24.2%, down from 26.1% last year. This decrease was due primarily to higher labor costs and commodity inflation. Remember, roughly 80% of our Company-owned locations are in California, typically the cities with higher wage increases, leading to wage inflation increases in the mid- to high-single digits. Additionally, commodities increased approximately 4% in the quarter.

Franchise-level margin increased by approximately $1 million compared with last year's recast figures, driven primarily by stronger sales performance. Advertising costs, which are included in SG&A, decreased $2.8 million versus 2018, due to incremental contribution[Phonetic] funded by the Company in the fourth quarter of last year. The Company did not make any incremental contribution this quarter.

G&A, as a percentage of system sales, in the fourth quarter was 80 basis points, well below our targeted run rate, after an unfavorable jury verdict in the third quarter. That verdict was reduced in the fourth quarter, benefiting G&A in a one-time fashion by approximately $6.5 million. For the full-year, the impact on our financials from this litigation is now immaterial[Phonetic]. We also benefited from lower costs for insurance in the quarter as well as gains from our Company-owned life insurance policies.

Full-year G&A came in at 1.6% of system sales, which was lower than our guidance of 1.8% to 2%, and lower than the prior year, 2% using recast figures. G&A was lower than 2018, due mainly to lower costs for workers' comp insurance of over $5 million, gains from our Company-owned life insurance policies of over $3 million and lower incentive compensation.

Since implementing the securitization, we have repurchased approximately 2.2 million shares for over $190 million, which includes 1.4 million shares for approximately $125 million in the fourth quarter. During the fourth quarter of last year, we remained on track to return more than $1 billion to shareholders by 2022. Three new restaurants opened in the quarter, bringing our year-to-date total to 19, all of which were franchised restaurants. Six new restaurants are pushed into the first quarter of fiscal 2020. Several of these units have since opened and the rest should come online in the first quarter.

Our closure rate in fiscal 2019 remained low at approximately 0.5%. As noted in yesterday's press release, we expect to report material weakness in our Form 10-K for fiscal 2019, related to IT general controls. Allow me to stress, there have been no mis-statements identified in our financial statements. We expect to receive a clean or unqualified audit opinion, when the 10-K is filed later today. Our proactive efforts have already begun and we expect to have the material weakness remediated within the fiscal year.

Now, we'll move on to guidance for 2020. Please keep in mind, our fiscal year timing Q1 of 2020 will be the first quarter. we adopt the lease accounting standard ASC 842. Please refer to yesterday's release for more information on how this new standard impacts our financial statements.

The guidance shared today reflects the adoption of this standard. We expect the same-store sales to grow between 1.5% and 3% for the year, driven by a combination of product innovation, compelling offerings and operational improvements. Guidance for restaurant level margins is approximately 25%. This assumes commodity inflation of approximately 4% for the year, similar to what we experienced in the fourth quarter of 2019, as well as high-single-digit wage inflation. Guidance for SG&A, as a percentage of revenues, is approximately 8% to 8.5%. G&A, as a percentage of systemwide sales, is expected to come in between 1.7% and 1.9% in 2020.

Guidance for adjusted EBITDA is between $265 million and $275 million, as compared with $269 million for 2019. For 2020, we are expecting higher commodity costs than we experienced in 2019, as well as continued high-single-digit wage inflation. We also do not forecast any benefits from Company-owned life insurance policies or workers' comp adjustments, both of which significantly benefited G&A in 2019.

Guidance for capital expenditures and tenant improvement allowances is approximately $45 million to $55 million on a combined basis. For 2020, we expect 25 to 35 gross new unit openings, all of which are likely to be franchised restaurants. With our relatively low sponsor rates, we expect both gross and net openings to improve versus 2019. To help fuel the acceleration in unit counts that Lenny spoke to, we are currently retooling our incentive plans to further support our franchisees as they make investments in the brand. I'll share more details around this enhanced incentive structure on upcoming calls. We will go ahead and share however that we do not expect to spend more capital in total across capex, tenant improvements in this new incentive that we have previously planned in our long-term guidance, rather you should really think of this as a redirect of dollars previously expected to go toward franchise tenant improvements that will now be used to fuel unit growth.

This concludes our prepared remarks. I'd now like to turn the call over to the operator to open the line for questions. Jennifer?

Questions and Answers:

Operator

[Operator Instructions]

Our first question is from Brian Bittner with Oppenheimer. Sir, your line is open.

Brian Bittner -- Oppenheimer -- Analyst

Thanks, good morning.

Question on the same-store sales guidance for 2020. Could you provide us with how you're thinking about the cadence of comps throughout the year? Obviously, your first half faces a lot different comparison than your second half and I have a follow up.

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Brian, it's Lance. Good morning.

I'll start with this one and let Lenny jump in, if he'd like. So, really we're going to be focused on our long-term guidance and our annual guidance only. So, we're going to say, it's 1.5% to 3%. We're not going to go into a lot of details as to what that looks like. Clearly the compares are a little bit easier in the first half of the year than they are in the second half of the year, but as far as actually giving cadence beyond that, we feel like giving quarter to quarter guidance or kind of giving you a cadence, whether takeawaying[Phonetic] from the long-term way or the other way[Phonetic], we're trying to look at running the business.

Brian Bittner -- Oppenheimer -- Analyst

Okay. And on the acceleration in unit growth, both openings and improved closures, Lenny is this the product of just naturally what happens post-refranchising as franchisees still want to grow or is there any changes with how they're thinking about the unit economics and the opportunity that's actually driving this unit acceleration? Any more color on how this is showing up, appreciate that.

Leonard Comma -- Chief Executive Officer

Thanks, Brian.

I think that it is the natural sort of evolution, when you have gone through a lot of structural changes and also had a lot of franchisees investing capital to buy existing units. But now that, that effort is completed some of their capital go toward new units, and we think there is a lot more we can do. And so, the teams are focused on how to continue to drive or accelerate growth into the future, some of Lance talked about, and some of the work that's being done by Shannon and team around operational simplicity as well as our development group on building sites efficiently, I think, will also enhance the new unit growth rate over time.

Operator

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

Gregory Francfort -- Bank of America -- Analyst

Hey guys, thanks for the question.

It seems like there has been a bit more focus on franchise or franchisee relationships recently. And you talked -- some of your comments on cost pressure and margins being down a bit this year suggests maybe there is a little bit of more pressure on franchisee cash flow. But that's clearly not Jack-specific, that's industry-based. How do you think this plays out and what guidance are you giving franchisees in terms of an approach to pricing that might be different or an approach to investment and equipment that might be different, how are you thinking about that going forward? Thanks.

Leonard Comma -- Chief Executive Officer

We actually meet with our franchisees just about once a quarter to have road shows and engage them on the things that are most important. We've actually got a road show coming up here in the next couple of weeks, where this will be the topic of conversation. Because we think that, we, as franchise, are needed to be just as concerned about this as franchisees are, and obviously a high percentage of our overall profitability comes from our Company-owned stores. And so, we're all serving the same boat, when it comes to the competitive pressures that are out there, as well as the increase in minimum wage that put some strain on the overall profit margin.

So, I think the way we're looking at this is focused not on just the rate, but also the penny profit associated with whether it be the promotions that we're running and/or pulling labor out of the back of the house associated with either reducing time and motion or changing product and procedures in a way that eliminates some of the labor that's currently required. So, we've got a lot of work going into this right now. Like I said, we're going to engage the operators even more here in the next couple of weeks, make sure we're hearing from them. But I think, we are largely aligned in what needs to get done and there is a sense of urgency around doing that. We'll make sure that not only we're looking at it from an internal lens, but that we have the appropriate eyes from the outside. Also taking a look at this, this sort of keep us all honest in our efforts to make sure that we and the franchisees stay aligned in trying to bolster margins as well as same-store sales going forward.

Gregory Francfort -- Bank of America -- Analyst

And maybe just a follow-up to that, some of your competitors are running 5%, 6%, 7% average check growth and you guys are clearly always below that. Are you thinking about maybe that as an opportunity to be a little bit more aggressive in taking pricing up or is that not factoring in?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

I think that's a little dangerous right now. If you look throughout the industry, transactions are really choppy and most of the growth that's happening -- is happening through check. And at the same time, we're seeing still extremely competitive offers out in the marketplace. In fact, some very recently have[Phonetic] entered the marketplace that tell us that this price sensitive environment has not gone away. And I think that for the long-term health of the brand.

We've got many years -- we're attempting to grow through check. I don't think that's the overall healthy way to grow business over the long term. You can maybe do that in short term. I would like to see a healthy balance between price and other activities that drive transactions, so that there is a good mix between both. I don't want to sacrifice some of the momentum that we've seen most recently around transaction growth because I think that's probably the best indication of overall brand health.

Operator

Thank you.

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

John Glass -- Morgan Stanley -- Analyst

Thanks. First, can you just confirm, historically you have provided some more color on the current quarter comps. It's been a long-standing practice. Is that just -- going forward that's not the case and why choose now to do it, is it just new fiscal year or new policy?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

John, It's Lance. I'll take that one.

I think, with comps historically, we've kind of done it both ways. So, really -- as you start getting into given guidance over 4%, 5%, 6% for the quarter[Phonetic], it really takes the focus away from what we're trying to do on a longer-term view, and annual type view, and it really knocks it down into very short term, kind of, view of how the business is doing. So, we've made a decision that we're going to stick to our annual guidance and to focus on driving the business for long term, which we think makes more sense.

John Glass -- Morgan Stanley -- Analyst

Okay. I just want.

Leonard Comma -- Chief Executive Officer

As you look at the completion of 2019, so many structural changes have been completed now. And internally, we're focused on the long term. And I think one of the outcome is, kind of, building a lot of those distractions behind us. So, also to make a commitment internally that we're going to focus on that[Phonetic] for the same reasons of why we're going to try to keep the Street focused in that direction.

John Glass -- Morgan Stanley -- Analyst

Okay.

And then, just to clarify or follow-up on your comments on capex, you said it's not going to be different from the range, as you put out your goals over the next couple of years of capex and TI, but you're going to change the way you're allocating the money. So, specifically, you're going to -- is it in incentives[Phonetic] for new development or are you actually going to lead by example. I know you just finished refranchising, but is it more like capex to build Company stores? And if you're reallocating that way or you rethinking the way you want to spend on remodels or you asking franchisees to put more into that as you sort of reallocate your resources to unit development, can you just maybe -- I know you're going to talk more about it, but conceptionally or philosophically, how do you think about it?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

John, it's Lance. I'll start with that. Let Lenny jump in, if he'd like to. First of all, as we noted, as you alluded to, we're going to give a little more guidance around this in February after we have completed our planning in this area. But what I would tell you is, worst case, we're not going to spend any more than we've already said we were going to spend across all the capital categories. With that said, we have made some changes in expectations in the remodels. And they are kind of around -- and deploying some of those dollars into more unit growth, most likely in the form of incentive programs that will really allow us to support the franchisees as they invest in their businesses.

Operator

Our next question comes from Chris O'Cull with Stifel. Your line is open.

Alec Grant -- Stifel -- Analyst

Hi, thanks. It's actually Alec on for Chris. Just a question on how do you anticipate your value strategy performing, given the margin pressures next year. Are you seeing any sort of similar add-on or attach rates, any noticable shift in the makeup of an order? Thanks.

Leonard Comma -- Chief Executive Officer

Thanks, Alec. We are still seeing that having the value bundles and the add-ons out there is driving the type of behavior from the consumer that we like. We oftentimes see that our snacks and sides that we promote are sold more as an add-on and they are as an a la carte item, but they do allow the consumer that's looking for value to get decent quantity of food at a reasonable price. We also have some snacks and sides out there that are $1 add-ons like our donut holes and those allow the operators to bolster their average check with suggestive selling. That's proven to be very successful. Then, value bundles are a way for us to be in a very competitive marketplace that often has a la carte, to be [Phonetic] able to choose another items that are very discounted. We would like[Phonetic] to be in the marketplace, be competitive, offer value, but do it in a way that's not really deteriorating the margin. So, overall, we think this is the right thing to do. Any profit associated with these types of offers and the up-sells that typically accompany these offers, we definitely believe in the strategy and we'll continue to deploy it this way throughout the year.

Alec Grant -- Stifel -- Analyst

Okay, great, thanks. That's helpful.

And then, last question is on, you guided to pretty precise food cost inflation. But given a large portion of your basket is floating, what kind of gives you the confidence in that outlook?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Alec, it's Lance. I'll first with this. And I guess, we increased[Phonetic] the range a little bit. We would expect to be, kind of a little bit either side of four. But I think we know, based on today's figures what we think it looks like, -- it's something that went drastically up or down. Of course, we're going to reserve the right to address that guidance. But based on our basket and where our spend is going, we feel reasonably comfortable, around 4% is the right kind of commodity inflation number.

Alec Grant -- Stifel -- Analyst

Okay, great, thanks. I appreciate it.

Operator

Our next question is from Dennis Geiger with UBS. Your line is open.

Dennis Geiger -- UBS -- Analyst

Great, thanks for the question. Lenny, just wondering if you could talk, or Lance, a bit more about the thoughts around 2020 comp guidance, specifically just some of the drivers that you outlined? Any incremental detail, I guess on the innovation, on the value bundles, maybe the operations and the speed of service, when we'll start to see some of those benefits coming through and impacting sales, if that happens this year?

Anything more maybe on the permanent value item, Lenny that you alluded to?

And I guess just, last to all of that, just curious how important the trends and the momentum that you had seen in recent quarters, be it sales trends, be it customer feedback, franchisee feedback, how important all of that has been in kind of shaping the '20 guidance? Thanks.

Leonard Comma -- Chief Executive Officer

Thank you, Dennis. It's Lenny.

The first thing is to answer your last question first. What's shaping, what we're doing is essentially two things. And that is what the consumer is requesting and secondly what's happening in the competitive environment. So, everything that you'll hear me talk about for 2020 is really associated with that, because ultimately, if we want to have a healthy brand, we're going to have to focus on those things more than anything else.

As far as the drivers of same-store sales, I think you've got one particular part of the 2020 line up that looks a lot like 2019. And that's having competitive LTOs in the marketplace in the form of various daypart focuses, value bundles and add-ons, snacks and sides. So, you'll see that as a continuation of what you saw in 2019. What you'll see in 2020, I think that is a new area of focus and ramped-up focus. It will be essentially two things; one is the restoration of some of the everyday value that we lost as we implement a new product line, early next calendar year. And then, in addition to that, we have looked at the operational improvements that we need to make really as two sides of a coin; the one side is focused on making the operation simpler for our franchisees and their crews; and the other side of the coin is driving performance through better execution.

And so, we are communicating all the changes to our standards, some of the new training elements early in the year. And we would expect to see those things helping to drive our performance through better execution in restaurants as we progress throughout the year.

Dennis Geiger -- UBS -- Analyst

Thank you.

Operator

Our next question comes from Katherine Fogertey with Goldman Sachs. Your line is open.

Katherine Fogertey -- Goldman Sachs -- Analyst

Great, thank you.

With regards to your next year guidance for same-store sales growth, how much of that have you guys reflected, and given yourself a benefit for new product innovation? And kind of how are you thinking about -- if that's the case, how are you thinking about measuring that potential impact. Are you looking at test markets in extrapolating results, anything on that? And then I have a follow-up.

Leonard Comma -- Chief Executive Officer

Yes. So, as we look at the lineup of products and initiatives for this year, we have looked at either 2019 tests and sort of extrapolated how we believe the system should perform from a product perspective. We've also looked at some of the operational improvements that we've achieved in the past, and how those were able to drive performance as well, and we extrapolated that forward, some of the operational improvements, we would expect to see this year. So, definitely the approach that you sort of presumed is the approach that we're using and that's what gives us confidence that the year should shape up pretty well.

Katherine Fogertey -- Goldman Sachs -- Analyst

Okay, great.

And then, on the commodity guidance with so much floating here, 4% for the year. With what you're seeing right now. should we expect kind of a crescendo or a building on headwind that then eases throughout the year? Any cadence on that front would be helpful.

Lance Tucker -- xecutive Vice President and Chief Financial Officer

This is Lance. So, if you look at where the fourth quarter was, the fourth quarter was in that 4% up kind of range. So, unfortunately I don't think it's going to be a build; it's already kind of built. It's in our business right now. So, what I would expect, if it started off at 4%, we don't see necessarily a lot of variation throughout the year. But as I said earlier, we reserve the right to adjust that. We start seeing things move against what we're expecting right now.

Operator

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

David Tarantino -- Robert W Baird -- Analyst

Hi, good morning.

I guess, first, I think there maybe some concerns about the the pullback and disclosure on the quarter-to-date comps. And I understand sort of the philosophy around that. But I was wondering, Lenny, if you could talk qualitatively about how you're feeling about the business as you enter this year. And I know several have asked about this, but just your overall degree of confidence in being able to sustain the type of comp momentum you've seen in recent quarters as you move through the year? And then, I have a follow-up.

Leonard Comma -- Chief Executive Officer

Certainly. I can understand the consternation around quarter-to-date comps and it's sort of exemplifies, awfully why we need to make the change. I think the marketplace is hyper-focused on what happens on a week-by-week basis, credit card data, quarter-to-date reviews. And it is taking the eye off of some of the things that we and other players in the industry need to do over the long term that will positively impact the consumer and make the operation more efficient.

When we look at the lineup for 2020, as I stated to the previous person, we've looked at the tests from prior years. We've looked at some of the equities that we've lost that we need to regain. And we've also looked at operational improvements that have historically driven comps. And when we layer those things in, it gives us the confidence that the year has been planned well. And so, as we look at all the things that we need to do going forward, my concern as the leader of the organization is that I see way too much energy being put into the week-by-week rollovers based on last year's coupon drop or compared to the date of this year's coupon drop or what holiday didn't rollover in the exact weak, the prior year.

And what I need people focused on is to develop great new innovative products and go to market, and sell the hell out of them and increase our sales and increase our profit. And stop wasting time with the staffs that quite frankly isn't going to make the business successful over the long term. So, I've got to get folks focused there and that's the reason why we've sort of drawn a line in the sand that we're going to focus on the annual numbers versus the quarter-to-date.

David Tarantino -- Robert W Baird -- Analyst

That makes sense. Thank you.

And then, my follow up is about the operations improvements that you're undertaking. And I think you mentioned a goal of improving speed of service by one minute. So, could you provide some context on what that might mean from a sales perspective or any way to think about that in terms of the benefit other than just the costumer experience being better?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Yes. We haven't shared in the past, numbers associated with -- for example speed of service improvements. So, I'm going to stay away from that. What I will say is this we are one of the slower players in the industry and we need to make significant improvements drive the overall throughput of our drive-thru business. And we do see the comparison of our best restaurants, top quartile for example, as compared to the other three quartiles. And there is a significant difference in transaction growth, sales growth and overall customer satisfaction. So, we can extrapolate what the improvement will lead to in overall comp and we've built in some cushion.

We're not expecting every restaurant to perform like top quartile restaurants do. But what we've done this time around, that's a little different than the way we looked at in the past is our Operations Services team has actually studied each component that they would like to change, and how many seconds improvement that will lead to in the business. And so, as we put that together, we can already see where the improvements will happen. And we began to test, just in the last couple of weeks, those changes in a handful of restaurants. And we are seeing the immediate change in their speed of service. So, kind of proved positive that some of the science that went into this is actually working out.

So, we will test that over the next couple of weeks, just to make sure that it didn't lead to any operational disruption or can get negative consumer impact. But barring that, we will then begin to layer those changes out to the rest of the field. So, feeling pretty good about how it's designed and how it's testing so far. It's just really a matter of being diligent, so that we don't make any mistakes as we move forward.

Operator

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

Bob Derrington -- Telsey Advisory Group -- Analyst

Yes. Thank you.

Rachel Webb -- Vice President of Investor Relations and Strategic Analysis

Bob, are you there?

Operator

His line just disappeared. The next question comes from Alex Slagle with Jefferies. Your line is open.

Alex Slagle -- Jefferies -- Analyst

Hey, thanks. I was wondering if you could provide some commentary on how you plan to respond to increased competitive activity during the breakfast daypart next year. And if you could remind us the percentage of sales during that period versus breakfast sales that come outside the morning daypart.

Leonard Comma -- Chief Executive Officer

So, we've got our eye on not only what's going on the breakfast daypart, but quite frankly in late night and also certain product categories that seem to be trending. And so, I won't say that we're looking at breakfast any different than the way we're looking at all the other sort of competitive activity. There is certain competitors that I think would have a more direct impact on us than others. So, we want to balance our approach, and not just throw out everything at breakfast out of fear, but at the same time, we will likely have breakfast promotions, marketplace that are being advertised, so that we make sure that our breakfast offering remains relevant in top of mind.

For Jack in the Box, we are one of the few players that actually has decent contribution from all five dayparts. Some of that's because we sell everything on the menu 24/7, which is clearly a differentiator for our brand. But I think also in some of the preps for the food, particularly at breakfast, cracking fresh eggs and making fresh breakfast, say, which is an another item made to order for the consumers. So, we're feeling pretty bullish about our ability to compete in that space, but we are definitely going to have the promotional offers, just the advertising in the marketplace to make sure we stay top of mind.

Alex Slagle -- Jefferies -- Analyst

That's helpful. I just wanted to clarify on the high-single-digit wage inflation outlook, what's driving the increase there? I guess, I expected more of the same inflation in '20, not necessarily a step-up.

Lance Tucker -- xecutive Vice President and Chief Financial Officer

I think in fairness, it's going to be fairly similar. So, it won't be a significant step-up, first of all. But it's being driven by the fact that we have 80% plus of our restaurants in California. So, when you're looking at a system kind of a number versus Company, remember we're more heavily weighted than our franchisees are. I'm not sure I'd spread that number across the whole system as you think about impacts.

With that said, when you got 7%-ish or 8%-ish, just doing the straight math on what minimum wage looks like for California, that is going to drive significant wage inflation. And in addition to that, we've got an economy, where you've got very low unemployment, which simply compounds that issue a little bit. And you've heard others in these chairs and on these calls speak to that issue a lot about. I don't know that I expect a big step-up, I think of it more of a smaller step-up, if there is one. But with that said, 80% of our restaurants are in California, so we're going to be subject to a lot of wage inflation.

Leonard Comma -- Chief Executive Officer

Jennifer, if Bob is back in the queue. Can you have him as our next question?

Operator

Yes.

Yes, absolutely. Our next question comes from Bob Derrington with Tesla Advisory Group. Your line is open.

Bob Derrington -- Telsey Advisory Group -- Analyst

Yes. Thank you, Lenny. I figured my question must not have been the one you liked. So, unfortunately, I dropped off, I apologize.

To take another shot at it, you've spent a lot of time and effort, and you've talked about the drive-thru enhancements. And it sounds like something that's going to have certainly a positive benefit on the business. Can you give us some kind of color around what you've seen in test and kind of some thoughts about the quarterly cadence of that as you look at this year and the potential roll-out of that? And then, I've got a quick follow-up.

Leonard Comma -- Chief Executive Officer

Last part of the question, as far as the cadence of that, I'm going to stay away from it[Phonetic], because I want Shannon's team to be able to complete the speed side of the equation and be able to merge that with the other components of the overall experience that we think are necessary. But what I will say is that as we start to see proof positive, we won't wait to get those things out into the field. What we did last year is essentially -- that's a couple of things. One, we needed to make sure that the digital equipment, particularly the digital menu board, that we tested, would actually hold up to both hot and cold or extreme weather.

We also had some new branding elements that we put out there. We wanted to make sure that, from a field perspective, those were good. We will take what pieces of that test from 2019 we think make the most sense and are most sort of economical to move forward with, things that we know we can get a return on. We will bring those together with the back-of-house improvements that lead to overall faster speed of service. And then, when those two things come together, we'll start to roll.

I think what's important, and this is probably the biggest learning in 2019, is that we don't want to just try to impact the consumer with bells and whistles without handling some of the basics or improving some of the basics. And I think our drive-thru that uses speed of service is in desperate need of improvement. It is moving faster on behalf of the guest. And so, when we launched the other branding elements, I think the consumer should feel like they're getting more of their needs met when they go through Jack in the Box drive-thrus. So, that's what we're trying to achieve. I think we're getting closer and I would expect that throughout the year. As the components come together, we'll be able to say more on the quarterly calls.

Bob Derrington -- Telsey Advisory Group -- Analyst

Should we expect that there'll be a number of stores that come out of production during the conversion of this process?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Bob, this is Lance. We don't expect a lot to come out of production. If I am understanding what you mean and assuming, I mean, other changes we've made that we would actually undo. If I am question wrong, let me know that, that I'd say we're going to focused on rolling-out the components of the test that are going to generate a return, as Lenny said. I don't see a lot of backtracking, if that's what you're asking.

Bob, why don't you come up here[Phonetic], it let's you tell me if that's what you're asking to make sure that I understand the question here.

Bob Derrington -- Telsey Advisory Group -- Analyst

I apologize, what I'm curious about is will you need to close some stores for a period of time, while this conversion goes on?

Leonard Comma -- Chief Executive Officer

I don't suspect that we would have to close restaurants to achieve what we're trying to achieve. And if we do, It's something that hours not days. So, if we have to do some digital component for example and reboot the POS system things up[Phonetic] and bring them online, there could be minor disruptions with those types of things, but it shouldn't be anything that's material.

Bob Derrington -- Telsey Advisory Group -- Analyst

Thank you for that.

And as it relates to your same-store sales guidance, certainly breakfast is an important daypart for Jack in the Box. Do you anticipate a change within the cadence of that piece of the business as you focus on other pieces, as you potentially seen new competition come into the marketplace?

Leonard Comma -- Chief Executive Officer

One thing about the breakfast daypart, for us, it's positive. It's probably the time of day, where our drive-thru performs the best. It has the fastest overall speed of service and breakfast is the most habitual purchase and we also have a really great lineup of fresh breakfast items that we sell. So, we would say that we're one of the stronger competitors in that space. And although we're not just going to roll over and give our business to the competition, what I would say is that history has sort of taught us that, it is one of the harder dayparts for someone to take a significant piece out, when it comes to Jack in the Box.

Operator

Our next question comes from Jon Tower with Wells Fargo. Your line is open.

Jon Tower -- Wells Fargo -- Analyst

Great, thanks. A couple, if I may.

First, I understand the preference not to give quarter-to-date commentary going forward. But I think it's important for your shareholder base to understand that you're not assuming a hockey stick ramp in comps -- your comp guidance for the full-year. So, is it safe to say, at a minimum, you're running within your comp guidance currently?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Jon, I appreciate your effort, but we're going to give annual guidance. We certainly wouldn't want to deviate from that, given what we've just said several times throughout the call. So, what I'm very comfortable saying and I think you heard in Lenny's voice and I hope you're hearing in mine that we're confident in our full-year 1.5% to 3%, year number.

Jon Tower -- Wells Fargo -- Analyst

So, just kind of following up on that, we don't have access to the data but alternative data sources pointed to a sharp slowdown in the fiscal third quarter and the fourth quarter. And frankly, my understanding is it's a much weaker quarter-to-date. I'm just curious if you have any thoughts that you could share on how this data clearly in the third and fourth quarter was wrong? Is it tied to perhaps a higher cash tender mix of your business versus what these alternative data sources might be?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

That's a good question, Jon. So, it's one that we're certainly aware it's out there. From a perception standpoint, we don't see the credit card data firsthand. What I can tell you and I don't know what all our competitor mixes are, we think we are probably a little bit higher cash tendered than some of our competitors are. But if I have to be honest with you that, that's an assumption we're making not based on me knowing what their past versus credit mix.

Operator

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

Andrew Charles -- Cowen & Company -- Analyst

Thank you.

Lenny, you talked about evaluating coming back in 2020 to repair the erosion and everyday value perceptions. I was curious, is the plan for this to be a limited time offer or something more longer-term? And if it is in fact something that's planed as an LTO, what would you need to see before making it a longer-term item?

Leonard Comma -- Chief Executive Officer

I think we've seen enough in tests to know that it will be a long-term item. So, the promotional period will behave a lot like a limited time offer from a standpoint of being on air, and having the social and digital support as well. But, we are planning for that item to stick around.

Andrew Charles -- Cowen & Company -- Analyst

That's helpful. Okay, great.

And then Lance, you called out plans to return over $1 billion of cash to shareholders by 2022. But the release and the script didn't make any reference to the other aspects of 2022 guidance. So, I just want to confirm our targets for -- I think, what implies to be about low-single digit annual system sales growth and $300 million of adjusted EBITDA in 2022. Are those two elements still intact?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

We have not made other changes to our long-term guidance and we certainly would have called those out, had we expect it to. I will say, as we've referenced a couple of times, there will be some additional guidance given in upcoming calls around some of the long-term plans, but no changes to the current long-term guidance.

Operator

Our next question comes from Jeff Farmer with Gordon Haskett. Your line is open.

Jeff Farmer -- Gordon Haskett -- Analyst

Thanks. I have actually two follow-up questions.

So, the first one just goes back to that longer-term EBITDA guidance. So, right now you're sitting at about $270 million on the middle of the EBITDA guidance range, pointing to $300 million by the end of 2022. So, that's about a $30 million bridge in EBITDA over just a two-year period. So, you touched on it briefly that there may be more to come soon in later quarters, but can you at least share some of the larger components of the expected bridge of that $30 million of EBITDA from where you've guided to in FY 20 to where you expect it to be in FY '22, which is $300 million?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Jeff, it's Lance, I'll start with eventually[Phonetic]. Given a lot of details, if you look back at kind of longer-term guidance when it was put out in August of 2018, you're going to see that. So, I don't want to go into a lot of that. But I think what you should expect though and again hopefully what you're hearing from both Lenny and myself is confidence in what we're doing on the sales line. That's obviously got to be the primary driver. Any change we're going to have is going to take us from the current guidance to where we expect to be in a few years.

In addition to that, we have kind of noted that we're going to be putting a bigger focus on units. So, I don't want to go into a lot of details beyond that. But as you would imagine, most of financial engineering stuff is done at this point. So, we're going to be focusing operationally driving the Box unit economics and sales.

Jeff Farmer -- Gordon Haskett -- Analyst

Okay.

And then, just one more follow-up and this goes back to sort of what the promotional calendar looked like in the fiscal fourth quarter. I do think you pivoted somewhat down to the $3.99 Really Big Chicken Sandwich Combo, if I'm correctly phrasing that.

I think it was the $3.99 combo in the fiscal fourth quarter. There was a lot more $4.99 combos in the fiscal third quarter. So, in terms of thinking about the consumer response, the potential add-on purchases for any of these promotions, was there something different about the fiscal fourth quarter versus the fiscal third quarter or is there something we should be aware of in terms of how the consumer responds to some of these bundled value promotions versus the response to other bundled value promotions or[Phonetic] the ones that resonate a little bit better and drive traffic in add-ons. And if you don't have those in play, then you do see traffic fall down a little bit on you guys.

Leonard Comma -- Chief Executive Officer

So, we wouldn't say that there is a shift from quarter to quarter. So, Really Chicken Sandwich is something that we ran in the past and we changed this time around. And this was something that we did to sort of create the Instagramable offer as we allowed up-sell up to four patties. And it's pretty incredible how many people actually ordered four Patti's. Big pictures of this giant, Really Big Chicken Sandwich. So, that was kind of fun, but I'd say the way that we've gone about it, second, third, fourth quarters looked very similar and we'll continue with bundles that look a lot like this. We are generally in that $4.99 range, but there are certain products, particularly when you have up-sell potential that may start out at a slightly lower retail. And then, you look to build that up with the added patties[Phonetic].

Operator

Our next question comes from Lauren Silberman with Credit Suisse. Your line is open.

Lauren Silberman -- Credit Suisse -- Analyst

Thanks for the question.

I wanted to ask about the unit growth strategy, you spoke to, accelerating growth going forward. So, where do you see the greatest opportunities, is it new markets or existing markets? And then, any color on where payback periods have been trending on some of the new classes.

Leonard Comma -- Chief Executive Officer

First, new unit growth rate, right.

Lauren Silberman -- Credit Suisse -- Analyst

Yes.

Leonard Comma -- Chief Executive Officer

We've got enough infill opportunities here in the next couple of years, to be able to drive type of growth that we are guiding to without expansion into new markets or completely filling out markets that are underpenetrated. But as we get beyond the next couple of years, we'd really like to see more development in the newer markets or completely new markets as well.

And I didn't catch the second half of you question, a little broken up on this side. If you could repeat it, I'd appreciate.

Lauren Silberman -- Credit Suisse -- Analyst

Sure. If you can just provide any color on where the payback periods have been trending in the new classes?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Lauren, it's Lance. We haven't gone into that level of detail. And what I can say with a high degree of confidence is the new stores have been opening pretty strong. But as far as payback periods, indoor comparing one vintage to another, we haven't given that level of detail.

Lauren Silberman -- Credit Suisse -- Analyst

Okay. And then, just on your tech spending, are you comfortable with the level of tech spending we seen in some competitors, the investments on their digital ecosystems?

And then, just what are your main focus areas as it relates to technology in fiscal '20?

Leonard Comma -- Chief Executive Officer

We've actually seen a pretty mixed bag out there. We see some brands are really focused on hospitality, particularly in the drive-thru. And some of their tech investments might be associated with loyalty or consumer relationship management, but they're not going hi-tech at the drive-thru, and not very high tech even in the dining room, but they are driving some of the highest AUVs in the industry. And then, we've seen the exact opposite. Some other big players are investing a lot in tech, both in acquisitions that can fuel some of the things they want to do as well as the tech that's currently going into their restaurants. The way we look at it is the QSR business, in general, is going to need a healthy dose of tech likely through apps that allow the consumers to do your menu, order ahead and pick up and pay. And then, they're going to need the continued relationship management over time that allows them to have incentives and other communication that they will be afforded, if they've stayed engaged. In the brand, that is likely the level of investment that's going to garner the return over the long term. We are looking at other technology, but at this time, we don't think it's best place for us to invest. But we'll see how those sort of technologies and consumer acceptance of it emerges over time, before we'll commit to. Overall, you're looking at a convenience-oriented business[Phonetic].

Operator

Our next question comes from Matt DiFrisco with Guggenheim Securities. Your line is open.

Matt DiFrisco -- Guggenheim Securities -- Analyst

Thank you. I just had a couple of follow-ups.

With respect to delivery, can you give us some color on what you're seeing as far as the growth of that? Some other brands have mentioned that it's starting to settle into a little bit more of a steady state of growth rather than a hyper-growth initially.

And then, also just in the context of all the questions about the comp, wonder if you could just sort of comment on the volatility. I know in prior quarters, a lot of -- you guys as well as your peers have said the consumer volatility was -- maybe a little bit more than historically normal. Are you seeing that similar type of volatility as well? Is that somewhat factoring into moving away from some of the more near-term guidance?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Matt, it's Lance. So, I'll start with this and I'll let Lenny jump in.

On your delivery question, I'll start with that one. We have continued to see growth. We have -- over 90% of our units are covered by the delivery providers. We do continue to see some growth in that area -- and a couple -- and I don't want to go into specifics over [Indecipherable]. We do have some additional delivery coming online as couple of providers grow unit count. Meaning, as we have certain providers that now have a higher percentage of our units to deliver on their platforms than used to. So, we are seeing continued ramp and delivery. From a current volatility standpoint, I'm going to turn that one over to Lenny and let him..

Leonard Comma -- Chief Executive Officer

We're mostly seeing comp volatility and consumer volatility. It's associated with what we see in the competitive space. We've been asked often times, do we see the same hyper-competitive marketplace out there, where there's a lot of value and discounting in the market. We sort of maintained that, it continues. And even in some quarters, we've seen it ramp up even after everyone thought it was refraining[Phonetic]. So, say the biggest component of volatility right now is likely associated with some of the performance that you see from various competitors, where they're seeing some transactions decline and trying to have a healthy -- establish a healthy trend of traffic over time. And that's leading to a pretty, pretty big swings quarter-by-quarter in what we're seeing in the marketplace from a promotions standpoint. We've seen competitors come out with sandwiches that are high quality and very high food costs that are significantly discounted. There can't be a lot of penny profit associated with that, but those things certainly drove transactions and sales.

And so, still what we would consider to be a hyper-competitive marketplace, our biggest caution both internally and then also with our other stakeholders like our franchisees is to just stay very attuned to what's going on in the marketplace, because no one in the marketplace is slowing down. They are very aggressively trying to intrude on various dayparts as well as product categories with very aggressive offers. I would say, more than anything that's what drives the volatility.

Matt DiFrisco -- Guggenheim Securities -- Analyst

Okay. And then, just to follow up on -- I think you said one minute faster. Typically when other brands have talked about speeding up service, Dunkin comes to mind. Simplification usually means menu simplification. Are there going to be some SKU rationalizations or has that been already reviewed and that's not really an alternative. I know in the past, some people have been observing that you guys have a larger menu than your peers and that might be a reason for some of the slowdown or slower times as well?

Leonard Comma -- Chief Executive Officer

Yes. We definitely will rationalize some of the SKUs, particularly when we look at sauces, bread carriers, cheeses, things that don't necessarily have a positive impact on a consumer. Even the consumer doesn't necessarily recognize all these things that we've built into these products, we can still have great variety in our menu without having some of the ingredient counts[Phonetic] to get there. So, we'll see some SKU rationalization.

But also what we're seeing is that just procedurally, as we brought some folks in from the outside and they look at the way we're running our operations, although we are close to a cook-to-order type entity, some of the ways that we cook our products, formulate our product, hold our product. Our proteins for example, we're kind of going about it the hard way. And with some tweaks both to equipment and procedure, we can make it a lot easier on our crews. And those are the things I was referring to earlier that we are already testing in a handful of restaurants and seeing positive results. So, we feel really good about this effort. It's probably the one thing I am most bullish about going forward because I think that bringing in this outside perspective has been -- it's necessary and it's also been refreshing to the operators.

Rachel Webb -- Vice President of Investor Relations and Strategic Analysis

All right. I think we have time for one more question.

Operator

The last question comes from Peter Saleh with BTIG. Your line is open.

Peter Saleh -- BTIG -- Analyst

Great, thanks. Lenny, I think you alluded to considering other menu items for 2020 and maybe what's trending. So, give us your thoughts on adding plant-based burger to the menu in 2020. Is that something you guys are considering, have you tested it. Just some of your thoughts around that.

Leonard Comma -- Chief Executive Officer

We are certainly open to plant-based. And, it may or may not come in the form of a hamburger. We are testing some things currently and we're formulating various ideas, but Jack in the Box is not just a burger player. We've got a lot of variety on the menu and there is some great product categories for us that are very high mix. And it may make more sense for us to go to the marketplace with plant-based versions of those product lines versus doing what everybody else is doing in the burger side of things.

So, I'd just say[Phonetic] that we are totally open to it. We think it's important. I do think plant-based will be here to stay. But for Jack in the Box because we really look at these craveable snacks and sides just as importantly our a la carte or combos with sandwiches, we want to explore plant-based across multiple categories and/or items versus just the hamburger.

Peter Saleh -- BTIG -- Analyst

Got it, OK.

And just a follow-up on the wage side. I know, you said a meaningful step up. I'm just curious, is the inflation that you're expecting next year a high-single digit is that all from wage inflation or does that include any incremental labor hours that you may be adding to the stores to improve service?

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Hi, Pete it's Lance, I'll take that. So, the lion's share of it certainly is going to come from the mandated minimum wage increases that we see. With such a heavy concentration in California, I mean you'll also see some probable continued pressures just with low unemployment as I've already said. As far as actual labor deployment within the restaurants, we don't see any material changes there.

Rachel Webb -- Vice President of Investor Relations and Strategic Analysis

So, thank you all for joining us this morning and I hope you have a great holiday season, we'll talk to you in February.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Rachel Webb -- Vice President of Investor Relations and Strategic Analysis

Leonard Comma -- Chief Executive Officer

Lance Tucker -- xecutive Vice President and Chief Financial Officer

Brian Bittner -- Oppenheimer -- Analyst

Gregory Francfort -- Bank of America -- Analyst

John Glass -- Morgan Stanley -- Analyst

Alec Grant -- Stifel -- Analyst

Dennis Geiger -- UBS -- Analyst

Katherine Fogertey -- Goldman Sachs -- Analyst

David Tarantino -- Robert W Baird -- Analyst

Bob Derrington -- Telsey Advisory Group -- Analyst

Alex Slagle -- Jefferies -- Analyst

Jon Tower -- Wells Fargo -- Analyst

Andrew Charles -- Cowen & Company -- Analyst

Jeff Farmer -- Gordon Haskett -- Analyst

Lauren Silberman -- Credit Suisse -- Analyst

Matt DiFrisco -- Guggenheim Securities -- Analyst

Peter Saleh -- BTIG -- Analyst

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