00:00I am here with the Jersey Mike CEO, Charlie Morrison. Charlie, thanks for joining. Congratulations on listening today. Thank you.
00:05It's a great day for Jersey Mike's. I have to say, I don't envy any CEO that has to list
00:09in this crazy market we're living right now. It has been quite volatile, especially for a lot of your peers.
00:14I mean, Sweet Green down 4%. Shake Shack down 24% year to date. Wingstop also, which you once led
00:19down 44%. So why was amid all of that, why was now the right time to IPO? I think it's
00:24a great time to IPO Jersey Mike's. This is a brand that's been built over many, many years. We have
00:28a rich history of over
00:2970 years. The last 20 years alone, the only brand that can cite 20 consecutive years of positive same store
00:35sales growth. We've been able to navigate the choppy waters over many, many, many times through our cycle. Even this
00:41year, year to date, same store sales continue to grow. We've seen sequential improvement from quarter one to quarter two,
00:48exiting quarter two at 2.3% same store sales growth, most of that driven by traffic. So it's a
00:54great time to bring this brand to the market. We can deal with some of the challenges that are in
00:57there, but really it's for the long term.
00:59So the fundamentals look good heading into this, but was there ever a banker that was thinking, hey, Charlie, maybe
01:04now is not the time. Maybe we need to wait for calmer waters. Not at all. They told you full
01:08steam ahead. Yeah, this is a brand that's really well built for the public market. What about the pricing? Because
01:12shares have fallen initially down 8.7%. They've come back, of course, now down only about 4%. What do you
01:18think of the pricing? Was the pricing off perhaps? And that's why we're falling today? Maybe valuations a little bit
01:23too richly priced rather? No, I don't think it has anything to do with the price. I think the market's
01:28been a little choppy over the last few days.
01:29trying to find its place. Again, we're not looking at today's price. We're not worried about this. We're worried about
01:34the long term and continuing to do what we do well, which is grow restaurants, grow our same store sales
01:39growth, continue to deliver great value for our shareholders, and we know they're going to win over the long term.
01:43Let's talk about the long term, because now with IPO proceeds in hand, what do you want to do with
01:48them? What are the opportunities for growth that you're going to be pursuing?
01:51Well, I mean, we're a brand that is an asset light model. So we're 99% franchise. We generate a
01:56lot of cash. We carry some debt. We're using the primary proceeds just to pay down our debt a little
02:01bit. So we get down below four and a half times our EBITDA. And that's okay. Over time, we really
02:07will use our cash to return that capital back to shareholders, which is very much the common practice in a
02:13business like ours. And that'll be the continued pace over time.
02:16I know one of the growth strategies that you're pursuing is international expansion. You have big plans for the UK
02:22specifically. I know the market. I lived there for a while for about six years. They do eat at Subway,
02:27so they know sandwiches. Quality might vary there. But they love like a Tesco's meal deal where they get, you
02:33know, a sandwich and a bag of crisps, as they would call it, for four pounds. How do you convince
02:38them? And how are you certain that a British audience would like a Jersey Mike's?
02:42Well, we know people all over the world enjoy sandwiches and sub sandwiches. Certainly, the market's been well-established. What
02:48they don't know is the authenticity of how to really deliver a deli-style sandwich the right way, the way
02:53we do it here at Jersey Mike's.
02:54That's been part of who we are for the last 50 years. It's exactly what we're going to bring to
02:58the UK. We're going to bring the brand in its full force to the UK. And look, we have a
03:04hot sub option as well.
03:05So our cheesesteaks, our hot subs, other products will be anchored on the menu. And we're going to do it
03:11in a high-quality way. People want that kind of quality and authenticity.
03:14Do you need to change the menu? Anything after the breaks?
03:14Not really. I mean, one little thing maybe. We might bring salted beef to the protein mix and lineup. We
03:20know that's a big fan favorite overseas in the UK. And so you might see that change. But otherwise, it's
03:25going to be authentically what we've been all about at Jersey Mike's for a long time.
03:27This subtle dig of they know subs out there, but maybe not the real deli-style. Charlie, elsewhere, here in
03:34the U.S., there has been this real concern about the outbreak of psilospora and the concern about iceberg lettuce.
03:41I know a lot of the majority of Jersey Mike's subs use iceberg lettuce. Is your supply chain affected at
03:47all?
03:47We are not. We're not affected at all. In fact, we do buy whole head iceberg lettuce, but we buy
03:52it from primarily Salinas, California this time of year, none from Mexico.
03:56We actually take very good care of that product. We bring it in in a whole head fashion. We peel
04:00the outer leaves off, wash it carefully, and actually shred it for our customers right there.
04:04And so we don't see any risk associated. That hasn't impacted our business.
04:08It maybe hasn't impacted your supply chain. Chipotle said the same thing. We source it somewhere else. But yesterday, they
04:13pointed out it has impacted sales because of the psychological concerns.
04:16Are consumers pushing back or maybe at least not asking for lettuce on their sandwiches?
04:21Well, every one of our sandwiches can be customized because we make it to order right in front of you.
04:24And so if a customer wants to opt out of the lettuce, that's fine with us. We'll accommodate that.
04:29Have they been?
04:29Not really. I mean, we've seen, I mean, we've been eating them for the last two weeks on the road.
04:33We've been enjoying them.
04:34I think customers understand that the supply chain moves very quickly. The product's probably out of the supply chain and
04:40everything's fine.
04:40The credit card and debit card data that the Bloomberg team tracks does show a little bit of slowing in
04:46July for Jersey Mike.
04:47Certainly still growing, but a slowdown in that growth. What accounts for that then if it's not the lettuce of
04:51it all?
04:51Well, I think there's a lot going on in the marketplace right now. I wouldn't look to any one or
04:56two weeks as indicative.
04:57Lots of things kind of ebb and flow. And too often you can get too much data that'll point to
05:02two different things.
05:02But right now we haven't seen much.
05:04So summer sales have been strong, maybe besides a little bit of July?
05:07Yeah, we haven't talked about anything about this particular quarter at this point.
05:11We certainly saw strong performance in the first quarter, sequentially improving in the second quarter.
05:16We exited the second quarter on a strong note as well.
05:19And so we're going to continue to play our game and execute a game plan that is going to drive
05:23long-term sustainable same-store sales growth.
05:25So I hate to do this to you, and I hope you don't check your social media mentions.
05:28But if you just look up Jersey Mike's, there is just a wide swath of people who say,
05:33oh, since the Blackstone PE overlords came in, they've changed the sandwiches.
05:37They have shrunk in size.
05:39People love to complain that PE comes and ruins their favorite sandwiches.
05:43Charlie, can you say here definitively, have the sandwiches changed at all, quality or otherwise, since you came into the
05:49helm?
05:49Not at all.
05:50That's just hype and social media.
05:51They like to pick on people for that reason.
05:53We haven't done nothing.
05:54I mean, I've been involved almost as long as Blackstone has.
05:57We haven't changed a thing.
05:58Why would we?
05:58This brand has grown 20 consecutive years, positive same-store sales growth.
06:02We don't need to change the menu.
06:03We enjoy one of the lowest food costs in the industry.
06:05Our franchisees have some of the highest cash-on-cash returns in the industry.
06:10They want to grow and build more stores, and they're going to do that.
06:12And so no need to change anything.
06:14We love this brand.
06:15We love the way we deliver the product, and we're going to continue to do it that way for a
06:19long time to come.
06:19On the cost, because generally this market, if you track the macro data, things like dairy meats, the prices have
06:25been rising.
06:26How have you been accounting for that?
06:28How do you keep your margins?
06:29Well, we have a very diverse lineup in our menu in terms of the proteins that we offer.
06:34So beef, chicken, pork, different products, all within our menu, and we're able to balance that over time.
06:40So as one is high, like beef prices today, we focus on other parts of our business, and we've been
06:45able to maintain that over time.
06:46We also have a very scaled supply chain, over 3,000 restaurants strong.
06:50We buy in very high volumes and are able to hand that back to our franchisees in the form of
06:54a very low food cost, around 27% of sales, which is industry-leading.
06:58How about prices?
07:00Are you able to use that as a lever to charge more prices, higher prices for your sandwiches?
07:04Certainly over time, we do take price.
07:06Our long-term algorithm is low single-digit same-store sales growth for this business.
07:10That will be equally balanced between price and transaction growth.
07:14We err towards transaction growth.
07:15That's really how you grow the health of the business over time.
07:18We've taken some price as we've seen commodity inflation, not nearly as much as some other brands.
07:22And that, quite frankly, is what's been fueling our growth this year and years prior compared to the rest of
07:28the concepts out there.
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