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Jack in the Box inc (JACK) Q4 2021 Earnings Call Transcript

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Jack in the Box inc (NASDAQ: JACK)
Q4 2021 Earnings Call
Nov 23, 2021, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and thank you for standing by. Welcome to the Jack in the Box Fourth Quarter Fiscal 2021 Earnings Conference Call. My name is Peter and I will be your conference operator today. [Operator Instructions] As a reminder, this conference is being recorded. A replay of the call will be available on Jack in the Box corporate website starting today.

I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations. Please go ahead.

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Chris Brandon -- Vice President, Investor Relations

Thanks, Peter, and good morning everyone. We appreciate you joining today's discussion highlighting our fourth quarter and full year 2021 results.

Joining us today are Chief Executive Officer, Darin Harris and Chief Financial Officer, Tim Mullany. Following their prepared remarks, we are happy to take some questions from our sell-side coverage analysts. During our prepared remarks and the Q&A portion of today's call, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in today's earnings release, which is available on the Investor Relations website at jackinthebox.com. We may also make forward-looking statements that reflect management's current expectations for the future, which are based on current information and judgments. Actual results may differ materially from these expectations based on risks to the business. The safe harbor statement in today's news release and the cautionary statement in the Company's most recent 10-K are considered a part of today's discussion. 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 and are also available on the Investor Relations section of our website.

A few brief housekeeping items before we get started. First, a quick review of our 2022 guidance updates included in this morning's earnings release. 2022 SG&A of $92 million to $97 million this. This excludes net COLI gains and losses and now includes selling and advertising expense. 2022 commodity outlook up 6% to 7% compared to 2021 and 2022 labor cost outlook up 8% to 10% compared to 2021. And as we previously stated during last quarter's earnings, 2022 capex and other investments of $65 million to $75 million, which includes both capital expenditures and franchise tenant improvement allowances and incentives. Our three-year to five-year outlook related to comps, unit growth, and systemwide sales, metrics which all factor into that outlook beginning this year, remains the same as previously stated. Also this morning, for additional visibility, we provided a company-owned store funding outlook for 2022 and 2023 as well as due to the unique operating environment expected to continue next year, a one-time restaurant-level margin outlook for 2022. Tim will speak to this further in his prepared remarks. Lastly, please make sure to mark your calendars for our management and franchisee Q&A event, open to investors and the general public via webcast with sell-side coverage analysts welcome to join and ask questions of the Group. The event will take place on Tuesday, December 14, at 2:00 PM Eastern Time, 11:00 AM Pacific and we look forward to virtually seeing you there.

And with that detail out of the way, let's get started. I will now turn the call over to our Chief Financial Officer, Tim Mullany.

Tim Mullany -- Executive Vice President, Chief Financial Officer

Thanks, Chris, and good morning everyone. We're excited to discuss our fourth quarter and full year results with you today. Our solid fourth quarter topline results demonstrate the progress we're making against our strategic plan, setting us on a clear path to deliver best-in-class unit economics for our franchisees and achieve the long-term growth targets that we laid out at our Investor Day. We remain as focused as ever on getting our fundamentals in place to achieve these goals.

Overall, our franchisees and operators, particularly our restaurant managers, continue to drive solid financial performance in Q4, leading to a diluted EPS of $1.80 or 9.8% increase from the prior year. In a few moments, I'll provide more detail on the components of these earnings. We achieved systemwide sales growth of 8.6% as compared to Q4 of 2020 and same-store sales growth of 12.3% on a two-year basis.

Breaking down our Q4 positive comp of 0.1%, our franchise business increased 0.6% while our company-operated stores were down 4.4%. The difference was primarily due to franchisees taking more aggressive action on price increases faster than company-owned locations as well as franchisees demonstrating greater success with hourly worker hiring and retention. Our performance this quarter was heavily driven by price, while average check held constant.

I'd like to provide some further detail on how labor and the current operating environment impact our same-store sales for the quarter. We conservatively estimate that limited operating hours due to staffing challenges negatively impacted our comp by roughly 3%. Also, supply chain challenges, driven by labor issues within distribution channels, impacted our comps negatively by an additional 1%. While we don't typically provide quarter-to-date trends within this unique top line environment, we wanted to note that we are seeing a very good start to Q1 and in the first six weeks, we are trending at a low-double-digit two-year stack with comps in the low to mid-single-digit range. We continue to believe that our top line fundamentals are in solid shape and are taking action to ensure we successfully execute on our dayparts and maintain a reliable wide-menu offerings and operating hours our guests have come to expect from Jack in the Box.

Shifting to unit count. We opened four restaurants during the quarter and closed five as part of our broader initiatives to make our system and store base more efficient. These closures included one company-owned and four franchisee restaurants. For this quarter, there were no offsetting agreements due to the nature of these closures. However, keep in mind that most of our closed locations continue to pay both royalty and rent contributions. We remain very confident in our growth strategy and believe our best-in-class economic opportunity for franchisees will enable us to have Jack in the Box in 40 states by the year 2030.

Turning to revenues. We reported $278 million, up $23 million or 9% year-over-year. The increase was largely due to higher systemwide sales, helped by the 53rd week in 2021 as well as positive same-store sales. For our company-owned stores, which make up about 7% of total store count and less than 10% of systemwide sales, restaurant-level margin was 20.1% while franchise level margin improved 8.7% or $6.1 million. Our franchise level margin performance was driven by the 53rd week and higher franchise fees while our company-owned store decline was largely the result of the cost pressures that are impacting us in the broader industry as a whole. G&A expenses increased approximately $4.9 million compared to Q4 2020. This excludes the 53rd week in 2021 which accounted for about $1.5 million in the fourth quarter. Excluding net COLI gains of $200,000 in Q4 versus a $1.3 million gain last year, G&A increased by $3.8 million.

Our reported effective tax rate as a percentage of earnings from continuing operations before income taxes was 25.4% for the quarter as compared to 23.6% in Q4 2020. This was primarily due to a one-time benefit of favorable federal and state audit findings recorded in the prior year. When you combine all of these elements, net earnings increased to $38.9 million for the fourth quarter compared to $37.8 million a year ago. Additionally, adjusted EBITDA was just over $74 million in the fourth quarter compared to just over $78 million the prior year.

Our diluted EPS in Q4 was $1.80, an increase of 9.8% or $0.16. Here is a breakdown of that $0.16. A lower diluted share count, driven by share repurchases benefited us by $0.10. I'll provide more detail on share repurchases in a moment. Earnings from operations impacted us negatively by $0.06. Net interest expense positively impacted us by $0.02. Our effective tax rate negatively impacted us by $0.02. And lastly, the 53rd week positively impacted us by $0.12.

Shifting to cash. Our economic model remains strong and resilient and it continued to generate significant free cash flow throughout the quarter. For full-year 2021, we generated attractive net cash provided by operating activities of approximately $200 million. After deducting for capex, we have generated strong free cash flow of approximately $160 million. We spent approximately $41 million on capex, primarily toward lease right-of-first refusal transactions, remodel/refresh of company-operated restaurants and digital and technology initiatives.

During the fourth quarter, we repurchased approximately 677,000 shares for $70 million or approximately $103 per share on average, bringing our total 2021 year-to-date repurchases to $200 million. On November 19, our Board of Directors approved a new stock buyback program, providing authorization for an additional $200 million expiring in November 2013. This new authorization further demonstrates the Board's confidence in our long-term capital allocation strategy. In Q4, we returned $9.4 million to our shareholders in the form of $0.44 quarterly dividend payment, bringing our full-year 2021 dividend payment to approximately $37 million.

I also wanted to briefly elaborate on the guidance and outlook measures we provided earlier this morning. First on the guidance, it is clear that the business will continue to face external cost pressures and due to this unique environment, we thought some additional one-time visibility into our company-owned restaurant-level margin for next year would be helpful. As noted in our release, we expect our company-owned restaurant-level margin to be between 20% and 21% for 2022, which includes mid to high-single-digit price increases. In addition to just the cost and pricing elements, keep in mind the impact of the 20 stores we took on in 2021 in Oregon, Kansas and Oklahoma [Indecipherable] to the margin in the near term as well as our ability to maintain full hours of operation as we work to improve performance of those restaurants. We hope to improve these stores as soon as possible and will actively look to refranchise them once they are in a sound operating state.

While there are likely few surprises on the expense and capital front, with the latter being previously disclosed, it is clear we are committed to continuing to make necessary investments in our business to fuel growth. This includes investing in our digital and tech priorities that will have a direct impact on both our top line capabilities and our store level profitability. One additional area of guidance for this morning's release was our company-owned restaurant funding outlook. We plan to fund up to five company-owned restaurants in 2022 and between seven and 15 in 2023. We wanted to provide visibility into possible capital impacts within existing 2022 guidance and give you more insight into our evolving game plan to open company-owned stores, along with the franchisee locations and other markets where appropriate. And as an adjustment, the $200 million Board authorization expires in 2023, not 2030.

To wrap up our financials before handing it over to Darren, our solid performance results, despite a challenging fourth quarter environment, demonstrated the strength of our economic model at both the company and store level. We've made meaningful progress on all fronts of our four pillar strategy and we are in a great position to continue to successfully execute on each of those pillars heading into fiscal 2022. And most importantly, we are seeing our priorities and strategic initiatives having a meaningful positive impact on franchisees as their economics, profitability, and store level cash-on-cash returns have maintained best-in-class status within the industry. We are confident that we can build on this momentum as a unified system to advance our growth strategy and expand our reach into new markets and we will drive significant shareholder value by continuing to focus on operating efficiently, investing wisely, and building our fundamentals for long-term growth.

Thank you again for joining the call today. And now, I'll turn it over to Darin.

Darin Harris -- Chief Executive Officer

Thank you, Tim, and good morning everyone.

As I look back at our quarter four and full fiscal year results, I am extremely proud of the ability of this brand to remain strong in our performance during these interesting times. The energy and perseverance of our restaurant staff and our franchise operators exceled during a challenging time in our industry. I'm truly grateful for the unwavering strength and agility with which our team members and company and franchise restaurants operate. It's in large part thanks to them that we continue to see growth in sales and progress within our four strategic pillars. While our industry does have headwinds, we are laser focused on mitigating the impact while we remain disciplined and centered on the long-term health of the business and our strategy.

Now, diving into the results for the fourth quarter. We are pleased to report positive same-store sales for the quarter and a strong 12.3% comp on a two-year basis as we navigated nicely through a unique and volatile top line environment within the industry. While we generated most of our sales from ticket, we remain focused on driving a balance of traffic and average check for the long term. I'm confident that we are well positioned to achieve this objective as our operating environment normalizes, given our proven ability to offer both craveable food and value to customers that are seeking it. We are very fortunate to be a brand known for variety, which enables us to be agile with our promotional calendar and navigate the supply challenges many are facing in the industry.

On the unit count front, we continued our process to selectively close stores as we optimize our footprint and position Jack for more profitable unit growth. We expect to close less stores in 2022 than we did this year. And as Tim mentioned, we continue to gain economics from many of the restaurants we closed via rent or on agreed to royalty contribution. We are confident that our unique pricing power enables us to meet margin pressure head on. And as we keep advancing on our strategic pillars, we will continue to be well equipped to take on any macroeconomic headwinds. Between our varied menu, best practice sharing among our franchisees, and the market share we have in our top markets, we believe we have the pricing power to operate from a position of strength.

I will, as usual, categorize my comments within our strategic pillars and in the fourth quarter, our teams certainly continued to make impressive progress on each. This is what will truly position us to unlock the brand's true potential. Beginning with building brand loyalty. Our updated brand positioning and crave marketing strategy is significantly improving our brand awareness and perception, helping us achieve our highest creative metrics since 2019. From a product and promotional standpoint, both Triple Bacon Cheesy Jack and Bacon BBQ Cheeseburger promotions performed well, driving what was a very good quarter for our burger category. And while burger performance was strong, you can never count out our tacos as Spicy Tiny Tacos in quarter four was our highest volume LTO of the year and showed strong attachment and upsell into the loaded version. Finally, our all-day breakfast message, a good example of learnings from our guest feedback, helped reinforce a brand strength and drove another solid performance from our breakfast daypart which included strength from the Stacked Croissant LTO as well as our core breakfast menu items. Our menu diversity, price point, and guests have allowed us to remain resilient and flexible to shifts in customer behavior, helping to diminish the impact of the recent volatility. Our ability to stay flexible and innovate systems, while building a long-term product pipeline, has been very confident that menu innovation remains one of our core strengths.

Our progress within the e-commerce and loyalty space has enabled digital to become central to our guest experience and brand fabric. We had a tremendous year of digital growth, achieving a 90.6% increase in digital sales in 2021 versus the prior year. We achieved the digital run rate milestone during quarter four by exceeding 9% of sales via digital channels. Part of the success can be attributed to our first full quarter with our Jack Pack Rewards loyalty program, leading to a 61% increase in app downloads this quarter versus a year ago. We will continue to lean in on investing and executing in this area of the business in 2022 via exclusive offers and experiences while optimizing the digital guest journey. This includes launching mobile web ordering and offering our loyalty program in store during the front half of 2022.

Now onto our next pillar, driving operational excellence. While we saw some continued improvement in our breakfast dayparts, we continue to feel the impact of challenges related to staffing and hours of operations as Tim mentioned. These factors have particularly impacted our late-night business. That said, I still remain very confident that late night represents a tremendous opportunity for Jack and we continue to see strong demand. As these headwinds alleviate, we have an opportunity to not only take share and lead, but dominate this daypart versus the competition. It was Tony Darden's first full quarter leading operations and his experience and insight has refocused us on three main areas where we see the strongest opportunity for near-term improvement.

First, we've been rolling out our new guest experience and brand standards, significantly raising the bar on the expectations we placed on ourselves and servicing our guests. Second, investing in our op services team and tactics, which include refining process systems and technology to drive financial performance. We will also continue to enhance our restaurant-level technology and martech stack capabilities and down the road, automation, to help with labor optimization. This will provide our guests with convenient interaction with the brand, especially for off-premise ease-of-use. And third, strengthening our training infrastructure, which will not only help us execute better, but it will help us achieve a critical goal of developing our people and store-level culture. We have seen within the industry that it will take more than just money to acquire and retain talent. In addition to competitive pay, we will focus on better training and most important, a strong culture and career path opportunity that will excite people more than ever to work in a Jack in the Box restaurant. Our third pillar, growing restaurant profits is certainly a highlight of 2021 and I'm excited about our upcoming investor event on December 14, where in addition to management and franchisees taking your questions, we will provide insight into our unit economics performance in 2021. If you haven't already marked your calendars, please do. It will be a great opportunity for you to hear from some of our franchisees directly.

And lastly, our final pillar of expanding Jack's reach. We continue to get much closer to a consistent level of positive net unit growth and we are confident that we are well on our way to reaching our long-term net unit growth goal of 4% by 2025. As you have seen and I credit Tim Linderman and team for their excellent progress against our top objective, we signed 23 development agreements committing to 111 future restaurant openings which is a record for Jack. Our 31 completed site approvals are the most since back in 2017, especially considering we spent a good part of the year repairing our franchisee relationship, mapping markets, and rebuilding a store pipeline. And now, we are ready to succeed. We also spent time getting our franchise development program up and running which didn't really happen until late in the year. So, I'm extremely pleased with the progress so far.

Now, we know this doesn't translate to immediate openings on paper, but make no mistake, it is a clear leading indicator that our franchisees are as excited as ever about growing within this brand and we will continue to keep you informed on these new development agreements with both existing and new franchisees throughout 2022.

Closing out my thoughts on the quarter. A year like 2021 really makes me appreciate our franchisees, company leaders, and everyone in our restaurants working so hard to represent the brand and serve our guests. I feel extremely lucky to represent this management team, our corporate teams and operators and our franchisees out there making it happen each and every day. Our people, franchisees and the culture we are creating at Jack in the Box more than anything, is what gives me tremendous excitement about our future. And one of my favorite highlights of 2021 won't show up on an income statement, but it's something we are extremely proud of, tied to the critical objective of improved franchisee relations. A recent Franchise Relationships Institute survey showed that our overall satisfaction score franchisees improved 15.5 points compared to 2020. It is now at 72%, which is significantly above the sector benchmark. With more than franchises than ever, before noting that they are strongly satisfied with the relationship and 92% saying that they feel optimistic about the future of the brand. This is what it's all about, serving others. And it gives me tremendous confidence that we are taking the steps that matter in accomplishing our strategy while helping Jack reach the potential that we all know exist.

I look forward to further executing on this potential and on these goals in 2022. We appreciate you joining us today. And we are happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question will come from Andrew Charles. You may ask your question.

Andrew Charles -- Cowen and Company -- Analyst

Thanks, guys. So, it's hard to violate the one rule -- the one question rule at the back, but just a quick clarification, because I'm getting some investor impounds. Is the low-double-digit to your comps that you've disclosed for 1Q quarter-to-date, is that in line with the 12.3% that you saw in 4Q or is 1Q perhaps tracking somewhere a little bit above or a little bit below that level? And then just my main question was just on pricing. Darin, you expressed your confidence in the ability for the brand to take an elevated level of price, but just given the industry is running the highest percentage of pricing in the last 30 years, can you just be a little bit more specific around your confidence that consumers can digest mid to high-single-digit price in 2022. I recognize that you'll continue to innovate around add-ons and snacking items to help promote value, but of course, you still need to drive traffic with premium items at compelling price points to help make those margins.

Darin Harris -- Chief Executive Officer

Yeah, I'll answer the second question first and then I'll turn it to Tim. One, if we look over the data from last year, we took less price than others in the industry. That's one of the points that gives me clarity about our ability to take price. And then in our test, that we're taking related to price, we're seeing upside opportunity in our core menu where historically we took a lot of our price in our promotional menu. So, the data suggests that we have opportunity with price. It's how fast can we take it to overcome some of the margin pressure. And, Tim, any -- can you answer the other one?

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, on the first one, as we reported, just first in Q4, we reported a 12.3% two-year stack and what we're saying is in the first six weeks, we are trending at a low-double-digit two-year stack, which is consistent with Q4 performance with comps in -- single year comps in the low-to-mid single-digit range.

Andrew Charles -- Cowen and Company -- Analyst

Okay, got it. Consistent with that 12.3%. Okay, got it. Thank you very much.

Darin Harris -- Chief Executive Officer

Thank you, Andrew.

Operator

And your next question will come from Lauren Silberman. Your line is open.

Lauren Silberman -- Credit Suisse -- Analyst

Thanks so much. I wanted to ask about the development commitments, the 111 new sites. What markets are those units in? Anything you can expand there whether there was new or existing franchisees or any additional color that could be helpful? And then, what's your visibility into the timing of the opening of those locations? Thank you.

Darin Harris -- Chief Executive Officer

Yeah, Lauren, our focus as we rolled out our franchise development program was in the back half of the year and we initially went to our existing base of franchisees and said, that's who we want to give the first opportunity for growth and we're still working through that pipeline of interest. So, most of the franchise agreements were in existing markets outside of what I would say some new areas of -- the new area, which was Salt Lake City that we've talked about on previous calls and we've had two agreements signed in Salt Lake City, which will help us expand into an adjacent market what we've called our wagon wheel approach. So we're excited about the Company investing along franchisees in Salt Lake City as an example to grow -- the rest came from existing markets. And from a standpoint of timing, we're building a pipeline that is fueling the next two years of growth. So, by the time we sign, by the time they find real estate and open, it's pretty consistent with what we've talked about on these calls that it takes about 24 months to really start to see those openings come to fruition.

Lauren Silberman -- Credit Suisse -- Analyst

Thank you.

Operator

Your next question will come from John Glass. Your line is open.

Brian Harbour -- Morgan Stanley -- Analyst

Yes, hi guys. This is Brian on for John, maybe just one on the supply chain challenges, if you could provide more detail on that. Was it kind of specific items where availability was low and I guess are you getting past those issues and what have you been doing to kind of -- to kind of get over that hurdle?

Darin Harris -- Chief Executive Officer

Yeah. Unfortunately, we had a challenge with one of our large DCs where they had a staff walk out. And so, for about eight weeks to 12 weeks of the quarter, we were working tirelessly with our franchisees to make sure that we could supply our existing restaurants. So we definitely felt that was the biggest challenge during the quarter, which we think is a one-time event, not a thing that is normal related to this whole environment we're in. And with that, both our partner at the DC and us, we learned about ways to mitigate that for the future and we've put multiple layers of protection in place so we didn't have to go through that challenge again, but it was definitely something we didn't anticipate and now we're prepared for beyond the shadow of it all [Phonetic].

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, and bring us to add to that, I mean obviously, the industry is undergoing supply chain pressures and challenges as Darin noted, we're just -- given the breadth of our menu, the flexibility of our menu, we're able to handle this in a much more advantageous way than a lot of our peers had and a lot of the pressure here in the quarter was really driven by this distribution challenge, more so than, call it a product challenge. So high level as we look proactively to face this particular headwind. Our primary strategy is to build capacity and increase specification flexibility. So there's a couple of things that we're really doing head on to address that. One is that we're increasing the use of our reverse auction system more so than traditionally and what this does is it allows us to much quickly -- much faster -- have much faster RFP cycle time as we evaluate opportunities. And then secondly, we implemented a new technology that provides automation and allows us to more efficiently manage spec compliant. So, as there is, let's say, pressure on a certain product that we're getting -- we're having challenges getting, we're able to evaluate alternate suppliers and new production line approvals much faster to get that supply back into the system. So we've had great success with that. And point being, we're taking some pretty aggressive action on supply chain overall.

Brian Harbour -- Morgan Stanley -- Analyst

Thank you.

Operator

Your next question will come from Jeff Farmer. Your line is open.

Jeff Farmer -- Gordon Haskett -- Analyst

Great, thank you. Your mid to high-single-digit menu price guidance for 2022, is in line or sits just below that level of commodity and wage rate inflation that you pointed to for the year. So I guess my question is, you're guiding to a 400 basis point restaurant-level margin sort of pressure level. You mentioned the acquisition of franchise restaurants as one of the pressure points there, but again, the main question here is, given that your menu pricing is not too far off from the inflation you're seeing on both commodity and wage rates, why are you seeing almost a 400 basis point -- why do you expect to see almost a 400 basis point headwind on the restaurant-level margin?

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah. So, there's primarily two things here. One is, as you rightly noted that, there is the acquisition of certain markets that have depressed margins that we're bringing into the restaurant-level margin. So it's having a depressive effect. Also outside of pricing, restricted hours are a component that goes into that as well. So until we start seeing a loosening of the labor market, we're including that in a calculus of our comp forecasting and margin forecasting. So there is an effect being driven just by reduced labor hours.

And just on that point while we're there, just to point out how we're attacking that as well, we're hoping that there is upside with a few things we're putting in place certainly in the company stores is, we've had successful experiences with using mobile and app-based application portals that allows us to speed up the processing and selection of employees in lieu of having our restaurant managers take time out of their day to review applicants. As you can imagine, the application process is ramping up much more, more so than pre-COVID. So, this tool has been effective and efficient for us. Two, we're actively utilizing social media and online channels to get greater impression and reach. So, we're really casting our net wide in hopes of attracting employees into the stores or restaurant workers into the stores. And then, we've also been successful in utilizing shift differential pay. So we're trying to attract and retain employees, particularly in our late-night dayparts that have greater success in fully staffing our restaurants. So as we use these three levers in the future, we're hoping that to the point that you're making, we're able to have greater success in closing that margin gap.

Darin Harris -- Chief Executive Officer

Yeah, let me add one thing to that, Tim, and we implemented daily pay as well and with the premium differential pay, we are in process of rolling across all company restaurants, but where we did, we saw a 25% increase in operating hours and we're starting not only to see it stabilize, but improve. And during the quarter, our staffing was impacted most in the Northwest and the Midwest and least impacted in California and Texas. So, we're seeing some light and some improvement in that -- specifically in our late-night hour challenge with staffing.

Operator

And your next question will come from Brian Mullan. Your line is open.

Brian Mullan -- Deutsche Bank -- Analyst

Hey, thank you. Just question on company-owned store development. It looks like over the next two years, targeting anywhere from 12 units to 20 units. It's good to see. When you think about the targeted AUVs for those stores, should we be thinking about the current overall systemwide average, which is kind of in that high $1.8 million, $1.9 million range or should we be thinking about kind of the current AUVs of your company-owned store base or some of your highest volume units?

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, I would think that the former is what you would be evaluating. Some of our -- the recent performance of our -- of the units that we opened in 2018 and 2019.

Darin Harris -- Chief Executive Officer

Yeah. And as we've talked about in December, we'll provide overall details around our economic model and how those have improved over the last year.

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah. And really, the best, I think, reference for this is to go back to the Investor Day materials. We scope out what the unit economic models are in that as well as our drive-thru-only unit economics and what the AUVs are for each of those formats.

Brian Mullan -- Deutsche Bank -- Analyst

Thanks.

Darin Harris -- Chief Executive Officer

Our 2018 and '19 openings were averaging $1.8 million and $2.1 million in AUV.

Operator

And your next question will come from Nick Setyan. Your line is open.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you. Going back to the unit development question, the sort of low-end of 1%, if we think about that for '22, are we talking about gross or we talking about net development?

Tim Mullany -- Executive Vice President, Chief Financial Officer

That's gross units that we're opening -- new locations.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And in terms of the geographies where you plan to open the stores over the next couple of years, is it kind of even between sort of California, Texas and some of the less penetrated markets? Is it more concentrated in the less penetrated markets?

Darin Harris -- Chief Executive Officer

It's definitely in -- for sure, California and Texas. We still have plenty of opportunity that we've seen expansion, a lot of underpenetrated markets and somewhere. We're seeing signing of development agreements in those markets. So it's a [Speech Overlap] geographies within our existing footprint and then with some company store development, we will proceed into one or two new markets if you consider Salt Lake City a new market and one other market.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And then just can you update us on where we are with remodels? What percent of the system is remodeled now? What percent the company-owned units are remodeled? What the remodel cadence going forward is going to look like?

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, so just high-level, we know we've got 400 and change locations that could use refresh remodels. We're really going to pace out how this goes. We've slotted -- last quarter we discussed having roughly 20 million of annual capital sort of earmarked for these remodel/refreshes. And like I said, we're going to ensure that there are guardrails in place. So, we don't go meaningfully beyond that on an annual basis and really it's more or less a first-come first-serve type approach with our franchise system. But generally speaking, we're evaluating these on a one-off basis. So, there's various programs in place that they can choose from. And it's going to be site specific. So, we'll look at the need. We'll look at the term of the lease, the term of the franchise agreement, ensure that an ROI is appropriate and that they don't select a remodel package that doesn't provide something that surpasses a return hurdle rate associated with that. And then, move forward that way. But this is -- again, this will be the first year that we're rolling this out. So, we will be cautious in how we deploy our capital.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you very much.

Operator

Our next question will come from Gregory Francfort. Your line is open.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Hey, hey, it's Gregori. Just one question. You guys talked a lot about the pipeline for franchised stores the next couple of years. Can you maybe talk about what that might look like from a gross opening perspective in '22? I would imagine the pipeline as you're work with franchisees is pretty well built for what you know is going to open in '22 and roughly what that number could look like?

Chris Brandon -- Vice President, Investor Relations

Yeah. So look, I think the point we're trying to -- what we really want to get across here is the scale of new sign-ups. That's happened -- this company in a long time hasn't had a robust pipeline in place. Actually, they haven't had much of a pipeline at all. And in the last few quarters, we ramped up to three digits of units -- of restaurants committed to open. So I think we're developing a tangible -- we're able to tangibly demonstrate that we're following up on our growth strategy that we laid out on Investor Day and which was to say that we want to get to -- or we plan on getting to a 4% net unit growth run rate by 2025 and the pipeline that Darren mentioned puts us well on pace to achieve that. So, we're pleased with the performance that Tim Linderman and the development team have had so far and we're excited that the franchisees are on board with us and they're equally as excited as we are to get growth going.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

All right. Thanks.

Operator

Your next question will come from Jared Garber. Your line is open.

Jared Garber -- Goldman Sachs -- Analyst

Hi, thanks for taking the question. Kind of wanted to tie a couple of threads to get to here, but we have record franchisee free cash flow in, I guess, 2020 and 2021, but obviously next year, in 2022, the margin outlook would suggest that the cost environment is going to materially pressure those restaurant level margins, not only for the company stores, but franchisees. But at the same time, you're developing this increasing pipeline for development demand. So, can you just walk through -- and I guess maybe we'll hear about this a little bit more in a few weeks, but what those conversations are like with franchisees now and how they're thinking about managing through the cost environment in the somewhat near-term hopefully and maybe what's underlying some of the longer-term unit growth pipeline developments?

Darin Harris -- Chief Executive Officer

Yeah, I think there's a few things here. The conversation we're having with our franchisees are really critical around our pricing discipline and how do we take price on our core menu. And so, that's been a lot of the discussion and it's been healthy dialog and people not only learning from the company in the data that we're generating, but from each other and the moves that are being made around the country. So that's a key component of it and it's been that spirit of partnership. Beyond that, we've presented to our franchisees our strategy around financial fundamentals and where we find opportunity within process and technology to remove cost from the model. So there's a lot of encouraging bridge of how we can take additional points or improve additional points and labor. So the franchisees are healthy, their cash flow is healthy. They've expressed their desire to reinvest in the brand, because we know these headwinds are a period in time and that we've shown that through pricing and through margin improvement initiatives that we can overcome some of the challenges that we're facing in a short-term environment.

Jared Garber -- Goldman Sachs -- Analyst

Thanks. And just one quick follow-up. I'm not sure if you gave this earlier, but any mix on the franchisees that are signing up that incremental development demand? Can you remind us of the mix there between current and new franchisees?

Darin Harris -- Chief Executive Officer

Yeah. It's the -- all the numbers are existing franchisees because our first priority in the process was to -- and we still have other existing franchisees interested in developing it. We're only about six months into this program and we gave a kind of a window of first opportunity to our existing base, so the numbers we've reported are only our existing franchisees and we're not finished yet with their level of interest. We're still working through market by market, territory by territory. We've mapped every market in the country. We put data around it so franchisees can go out and explore with our real estate team where they would like to grow. And so, we're only through a small portion of the process with existing franchisees. As I mentioned, we've launched our marketing for new. We have a good pipeline and we're in process of kind of working through what existing franchisees want first and then we'll start to sign up new franchisees.

Jared Garber -- Goldman Sachs -- Analyst

Great, thanks.

Operator

Your next question will come from Jim Sanderson. Your line is open.

Jim Sanderson -- Northcoast Research -- Analyst

Hey, thanks for the question. Just wanted to talk about some of the technology you're investing in and how that could potentially improve labor productivity going forward. But also, if there is an opportunity to have franchisees participate in that investment potentially with some sort of technology fee that they would pay on a per store basis. Thank you.

Darin Harris -- Chief Executive Officer

Yeah. Go ahead, Tim.

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, a couple of things that we're actively working on and exciting about that would help in store labor is, there is -- we're working on robotics, particularly at the fries station. We'll have a test underway shortly here and we're optimistic about what that has for us in the long term. We're also looking at automated drink machines as far as pulling labor out of the system as well as self-cleaning milk shake machines as well. So these technologies are things that in our analysis can be fairly meaningful when we look at the unit economic model in the long term and across the system as a whole as far as being able to reduce average -- required average labor hours per week.

Darin Harris -- Chief Executive Officer

Beyond that, we've also rolled out a software program technology for the restaurants that enable them to help manage labor more effectively and food. And then, we're at the early stages of actually taking that technology and being able to drive out cost. So, all of it enables us to project better from a labor standpoint and enables us to manage food costs more aggressively. And so, those are tools that the brand has not implemented historically that we now have -- that can really help improve our restaurant level economics. We also -- like I said, I mentioned on the -- in my early comments that we've invested in a team and op services that their entire focus is how do we improve restaurant-level economics through process systems and technology and so they've got a bridge built and a plan to figure out how we can remove 2 points at a minimum from the P&L.

So that being said, we also -- as you know, we've recently hired a new CIO, Doug Cook, who has brought some ideas to the table on how we can continue to improve through AI tools and drive costs out of our system, but also, I think your question was also about tech fees. We charge that today. We have the ability to increase that over time, but we would have to sit down with our partners, our franchisees and help them see the roadmap and participate in that journey with us and we've been doing that accordingly. We've showed them our tech roadmap and I've started bringing them along in the process to where we're taking technology.

Operator

[Operator Instructions] Our next question will come from Chris Carril.

Chris Carril -- RBC Capital Markets -- Analyst

Hi, good morning. So, just as a follow-up on pricing. Can you talk a little bit more about how and when the anticipated mid to high-single-digit pricing gets phased in. It sounds like franchisees have already begun to take more pricing, but any additional detail on the pacing of pricing actions at the company-owned restaurants will be helpful. Thanks.

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah. So, we're fully cognizant of how price is being taken across the industry today. We've got a lot of dry powder built up, given that we've had sort of moderate price increases in 2021 for company stores. As an example, for 2021, we took roughly 3.5% on price with only 3.9% coming in the fourth quarter. So the typical cadence would be roughly there is four opportunities that we've historically taken to increase our prices. We're likely looking to see how we can accelerate that pacing in 2022 and we are also actively evaluating how much we can take within the various sensitivity bands that we have for the consumers. So, this is something that's clearly top priority for the company. We understand that the margin pressures and headwinds we have and we understand our ability to mitigate those by taking price and, again, that we have dry powder to do that. So, we're actively evaluating that acceleration.

Chris Carril -- RBC Capital Markets -- Analyst

Thanks.

Operator

And your next question will come from Jake Bartlett. Your line is open.

Jake Bartlett -- Truist -- Analyst

Great, thanks for taking the question. My question is on the margin guidance -- the restaurant-level margin guidance and I'm hoping you can give us a little more detail on how much those acquisition of 20 stores you acquired are pressuring the margins and it sounded like the other part of it is potentially negative company same-store sales and there was a big differential in the fourth quarter between company and franchise. But I also look at the company footprint is more California and you mentioned that California is not seen the sort of hours and the labor pressures. I think that you cited more of the Midwest in the Northwest. So, one is, why is the company same-store sales being so pressured if in California you're not seeing the impact there and then just digging in a little bit more into how those acquisitions impact margins?

Darin Harris -- Chief Executive Officer

Yeah, I'll let Tim answer some of it, but one of the things to keep in mind is the acquisitions that we made are outside of California and Texas. They are in Oregon, Kansas City and Oklahoma. So those are areas that were outside that kind of core and it's pretty meaningful the number of stores that we bought in those markets.

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, absolutely. So for those units, ballpark, we're looking at about 130 basis points of margin pressure due specifically to that.

Darin Harris -- Chief Executive Officer

The other thing we've been able to do in the meantime since the quarter is, we've been in a process of renegotiating leases with some of our Oregon stores that we will see improved flow through as a result.

Jake Bartlett -- Truist -- Analyst

Great. And maybe just a detail on why the company same-store sales is underperforming so much given it seems like they have less of the hour pressure?

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah. So -- well, there's -- typically the franchisees certainly have, again, been more aggressive and have moved faster in taking price. So that's been significant. They've also taken a different approach and had different success with retaining hourly workers and staffing our stores. And then perhaps more nimble on that in Q4 and then also as you mentioned, there's geographic disparities between where our company stores are located and the franchisees as a whole. And then lastly, I would say, for company performance, the late-night mix versus what the franchisee late-night mix also has some degree of impact as well.

Jake Bartlett -- Truist -- Analyst

Great, thanks a lot.

Operator

Our next question will come from Gregory Francfort. Your line is open.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Hey, just one follow-up. I think you guys have on the debt side of things, hasn't come up in a while. I think you guys have a make-whole early next year. Can you just remind us how you're thinking about leverage and debt if you were to increase your current kind of total debt amount, how you would think about potentially using those proceeds? Thanks.

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah, just as a reminder -- so we bought $70 million toward share repurchases in Q4. For the year -- 2021 fiscal year, we repurchased $200 million, I think, which we believe was a healthy repurchase -- share repurchase program relative to our history. We just received Board authorization for another incremental $200 million, which expires in 2023. So, we have the ability to continue in an opportunistic manner, share repurchases that we feel gives the best TSR back to our shareholders. And obviously, it also allows us to deploy capital, whether it's organic capital or debt capital to ROI-driven opportunities within our business. I mean we talked a lot about technology investment today inside the four walls. So we've been focusing on that in addition to any other way that we can help grow the overall business like company store development or remodel/refresh programs for franchisees.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Can you just remind us what the targeted leverage is for the business right now?

Tim Mullany -- Executive Vice President, Chief Financial Officer

Yeah. So we gave a range of 4 times to 5 times -- 4 times to 5.5 times. So we will look to obviously stay within that band and maintain flex for our long-term strategy.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And this concludes today's Q&A. I'll now hand it back over to Darin Harris for the closing remarks.

Darin Harris -- Chief Executive Officer

Thank you all again for joining today, we will see you on December 14 for our franchisee event and we look forward to speaking with you in February to discuss our first quarter 2022 results.

Duration: 54 minutes

Call participants:

Chris Brandon -- Vice President, Investor Relations

Tim Mullany -- Executive Vice President, Chief Financial Officer

Darin Harris -- Chief Executive Officer

Andrew Charles -- Cowen and Company -- Analyst

Lauren Silberman -- Credit Suisse -- Analyst

Brian Harbour -- Morgan Stanley -- Analyst

Jeff Farmer -- Gordon Haskett -- Analyst

Brian Mullan -- Deutsche Bank -- Analyst

Nick Setyan -- Wedbush Securities -- Analyst

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Jared Garber -- Goldman Sachs -- Analyst

Jim Sanderson -- Northcoast Research -- Analyst

Chris Carril -- RBC Capital Markets -- Analyst

Jake Bartlett -- Truist -- Analyst

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