Jack in the Box Inc. (JACK) Q3 2016 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Jack in the Box Inc. Third Quarter Fiscal 2016 Earnings Conference Call. Today's call is being broadcast live over the Internet. A replay of the call will be available on the Jack in the Box corporate website starting today. At this time for opening remarks and introductions, I would like to turn the call over to Carol DiRaimo, Vice President of Investor Relations and Corporate Communications for Jack in the Box. Please go ahead. Carol A. DiRaimo - VP-Investor Relations & Corporate Communications: Thank you, Tori. And good morning, everyone. Joining me on the call today are Chairman and CEO, Lenny Comma; and Executive Vice President and CFO, Jerry Rebel. During this morning's session, we'll review the company's operating results for the third quarter of fiscal 2016 as well as some of the guidance we issued yesterday for the fourth quarter and fiscal 2016. 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. Following today's presentation, we'll 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 related 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 Investor section of our website at www.jackinthebox.com. A few calendar items to note. Jack in the Box management will be attending the Wells Fargo retail and restaurant consumer forum in Boston on September, the 28. And our fourth quarter ends on October, the 2. We tentatively plan to announce results on Monday, November 21 after market close and our conference call is tentatively scheduled to be held at 8:30 a.m. Pacific Time on Tuesday, November, the 22. With that, I'll turn the call over to Lenny. Leonard A. Comma - Chairman & Chief Executive Officer: Thank you, Carol. And good morning, everyone. Operating earnings per share for the third quarter exceeded our expectations. We were particularly pleased that Jack in the Box system same-store sales closed the gap as compared to the industry, with results steadily improving throughout the quarter. We also began implementing our G&A cost reduction plans, and are happy with the progress that has been made thus far. On the Jack in the Box side, same-store sales were near the high end of our expectations. Encouragingly, sales improved as we focused on balancing premium products with value messages. During the quarter, we featured our premium Portobello Mushroom BUTTERY JACK Burger. We also targeted the breakfast day part by adding a Triple Cheese and Hash Brown Burrito. In addition to these premium products, we maintained a presence on the value front, with a breakfast croissant value message and value priced combos featuring two of our new and improved burgers. Our balanced approach, coupled with lower commodity costs, paid off with a 50-basis-point improvement in margins compared to a year-ago. At 22.5%, we were amongst the highest in the industry. We believe that the investments we made earlier in the year to improve the quality of nearly 30 core products are beginning to pay off as we continued to narrow the gap to NPD. Our system same-store sales actually outperformed the category in eight weeks of the 12 weeks. And on a two-year basis, we had a positive gap of 540 basis points. We're encouraged that our most frequent guests are noticing and embracing the improvements we've made to our menu. Over the past year, we've seen a significant increase in top box scores for how our burgers, drinks and fries taste; on average, a nearly 10% improvement. This kind of response is key to driving higher levels of customer loyalty over the long-term. Looking ahead, we'll continue to balance both value and quality-related messages with compelling new products. On the premium side, we introduced Jack's Brewhouse Bacon Burger on July 18, with television starting in the last week. In an industry first, we launched this burger by using virtual reality to create an immersive brewhouse experience for our guests. You can check out what we did by watching the virtual reality film posted on our YouTube channel. We also introduced Buttery Garlic Fries, which ties nicely into our craveable strategy. On the value front, last week, we began promoting our Jumbo Breakfast Platter for just $2.99. Loaded with mini-pancakes, scrambled eggs, hash browns and a choice of bacon or sausage, our Jumbo Breakfast Platter is a compelling value. For those of you in markets where we advertise, you're seeing a familiar face and voice back on television. Jack never really left, but we think the return of his distinctive voice will have a positive impact on brand awareness. As you can see in the spot for Jack Brewhouse Bacon Burger, which is posted on our website, Jack is Back. In addition to traditional television advertising, we continue to expand our presence in other forms of media. On last week's Facebook earnings call, COO Sheryl Sandberg highlighted Jack in the Box as an example of how innovative brands can target specific audiences with immersive ads that result in significant lift in ad recall and purchase intent. Now, let's take a look at our Qdoba brand. The increase in third quarter same-store sales at company-operated restaurants was primarily driven by transaction growth and catering. Q3 featured two of the year's biggest catering events; Cinco de Mayo and graduations. Growing catering sales remains an important focus of ours. So expect us to continue promoting catering opportunities with our guests. During the quarter, we brought back a seasonal favorite, mango salsa, and our messaging encouraged guests to take advantage of our all-inclusive pricing structure and to enjoy the refreshing flavor of mango across our entire menu. Menu innovation with new and distinctive flavors is a huge opportunity for us, one that we're addressing in Q4 with the launch of smoked brisket, which debuts next week. We'll be featuring this product in the first extension of our popular line of Knockout Tacos. Called the Outlaw, it's corn tortilla filled with a tender smoked brisket, ancho chili barbecue sauce, habanero and corn salsas, cilantro, and Cotija cheese. The Outlaw is both craveable and differentiated. Looking ahead, we've got a full pipeline of products for 2017. A key component of our brand evolution has centered on our restaurant design and remodel program. With both, a key objective was to create a place to be, not just a place to eat, and we think we've achieved that with our improved new restaurant design, which has been released to the system. The improved design for new construction and remodels is essentially a kit of parts. We have minimum standards but it won't be a one-size-fits-all approach. We've done this for several reasons. We know it's important for our design to be locally relevant. Also, we want the design to be scalable to achieve the desired investment level and ROI based on the location. In some restaurants, we're testing an expanded alcohol offering that we're also incorporating into some remodels. Next up for the brand is finalizing the development of a mobile app and redesign of our affinity program. Both have been in tests for several months, with the app enabling online ordering and mobile payment and capturing better consumer data and the affinity program designed to bring back guests more often and to give them better control over their rewards. We expect to roll out both in fiscal 2017. We remain focused on the strategic initiatives we discussed at our Investor Day in May, which are intended to drive growth and shareholder value. One of the goals we set was to reduce G&A. We made significant progress toward this goal in Q3, as we implemented an enterprise-wide reorganization, which included a reduction in head count throughout the organization, as well as plans to relocate Qdoba's corporate office in Colorado to our San Diego headquarters by the end of the year. While these types of decisions are always difficult, I am pleased with how the entire organization has embraced these changes, while remaining focused on accomplishing our growth goals. On that note, I'll turn the call over to Jerry for a more detailed look at the third quarter and our outlook for the remainder of the fiscal 2016. Jerry?

Thank you, Lenny, and good morning. Operating EPS for the quarter increased by 41% to $1.07, compared to $0.76 last year. The $0.31 increase included a legal settlement of about $0.05 related to an oil spill in the Gulf of Mexico in 2010, mark-to-market adjustments of about $0.04 and a lower tax rate that benefited the quarter by about $0.03. Margins at the Jack in the Box brand improved 50 basis points to 22.5% as favorable commodity costs more than offset wage inflation. We also continued to see the benefit of good cost controls with more of an austerity mindset throughout the organization. For Jack in the Box, the 0.2% decrease in company same-store sales was comprised of pricing of 3.3% and a 20-basis-point benefit from mix, which were offset by a 3.7% decline in transactions. For Qdoba, Q3 company same-store sales increased 1%, driven by transaction growth of 0.4% and catering, which contributed 0.6%. Average check for the quarter was flat to prior-year. Qdoba margins improved sequentially to 20.6% for the quarter. A greater number of new openings over the last 12 months affected margins, but new store sales volumes remained strong. During the last four quarters, we've opened 35 company Qdoba restaurants versus 11 over the prior 12 months. And we also recently put in place a new restaurant incentive program for Qdoba franchise owners that we believe will stimulate new unit growth now that the prototype elements have been finalized. On commodities, favorable commodity costs helped margins in the quarter and we expect that to continue for the balance of the year with commodity deflation of approximately 2% to 3% at Jack in the Box and roughly 5% at Qdoba. As we look into next year, our initial outlook is for a relatively flat commodity basket. Given the annuity-like cash flows our business model generates, we remain committed to returning cash to shareholders. We have $150 million available under current board authorizations. Our outstanding shares decreased by more than 12% versus last year's third quarter, which will continue to contribute to our EPS growth. Due to the significant announcements we made at the Investor Meeting in late May, which was more than halfway through the quarter, we were not in the market repurchasing stock during the quarter. As we said at the meeting, we are comfortable increasing leverage to approximately four times EBITDA. Our current thinking is that we may be able to begin increasing our borrowing capacity without waiting to complete any significant refranchising. The structure of that debt however has not yet been finalized. As we look ahead to 2017 included in our anticipated G&A reductions is a decrease in pension expense that will result from making an accelerated pension contribution of between $60 million and $80 million in the fourth quarter of 2016. This tax deductible contribution will decrease our exposure to the PBGC variable rate premiums, which are paid on the unfunded portion of our pension plan as well as reduce if not fully eliminate our pension contributions over the next several years. Here is our current thinking on guidance for the balance of the year. Our Q4 sales guidance for Jack in the Box ranges from approximately up 1% to 2% at company restaurants versus a 4.1% increase in the year-ago quarter. We just began television advertising last week for the Jack's Brewhouse Burger and $2.99 Breakfast Platter. Our Q4 sales guidance for Qdoba ranges from approximately up 1% to 2% at company restaurants versus a 6.1% increase in the year-ago quarter. We will introduce smoked brisket to the menu next week and we believe that will contribute to the sales growth we are expecting in Q4. We now expect operating earnings per share to range from $3.65 per share to $3.75 per share in fiscal 2016 compared to $3 in fiscal 2015. Our guidance excludes the impact of restructuring charges in 2016. That concludes my prepared remarks. I'd like to turn the call over to the operator for Q&A. Tori?

Thank you, sir. Thank you. Our first question is from Joe Buckley of Bank of America Merrill Lynch. Your line is now open.

Thank you. Question on the restructuring initiatives that was assessed at the May Analyst Meeting. Can you share any more details in terms of the timing? You just mentioned possibly levering up before any significant refranchising. But if you would, maybe just run through the addition of debt and refranchising, the G&A types, the share repurchase. Just any sense of timing on any of those would be helpful. Leonard A. Comma - Chairman & Chief Executive Officer: So Joe, let me talk about the debt increase first. At the Investor Day, we had talked about a few scenarios of increasing our debt, and we've settled in on four times debt to EBITDA as we continue to be positive on our investments in growth for the Qdoba brand from a company unit perspective. So, four times seems to be the right number for us. At that Investor Day, we weren't quite certain if we were going to wait for the completion of our refranchising strategy or not. The analysis that we've had in discussions with our banking partners is that we no longer believe that we need to wait until the refranchising is complete. And so, we would expect to move on that more quickly than the completion of the refranchising strategy.

And on the refranchising, Jerry, how active is that program? And how quickly can we expect to see some deals announced? Leonard A. Comma - Chairman & Chief Executive Officer: Joe, this is Lenny. Good question especially since I just got back from our National Franchise Association Conference, where nearly 100% of our franchisees were in attendance. I was there for about 72 hours. And I would say that anytime I was with my franchisees, there wasn't a gap of two minutes that went by without another franchisee getting in front of me to tell me which block of restaurants they were interested in buying. There is so much demand out there; we could make deals happen in the fourth quarter if that was our only intent. However, what I explained to the franchisees in my presentation to them was that each of the deals that we put together, as much as possible will also have included in it some development agreements. And in order for us to approach that the right way to appropriately build out the market; we really want to take just a little more time to put those deals together. So, franchisees understand the approach. We're now in the coming months going to be sitting down with many of the franchise groups to start to talk to them about the opportunities that we'd like to offer and also in exchange the development agreements we'd like to attain. So, we'll get real active here in Q4. We'll get even more active in Q1. Can't give you the specific timing of deals because it would just be a flag at this time. However, we fully anticipate that next year we'll be generating a lot of deals.

Joe, just let me close the loop here on the G&A reductions piece. We have – I think in Lenny's prepared remarks, he indicated that we have communicated with all of the affected employees in our Phase 1. And remember from the Investor Day, Phase 1 was intended to be impactful for fiscal 2017. So, those folks know their dates and when their positions would expect to be eliminated. Although, many are still here working and transitioning their positions over to folks who will remain. The Qdoba office closure has been announced and we are in process of bringing folks back here to the San Diego office or in filling some of those positions for individuals who chose not to relocate. And then I mentioned the advanced funding of our pension program in 2016 here in the fourth quarter, which will cement the pension-related G&A reductions that we had identified as part of our overall G&A reduction plan for Phase 1. So, I think we're making good progress on this.

Okay. That's helpful.

And one last thing, Joe. I wanted to mention also just to remind everyone in case we forgot – and I almost did – to remind you of this is that I had indicated that to get everybody level set, in terms of the G&A reductions, the number that we used to benchmark at a baseline of reductions from was our expected G&A numbers at the beginning of the year, which were $150 million. So, all the reductions that we talked about for total G&A, particularly the Phase 1 G&A reduction, which will impact 2017, we began with a base of $150 million. So, I wouldn't want buy-side or sell-side folks to take the end-of-year 2016 numbers and then reduce the G&A from that. Because we will begin to see – in fact, are begin to seeing – are beginning to see some of the G&A reductions impact this year. So, again, the baseline for our G&A reductions to begin is $150 million. And then take whatever you believe our reductions will be off of that number would be my strong recommendation.

Okay. Thank you.

Thank you. Our next question is from John Glass of Morgan Stanley. Your line is now open. John Glass - Morgan Stanley & Co. LLC: Thanks very much. I wanted to just maybe get more color on the sales improvement you've seen. Lenny, I think in the beginning – in your comments and the release you said you've seen some improvement throughout the quarter. So, any kind of color on the rate of improvement you've seen? And I think one of the observations you made is you thought that the competitive intensity would eventually lessen, and that would give you the opportunity with the brand to sort of improve relative to the industry. Has that happened, or are you seeing the improvements more driven by you sort of more embracing the more promotional leanings of the industry? Leonard A. Comma - Chairman & Chief Executive Officer: So, pretty broad question I'm going to go in a couple different places just to sort of give you as much color as I think we have on what's driving the sales right now. First, I would say that throughout the entire year we've continued to see the same level of competitive activity out there, primarily discounting, value-oriented promotions. I don't believe that that has waned one bit. However, we do think that there is a bit of deal fatigue in the marketplace right now and that the deals that are out there are not necessarily penetrating for the competition the way they had earlier in the year. The second thing though that we're seeing is the gap in pricing from food at home versus food away from home has widened. And as a result of that, what we're seeing is throughout the industry, there's been some transaction loss or erosion. And that transaction erosion is essentially going from the food away from home to the food at home players, the supermarkets. In a deflationary commodities market, the supermarkets will reflect the down pricing very quickly and we think that that's paying off for them. What we believe will happen is that as the market gets back to a normalized level, essentially those transactions will come back. I would be very concerned about the transaction erosion that we've seen in our own business, if we were seeing that erosion going to our competition. But that's not what we're seeing, we're actually seeing quite a bit of erosion across the industry and we think supermarkets – and in some cases convenience stores, but mostly supermarkets are picking up the transactions at this point. So, we think that where we are competitively is the right place to be. We stated in our last conference call that Q4 would probably be the most promotionally aggressive for us and it will be, both on the premium and the value side with promotions I mentioned earlier. So, hopefully that gives you some color as to what we've seen. As far as the acceleration throughout the quarter that you mentioned, we really think that the improvements that we made earlier in the year across the 30 core products are finally starting to take shape in the marketplace, particularly as we believe the deal fatigue is making all of the discounting that's going on less effective. So, we think we're simply cutting through. And then I'd also say that we're happy to have Jack's voice back in the current quarter and promoting our new burger and then also one of the most aggressive value offerings we've had with the Breakfast Platter. So, overall feeling good about the balanced approach that we've taken. We think that's essentially driving the results. John Glass - Morgan Stanley & Co. LLC: And then just following up – the difference between the company and the franchise comps has expanded; the franchise comps have accelerated relative to company over the last, let's say, seven quarters. Is that more a function of the geography differences, or is that more a function of how they price versus you? Or how do you describe why that difference exists now more than before? Leonard A. Comma - Chairman & Chief Executive Officer: Yeah, although it's going to be a mixture of all those things, a lot of it has to do with geography. Our company presence in Houston, about 17% of the stores, so it was going to be a bigger impact there, particularly as everybody across the industry has experienced some softening driven by weather, and then also raising some questions over the long-term about whether or not there's some softening there economically. John Glass - Morgan Stanley & Co. LLC: Got it. Thank you.

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

Thank you. It's a follow-up on John's question. I wonder if you could provide us some color on where you ended up at the end of June, in terms of the magnitude of that gap versus NPD peer group, and any color on the July gap also. Carol A. DiRaimo - VP-Investor Relations & Corporate Communications: Yeah, Alex, this is Carol. Unfortunately, we can't show those numbers because we have to get approval from NPD to share that. But I would remind everyone what we said in the comments, that eight weeks of the 12 weeks of our Q3, that we did outperform the industry.

Okay. And on Qdoba, if you could talk to the state of the development pipeline for 2017 and what you're seeing in terms of availability of sites as well as any perspective on what rents and competition looks like for those best sites? Leonard A. Comma - Chairman & Chief Executive Officer: Yeah, Alex, I don't think that we're seeing a significant change in the real estate market, so I think it's as competitive as ever. And we anticipate it will remain there. But we do see the availability of sites that we believe can appropriately help to fill our pipeline. I think what's most important is that we not only drive this through our company-operated growth, but that we also see the interest from the Qdoba side. And we, just two weeks ago, had meetings with our Qdoba brand counsel, franchise counsel, and they were very pleased with what we put on the table, both in the form of our reimage and remodel plans as well as incentives for growth. So, we think there is going to be some interest there, and that's essentially proof positive that we're doing the right thing. So, all-in-all, don't see a more difficult marketplace. I think it's just going to be important that we're encouraging that growth, not just from our company-operated side.

Great. Thank you. Leonard A. Comma - Chairman & Chief Executive Officer: You're welcome.

Thank you. Our next question is from Chris O'Cull with KeyBanc. Your line is now open.

Thanks. Good morning. Lenny, I find it interesting that promotional activity and discounting remains really aggressive in the category, yet most of these same chains or companies are growing their check 2% to 4%. o my question is, how do you know the strategy, this balanced approach strategy, is affecting traffic the way it's intended? Do you guys track frequency by the different consumer segments often enough to know if the strategy is affecting the traffic appropriately? Leonard A. Comma - Chairman & Chief Executive Officer: Yeah. So a couple of things to think about. One, what we're seeing is that the lower income segment of the population is the one that is responding most aggressively or most favorably to the deals that are in the marketplace. And then we're seeing on the higher income side, where we continue to put out innovative products that are more premium hamburgers, we're getting a pretty high take rate there. So, what essentially we are seeing is that the erosion in transaction is potentially going to food at home purchases versus going to the competition. Mainly, what we're going to look at is if we believe that we're losing traffic directly to the competition because we're losing some brand relevance or we don't have the right deals in marketplace, you'll see a different response from us. But, we think we're in the right place.

Okay. Fair enough. Thanks.

Thank you. Our next question is from David Tarantino of Robert Baird. Your line is now open. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi, good morning. Just maybe a clarification question first on the debt or the potential debt placement. Jerry, were you indicating that the plan would be to step up the debt all the way to the four times EBITDA level in sort of a one-time transaction? And if that's the case, are you considering using the proceeds for an accelerated buyback?

So, yeah, I mean, so given where our current debt level is as we ended the quarter, I think at 2.7 times – our capacity currently is at 3.5 times. So, stepping all the way up to four times is not all that big of a step actually. So, I think that's fair to say that we would look for something in that neighborhood. And then as far as an accelerated kind of share repurchase, we've looked at that over time and I'm not sure that that really works all that well for us. We've been pretty effective with our 10b5-1 structure of getting shares bought back pretty quickly with a matrix in place, so that we're not overspending on that. So, we've looked at that again and we just don't see that there is a significant benefit to doing an accelerated share repurchase on that. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Got it. So, does that imply that you'd be willing to leave a surplus of cash on the balance sheet for an extended period as you complete the 10b5-1 buyback? Leonard A. Comma - Chairman & Chief Executive Officer: No, we would not. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Okay. That's helpful. And then, I guess Lenny, one question to follow-up on the Jack in the Box business. And it does seem like the brand has gained relative strength here. And I guess, you know, what is it within the consumer metrics that you're seeing that might explain that relative trend? If you could share any further dynamics around the feedback you've gotten on the structural changes you've made and whether consumers are indeed giving you credit for that? Leonard A. Comma - Chairman & Chief Executive Officer: So, in my opening comments I mentioned that we are seeing an improvement in the consumers' perception or likings of our burgers, drinks and fries. If I go back to just over a year-ago, we had done some research that essentially was very disappointing. It showed us that our hamburgers were performing on the bottom tier of the industry. Our French Fries, mostly due to poor execution, were also in the same bucket. And our drinks, some of which had to do with how we were mixing the drinks and the proportion of syrup that were in the drinks – we had inconsistent quality out there in drinks as well. So, here we are a burger player and we're seeing really poor marks on three core products. So, we aggressively went after improving that. And I mentioned that's what folks would see in 2015 was sort of a foreshadowing of those improvements through some LTOs and a few permanent new products. We did that, and we were able to see sort of proof positive that when we significantly improved value the consumer perception of those products improves significantly. But, then coming into this year, although the timing was tough, because it was right in the midst of a very aggressive sort of discount-oriented market, we did a core product improvement of 30 products across the menu. And we were betting on exactly what we're experiencing now which is that as the consumer began to taste those products their ratings of our burgers, drinks and fries would go up. And they have gone up by almost 10 points, and that is what we believe we're seeing in our results. That's a great driver of the results. At the same time, and although there is some deal fatigue out there with value-oriented deals, we still do need to play in that space, both because we live in the space of QSR but also because food at home being such a great deal for the consumer right now. We know that the only way to really motivate the lower-income consumer today is to have deals in the marketplace. So, that's where we balance it out. So, it's really between those two things, the core product improvement and then having a consistent value message that targets the lower income folks, that's really driving our results right now.

And then David, if I may, I just want to come back to the leverage question. I just want to clarify something. So, when I'm talking about the four times really talking about capacity on that and I think it's always, while we have the ability to go up to the four times leverage under a facility like that, we think it's prudent to at least leave a little bit of dry powder in terms of availability here. But, I wouldn't expect that to be a significant amount of dry powder. So, I just want to be clear on that. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Great. Thank you.

Thank you. Our next question is from Andrew Charles with Cowen & Co. Your line is now open. Andrew Charles - Cowen & Co. LLC: Great. Thank you. Just a question on the guidance. Sales were at the high end of guidance for both brands in 3Q, but you lowered the full-year outlook to lower half of the previous range. So, I'm curious what drove that decision, given your optimism on the product and marketing fronts in 4Q. Leonard A. Comma - Chairman & Chief Executive Officer: Yeah, mainly what we have heard and seen a little bit of is a softening in the overall marketplace, which we think is primarily driven by an all-time high in the gap between food at home and food away from home pricing. So, we're going to be cautious there. We've run these studies before to understand the correlation between our sales and the gap in pricing from food at home and food away from home. Being in a position where throughout the industry, we now see one of the highest gaps that we've seen in many years, it just sort of begs a little caution here going forward. Andrew Charles - Cowen & Co. LLC: That's fair. And Jerry, Jack showed good control of the labor line in 3Q. I'm just curious how we should think about the sensitivity of labor to comp in an environment where you begin to refranchise underperforming restaurants, but also have a rising minimum wage increase in California starting in 2017.

Yeah, I think the key driver is exactly what you hit on last there Andrew is the minimum wage. We're not seeing significant wage inflation out of the norm except for minimum wage impact that market. And remember, we have a large percentage of our company operations in California. And as you mentioned that minimum wage goes up to $10.50, I believe in 1/1 of 2017 with location or areas such as LA and San Diego doing a bit more than that. But if you look at what our hourly wage is for crew members and for team leads in both California and Texas, we already are paying higher than what the minimum wage is. So, we'll expect to see some impact from the increase in California minimum wage and some compression. But with it only being $0.50 an hour, I wouldn't expect it to have a significant impact on our margins going into 2017. Andrew Charles - Cowen & Co. LLC: That's helpful. Thank you.

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

Great. Thank you. Just looking back from the Investor Day where you gave initial, I guess, long-term guidance starting what would be next quarter, effectively, I'm just wondering from a comp perspective – it looks like the midpoint, at least, you guided comps to 3% at Jack and more like 4.5% at Qdoba. Which, relative to today's run rates and recent trends, I'd say both of those seem somewhat aggressive. I'm just wondering if you can talk a little bit about the confidence in those metrics on a sustained basis and maybe at what rate you believe the category will be growing within that world. And then I had one follow-up. Leonard A. Comma - Chairman & Chief Executive Officer: Yeah. I think we're going to be cautious not to say anything about what we anticipate for 2017 until the November call. So, we generally don't give that types of information now. And, based on the current industry environment, we'd want to see a little bit more before we lock in on those numbers. But keep in mind that what we shared with you back at the Investor Day is a long-term outlook. And although there will be some fluctuations within periods of time, we still look at those numbers as representative of what we think we can achieve over the long-term.

Got it. I didn't mean to imply necessarily the guidance that you're going to give for fiscal 2017. But, right, presumably over the next three years to five years, it just seems like somewhat high target relative to what yourselves and the industry have done for the past many years. So, just wondering whether there is any specific component for either of those brands that you'd say, oh, this is the delta that's going to lead to that acceleration or sustainable acceleration over the next few years, I guess. Leonard A. Comma - Chairman & Chief Executive Officer: Yeah. I think what we're seeing right now – and we saw this with the launch of BUTTERY JACK, at one point in time, double-digit sales increases, is that as we continue to push the brand for Jack in the Box toward QSR plus, we're seeing the wins that would give us this type of confidence. And keep in mind that this particular year was dominated by a core product improvement that is really just the very beginning of revamping our menu. So, I think at the end of the day, people are coming to restaurants for food and what we've seen is when we invest there we're getting a return. In addition to that, I think that within the space that we're trying to occupy for QSR or QSR plus, I would not say that our service levels currently match up with the quality of food that we want to serve. In order to get the consumer to sort of afford us the opportunity to have more premium pricing out there, we are going to have to increase the level of hospitality. And there is a huge effort internally to match up the improvement in quality of the food with the improvements in the service level. So, I think those two things are going to be core components for the Jack in the Box business. And for the Qdoba business, couple of big efforts there but the main one would be innovation. That business for a very long period of time did not have any food related innovation happening. When you couple what we're doing now with putting together an aggressive pipeline of new products along with re-imaging efforts, those two things come together nicely. And then in this recent year and even recent couple of years, you've seen a huge uptick in our catering business and that's been with minimal investments. We're also going to be improving the catering offering to include some of the other innovations that are hitting the core menu. So, we believe that we'll be able to drive sales there as well. So, those are some of the key components that we really think are going to get us ahead.

And just one clarification from that Analyst Day, I know there was talk about what the EBITDA run rate would be once the refranchising was totally complete. And it sounds like the refranchising, you have sounds like pretty good visibility that it could be done for the most part next year. So I'm just wondering, if you could just clarify, I think it was more than $400 million post-all of the refranchising complete. Should we assume that that's a fiscal 2018 or fiscal 2019 ballpark? And maybe what the sensitivity to a point of comp is on EBITDA for those brands in that number?

I'll answer half of that Jeff. The Analyst Day, we said $400 million of EBITDA beginning in 2018. That did assume that the refranchising was completed by the end of 2017. But if you recall, the refranchising efforts by themselves without any G&A reduction were not significant to the overall EBITDA numbers. So I'm not sure that the timing of the refranchising strategy has much impact on the $400 million EBITDA target for 2018.

Got it. Thank you.

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

Great. Thanks. Just following up on some of the earlier questions, it looks like the company-operated Jack restaurants have been running with something close to 3% menu pricing over the last few quarters. So I'm just curious if the franchise system is running with a similar level of menu pricing, and your broader thoughts on pricing power as you head into fiscal 2017. Leonard A. Comma - Chairman & Chief Executive Officer: Yeah. I think the both company and franchise operators have similar pricing increases. And I would just remind everyone again of our footprint and particularly in California. So, we would expect to have more pricing in those markets to offset the minimum wage impacts. Fortunately for us is everybody else who operates in California is seeing the same minimum wage impact and is also taking pricing. So, we are not really seeing a detriment of pricing in the California markets. In fact, California generally is performing at the top or near the top of our markets. So, we haven't seen this really hurt what our performance has looked like there.

Okay. And then I guess it's fair to say it's pretty well-appreciated that beginning in calendar Q4, a lot of your peer group will be facing increasingly challenging same-store sales comparisons while you guys are looking at increasingly favorable comparisons. So, I'm just curious if you believe there is any value to looking at the two-year same-store sales trends as you begin to lap the much more favorable comparisons in fiscal 2017.

Yeah. So, we always look at both the one-year and the two-year trends. Certainly, calendar Q4 or our Q1, we have easy rollovers. But that also has an impact what the industry is doing. So, if we go back a year-ago, we were seeing the industry actually picking up through calendar Q1 of 2016. So, we'll have to see if part of that equation is what the market is doing, what the industry is doing and how are consumers behaving. But that would be the other piece. But certainly the rollovers are a lot easier.

Okay. Thank you.

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

Thank you. Jerry, if you could give us a little bit of color for a second, we've talked a lot about the consolidated restaurant margins as well as G&A reductions. One of the opportunities as we look at your business model, as you continue to go through your refranchising program. In the last couple of years, you've been able to improve your franchise margin on revenue by roughly 200 basis points a year from 2014 to 2015 to now into this year. Is there any reason that we can't expect a similar type trend, especially as franchise revenue looks to step up pretty measurably, both this year – excuse me, in fiscal 2017 and into 2018?

Bob, I won't – that's a great question. But I'm not going to comment on what we think the franchise margins can grow to. But I will say that what we're seeing here so far is the beauty of the model, where our rent expense underlying our franchise locations is generally fixed, with some cost of living increases over a four year or five year timeframe within the lease. But it doesn't grow as same-store sales grow. So, we do get some flow through on the rental income line without a commensurate increase in the rent expense line. Also, as those restaurants begin to age just over the passing of time, the depreciation that we have within those, when the company had those and was investing in those locations, will also start to decline. So I think certainly on the rental income side, we'd expect to see good margin flow through on incremental same-store sales growth for the franchise business.

Could you just remind us for a second about the remodel program, how the company is going to help participate with the franchisees for the Jack in the Box business?

Yeah. So for those that we control the lease on, where there will be required remodeling activity going on there, we'll have the ability to offer our participation in the form of a tenant improvement allowance as long as we can get an economic benefit by either extending the lease by exercising an option to have the franchisees agreeing to do so also or – and or increasing the franchise agreement, so that we'll get some economic benefit on that also. So, we'll be able to do those things and then provide that tenant improvement allowance, which we'll then spread that investment over a longer period of time – or that participation with the franchisees over a longer period of time, and match up better with your improving same-store sales growth.

Yep, yep. Okay. Thanks so much, Jerry.

You bet.

Thank you. Our next question is from Nick Setyan with Wedbush Securities. Your line is now open.

Hi, thank you. On the Qdoba side, we've taken almost no pricing for a couple of years now. What are your kind of high-level thoughts around what kind of price we might expect over the next year or so? Leonard A. Comma - Chairman & Chief Executive Officer: Nick, we don't typically share that in great detail. But what I would say is, we're going to pay close attention to what's happening with food-at-home pricing and also what's happening in the industry, particularly with some of our major competitors in the fresh Mexican space. I would anticipate we would be very conservative with any pricing thoughts going into next year, but that's probably about as far as I could go.

Fair enough. In terms of the labor margins on the Qdoba company-owned side, could you maybe talk about how much of it is being driven by just regular labor inflation and then health care versus some of the new unit inefficiencies as you guys accelerate the unit growth there?

Yeah. The increase in the new units is creating the vast majority of the growth in the labor rates. If you factor those out, you are looking at maybe a 30-basis-point increase in labor, which would be related to just wage inflation.

Got it. Got it. I think you guys said that you are modeling about 8% or so of the company-owned base this year. And that's going to take a step up in 2017. Could you maybe comment around the kind of sales lift you're seeing so far? And I think at the Analyst Day you guys had talked about consolidated CapEx of $110 million to $115 million – or $100 million to $120 million, and then you guys lowered that to $100 million to $110 million. So what's driving that? Leonard A. Comma - Chairman & Chief Executive Officer: So, what's driving the -- let me talk about the last piece first. I may ask you to repeat the first part of that question again. But the $10 million reduction in the CapEx at the high end of that range is really just related to the timing of the spend as a lot of that is going to be backend loaded into the fourth quarter. And unfortunately, the way you have the CapEx reporting is, you actually have to write the check for it versus commit to do so. That would be viewed as CapEx on the accounting side of things. So, while we really don't see a slowdown in what we're doing, I think it's a timing of the cash payments which are reducing that high end of the range guidance.

Got it. And the first part was regarding the remodels at Qdoba. I think you had talked about 25 stores to 30 stores in FY 2016. That's taking a – I think that's going to be doubling in FY 2017. So maybe you can talk about any kind of initial read-throughs in terms of the sales lift you are seeing there. Leonard A. Comma - Chairman & Chief Executive Officer: Most of the remodels that we are going to see for the Qdoba company units are going to be in fourth quarter.

Perfect. Thank you.

Thank you. Our next question is from Matt McGinley of Evercore. Your line is now open.

Thanks. Early in the year you had mentioned that the 10:30, I think, and noon day part had been very negatively impacted by the launch of all-day breakfast at one of your competitors. Is that still a weak day spot or have things kind of normalized there? And did that croissant sandwich value item you launched help bridge the gap there? Leonard A. Comma - Chairman & Chief Executive Officer: Yeah. So, earlier in the year, it was a huge concern that our major competitor's launch of all day breakfast was going to negatively impact us throughout the entire day. And what we saw at the end of Q1 is that essentially the Street with our performance being under expectation sort of bought into that thesis. And we had stated at the time that the bigger impact to our business during that timeframe was actually our own rollovers or lack thereof of our own rollovers of a very discount-oriented breakfast promotion. And as soon as we sort of broke past Q1 and got into Q2 and Q3, we very clearly saw that when we were in the marketplace with our own value oriented promotions, our own breakfast promotion we did not see outside of the 10:30 to noon timeframe any impact to our business based on the competitor's all-day breakfast offering. But we still do today see some impact in the 10:30 to noon timeframe, and we don't think that that is going to wane unless we do something about it, which we will in 2017.

Okay. I have a quick follow-up on the comment that was made on payroll. It's a little difficult to tease out the overall trend in labor on the Jack brand because you had the refranchising that happened in early 2015. But is overall – over the course of this year, has that labor inflation gotten better or worse? And was the comment you made into next year that that wage inflation – because you pay above the market, it will be less of a headwind in 2017? Or would you expect a similar type deleverage in 2017 at the Jack brand? Leonard A. Comma - Chairman & Chief Executive Officer: Yeah. So, I think a good way to look at that, Matt is Q3 labor for Jack this year versus last year excludes any refranchising transactions. The refranchising was done before Q3 last year, so I think it's a pretty good compare for this time. And I think the difference that you're seeing is primarily related to change in minimum wage in California, which went up $1 in January. We would expect that to have less of an impact going up $0.50 in California in January 2017, but it goes up to, I think, $11 in San Diego and higher than that in LA at the middle of the year. So, we'll see some local market fluctuations higher than what the California minimum wage is, but overall I'd expect it to have less of an impact in fiscal 2017 than it did in fiscal 2016.

Okay. Perfect. Thank you. Carol A. DiRaimo - VP-Investor Relations & Corporate Communications: Operator, I think we have time for one more question.

Thank you. Our last question is from Howard Penney of Research Edge [Hedgeye Risk Management]. Your line is now open.

Hi. Thank you very much. If I could ask two questions that would be wonderful. First, thank you for clarifying the G&A base from which you're looking at it. On your Analyst Meeting you said not to model anything for 2016. It looks like you said you're pulling in some G&A reduction in 2016. So, of the $25 million to $30 million that you guided to for hitting full-year 2017, how much of that is now going into 2016? And then the second question is on the competitive environment. You referred to sort of the competition between food at home and food away from home as being pressure on your business. Publix announced that their comps have declined substantially in the second quarter from 3% to 1% basically. So, it feels like there's something else going on out there other than just the competition between food at home and food away from home, that things are really slowing down. So, if we are headed into a recession – and I know one of my dear friends Paul Westra, called for a restaurant recession. But if we're heading into a recession because business is slowing down everywhere and supermarkets are slowing as well as restaurants, can you talk about the strategy of leveraging up into an economic slowdown? Thanks.

So, let me take the G&A portion of this first, Howard. So, the reason that we provided the $150 million baseline at the Investor Day, and I reiterated it again today, was because I know that every buy-side and sell-side analyst will have their own number out there. And when we gave a number of a targeted reduction within a range of dollars, we began from a starting point of $150 million. So, I wouldn't want somebody starting from a lower base point and then reduce those numbers and then wonder why we didn't hit them. So, I was trying to get everybody level set and the utmost of transparency that we possibly could have to give everybody at least the opportunity to have the same starting point. Then, as far as the reductions that we've seen – we have seen some reductions in the third quarter. Such as people's positions have been eliminated that had some equity comp, we'll see some forfeitures on that, and you'll see lower equity comp going forward as those positions won't be around going forward. We saw some of that into Q3. And we'll see some salaries start to peel off into Q4. It's tough to figure out exactly what that is at this point in time. I think we'll get a better view for you at the end of Q4, because people's end dates are happening throughout the quarter. And it's going to be difficult to figure out exactly what that looks like. So, again, more information at the end of our Q4 reporting period, but, again, that starting point was just transparency from where we began so that we would hope that everybody would begin with the same starting point. Leonard A. Comma - Chairman & Chief Executive Officer: Howard, just to talk a little bit about the food at home and food away from home, we commented on food at home versus food away from home, we were talking specifically about transactions and the erosion of transactions from the industry. Even for those who don't transparently report their transactions, some who were seen as very favorable in the industry, when we do get indications that their transactions – and we have been getting those sporadically over the last few quarters, they are all quite negative and, in many cases, significantly worse than Jack in the Box so, when we look at the transaction migration from our industry to supermarkets that's essentially a trend that we are seeing. When we look at sales and we compare that to, for example, what Publix is reporting, keep in mind that in the supermarket space, they are looking at significant deflation in their underlying food costs, which also is impacting their average check, which is part of the reason why their rollovers are harder from a sales perspective. It's not that they aren't getting transactions, but they're certainly not getting the average check that they were getting just a year to two ago. So, we're focusing mainly on where the transactions are going because from a sales perspective we're not seeing that as our primary challenge. But we want to stay focused on understanding how the traffic is migrating. So, hopefully that gives you just at least a little bit of color on at least how we're seeing the world.

And Howard let me just wrap up here on the recession question here with the leverage. We looked at both going at four times and up to five times. Part of the reason that we chose four times was we felt, one, it was best for our business model given the investments that we would continue to make in our Qdoba brand particularly with growth. But, we also have been relatively conservative versus our peer group in our leverage. And I think that that has played out favorably for us over time, both with recessions and in non-recessions. So, we feel quite comfortable with the four times leverage. And I think in conversations when we are out on Investor Conferences and whatnot and we are talking to both long-term and short-term investors, the long-term investors are more comfortable with the four times scenario also, I think, much for the same reasons that I've just described. And then I think when you look at the stability of our cash flows, particularly on the Jack in the Box brand, with the rental income stream also which remember is about 30% or more of our annual cash flows, we feel very comfortable with a four times debt-to-EBITDA capacity given all of that. And then we are moving to more of a franchise model in Jack in the Box brand also, which makes us even more comfortable with that.

Thank you for taking my question.

You bet. Carol A. DiRaimo - VP-Investor Relations & Corporate Communications: Great. I think that's all the time that we have today. Thank you for joining us and we will look forward to speaking with you on the road or on our November call.

Thank you, speakers. And that concludes today's conference. Thank you all for joining. You may now disconnect.