Jack in the Box Inc. Reports Third Quarter FY 2009 Earnings and Updates FY 2009 Guidance

Jack in the Box Inc. (NASDAQ: JACK) today reported earnings from continuing operations of $32.9 million, or 57 cents per diluted share, for the third quarter ended July 5, 2009, compared with earnings from continuing operations of $29.5 million, or 50 cents per diluted share, for the third quarter of fiscal 2008. Third quarter 2009 results include a pre-tax loss of approximately $2.4 million, or approximately 3 cents per diluted share, related to the expected sale of a lower-performing Jack in the Box(R) company-operated market that is anticipated to close by the end of the calendar year. This loss is included in 'Gains on sale of company-operated restaurants, net' in the accompanying consolidated statements of earnings.

As previously announced, the company expects to complete the sale of its 61 Quick Stuff(R) convenience stores by the end of fiscal 2009 in multiple all-cash transactions. As a result, the company recorded an after-tax charge of $14.1 million in the third quarter, which reduced diluted earnings per share by approximately 24 cents. This charge and the results of operations for Quick Stuff are included in discontinued operations in the accompanying consolidated statements of earnings for all periods presented.

Third quarter FY 2009 results

Same-store sales at Jack in the Box company restaurants decreased 1.0 percent in the third quarter compared with a year-ago decrease of 0.4 percent. Sales during the quarter started off strong but deteriorated significantly near the end of the quarter.

System same-store sales at Qdoba Mexican Grill(R) decreased 2.8 percent in the third quarter versus a year-ago increase of 0.5 percent, in line with the company's guidance.

Consolidated restaurant operating margin improved to 18.4 percent of sales in the third quarter of 2009, compared with 16.7 percent of sales in the year-ago quarter and 16.5 percent of sales in the second quarter of 2009. Food and packaging costs were 180 basis points better than prior year as a result of the benefit of effective price increases at Jack in the Box of approximately 3.3 percent, favorable product mix, and the company's margin-improvement initiatives. Commodity costs were approximately 0.8 percent lower in the quarter versus prior year, better than anticipated, as most commodities trended favorable to the company's expectations, including beef and cheese, which were down 4 percent and more than 25 percent, respectively, from last year's third quarter. Restaurant operating costs were 50.1 percent of restaurant sales, equal to the year-ago quarter, with improvements in labor and utilities expense offsetting higher depreciation resulting from the kitchen enhancement program completed in fiscal 2008 and the ongoing re-image program at Jack in the Box, as well as higher rent and depreciation related to new restaurant development and sales deleverage at Jack in the Box and Qdoba.

'We're pleased with the improvement in restaurant operating margin and earnings despite the deceleration in sales during the quarter,' said Linda A. Lang, chairman and chief executive officer. 'The ongoing recession, which was exacerbated by higher unemployment and rising gas prices during the quarter, has consumers cutting back on their discretionary spending. In addition, we have seen aggressive discounting by not only quick-service competitors but other segments of the restaurant industry as well.'

SG&A expense improved to 10.9 percent of revenues in the third quarter compared with 11.0 percent last year with positive mark-to-market adjustments on investments supporting the company's non-qualified retirement plans substantially offsetting impairment charges and higher pre-opening costs.

Gains on the sale of 23 company-operated Jack in the Box restaurants to franchisees totaled $11.1 million in the third quarter compared with $15.2 million in the year-ago quarter from the sale of 17 restaurants. Partially offsetting these gains was a loss of $2.4 million related to the expected sale of a lower-performing Jack in the Box company-operated market that is expected to be completed by the end of the calendar year. Excluding this loss, average gains were $482,000 in the quarter. Through the first three quarters of fiscal 2009, the company refranchised 98 Jack in the Box restaurants, with gains totaling $44.3 million, including the $2.4 million loss.

The company provided $5.3 million in bridge financing during the quarter for one of the three refranchising transactions. As of the end of the third quarter, notes receivable from franchisees related to refranchising activities totaled $12.3 million.

The Jack in the Box system is now 42 percent franchised versus 36 percent a year ago. The company remains on track to achieve its long-term goal to increase the percentage of franchise ownership in the Jack in the Box system to 70 to 80 percent by the end of fiscal year 2013.

The tax rate for the third quarter was 37.7 percent compared with 38.9 percent in the prior year, with the decrease due to higher work opportunity tax credits as well as the market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not deductible or taxable.

Restaurant openings

Fifteen new Jack in the Box restaurants opened in the third quarter, including 9 company locations, compared with 7 new restaurants opened systemwide during the same quarter last year. Late in the quarter, a franchisee opened two restaurants in a new contiguous market, Albuquerque, N.M. Opening week sales at each of the locations exceeded $115,000. Through the first three quarters of 2009, 49 new Jack in the Box restaurants opened, compared to 23 in the first three quarters of 2008. In the third quarter, 9 Qdoba restaurants opened, including 4 franchised locations, versus 18 new restaurants in the year-ago quarter, 16 of which were franchised.

At July 5, 2009, the company's system total comprised 2,199 Jack in the Box restaurants, including 921 franchised locations, and 491 Qdoba restaurants, including 344 franchised locations.

Third quarter FY 2009 initiatives

During the quarter, the company continued to execute its strategic initiative to reinvent the Jack in the Box brand. This initiative is expected to drive sales by offering guests a better restaurant experience than typically found in the quick-serve restaurant segment through menu innovation, enhanced restaurant facilities and improvements in guest service.

In April, Jack in the Box enhanced its line of Real Fruit Smoothies with a new Tropical flavor, which is made from a blend of banana and mango Minute Maid(R) fruit juices and purees blended with nonfat frozen yogurt.

In early June, Jack in the Box expanded its product platform of mini burgers and sandwiches by adding Mini Buffalo Ranch Chicken Sandwiches, which feature a trio of mini homestyle chicken fillets topped with Frank's RedHot sauce, ranch sauce and shredded lettuce on toasted mini buns.

Also in June, Jack in the Box added Flavored Iced Teas to its lineup of premium beverages and debuted three refreshing flavors - Mango, Peach and Raspberry.

A major element of the company's strategic initiative to reinvent the Jack in the Box brand is a comprehensive restaurant re-imaging program. Approximately 45 percent of the Jack in the Box system, including new construction, now features all interior and exterior elements of the program. Exterior enhancements, including new paint schemes, lighting and landscaping, are now completed at 69 percent of the Jack in the Box system.

Guidance (from continuing operations)

The following guidance and underlying assumptions reflect the company's current expectations for the fourth quarter and fiscal year ending Sept. 27, 2009, in approximate amounts:

Q4 FY 2009 guidance

• 2.5 to 4.5 percent same-store sales decrease at Jack in the Box company restaurants versus a 0.8 percent decrease in the year-ago quarter.

• 2 to 4 percent same-store sales decrease at Qdoba system restaurants versus a 1.0 percent decrease in the year-ago quarter.

• Same-store sales guidance reflects trends experienced during the first four weeks of the fourth quarter.

Fiscal year 2009 guidance update

• Flat to 1 percent decrease in same-store sales at Jack in the Box company restaurants.

• 1 to 3 percent decrease in same-store sales at Qdoba system restaurants.

• Overall commodity costs are expected to increase by approximately 2 percent.

• Restaurant operating margin for the full year is expected to be in the low 16-percent range.

• Approximately 60 new Jack in the Box restaurants, including approximately 40 company locations.

• 55 to 65 new Qdoba restaurants, including approximately 25 company locations.

• $65 to $70 million in gains on the sale of approximately 150 Jack in the Box restaurants to franchisees, with $90 to $95 million in total proceeds resulting from the sales.

• Capital expenditures of approximately $175 million.

• SG&A expense related to continuing operations in the mid-11 percent range, assuming no further mark-to-market adjustments of significance.

• Tax rate of approximately 39 percent.

• Diluted earnings per share from continuing operations of $2.11 to $2.18, including franchise gains, with the range reflecting uncertainty in the timing of anticipated refranchising transactions as well as same-store sales volatility. EPS guidance from continuing operations excludes the results for Quick Stuff, which contributed 2 cents per diluted share in fiscal 2008, as well as any potential insurance recoveries related to Hurricane Ike.

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