Executive Summary: Fiscal 3Q22 comps declined -0.6% (+0.70% on a 3-year stacked basis), reflecting: fewer transactions; reduced operating hours (particularly during late night); unfavorable mix; & lower units per transaction. These headwinds were mostly offset by a +9% price increase.
While consumer weakness was evident from the <$50k demo, corporate noted growth from the lowest income levels. Value is going to mean different things for different income levels in terms of product types & channels. Strength was noted in California & Texas with challenges in the Northwest & Midwest (because of staffing).
Food margin deteriorated by 3.6% y/y due to +16.8% commodity inflation & unfavorable sales mix. Labor margin also deteriorated by 3.6% y/y due +13.2% wage inflation. Store-level margin is now expected to be 16% with a high-single-digit price increase (or 19% when removing the evolving markets of Oregon, Kansas City, Oklahoma City & Nashville).
373 applications have been submitted for the system’s new crave image remodel program with 173 restaurants approved to receive its incentive offer. Corporate completed a letter of intent to refranchise 7 stores in Oregon by year-end with plans to close the remainder of company stores in the market. The transaction also includes 6 stores in Southern California and a development agreement. Corporate is also working on LOIs to refranchise 2 other evolving markets.