Jack in the Box Inc. Reports Second Quarter FY 2010 Earnings; Updates Guidance for FY 2010

The decline in diluted earnings per share was due primarily to a decrease of approximately 15 cents per share in gains on the sale of company-operated Jack in the Box^® restaurants as a result of the timing of such transactions.

“After beginning the quarter with negative same-store sales resulting from severe winter weather, Qdoba’s same-store sales improved steadily throughout the quarter, and benefitted from both our new Craft 2™ menu and increased spending by consumers in the fast-casual segment.”

Same-store sales at Jack in the Box company restaurants decreased 8.6 percent in the second quarter of 2010 compared with a year-ago increase of 0.4 percent.

Linda A. Lang, chairman, chief executive officer and president, said, “California experienced continued stabilization and was our best performing market for the second quarter on both a one- and two-year basis. Although both transactions and average check improved from the first quarter, we don’t expect significant improvement in underlying fundamentals until high unemployment rates in our major markets for our key customer demographics begin to improve.”

System same-store sales at Qdoba Mexican Grill^® increased 3.1 percent in the second quarter versus a year-ago decrease of 2.3 percent. Lang said, “After beginning the quarter with negative same-store sales resulting from severe winter weather, Qdoba’s same-store sales improved steadily throughout the quarter, and benefitted from both our new Craft 2™ menu and increased spending by consumers in the fast-casual segment.”

Consolidated restaurant operating margin was 15.2 percent of sales in the second quarter of 2010, compared with 16.5 percent of sales in the year-ago quarter. The company estimates that sales deleverage negatively impacted margins by approximately 190 basis points in the second quarter of 2010.

Food and packaging costs were 70 basis points better than prior year. Overall commodity costs were approximately 1 percent lower in the quarter versus prior year. Beef was slightly favorable in the quarter, and the benefit of lower costs for poultry, shortening and potatoes offset higher produce and pork costs.

Payroll and employee benefits costs were 30.2 percent of restaurant sales versus 30.0 percent in the year-ago quarter as sales deleverage of approximately 40 basis points offset labor productivity initiatives. Occupancy and other costs increased 180 basis points due primarily to sales deleverage and higher depreciation due to the company’s ongoing restaurant re-image program.

Franchised restaurant costs for the second quarter increased to 45.6 percent of franchised restaurant revenues from 41.2 percent last year due primarily to sales deleverage against fixed rental costs.

SG&A expense for the second quarter decreased by $8.7 million and was 11.0 percent of revenues compared with 11.6 percent last year. The decrease in SG&A was attributable primarily to the following:

• The company’s refranchising strategy and planned overhead reductions resulted in lower general and administrative costs of approximately $5.2 million.
• Advertising costs were $3.7 million lower, approximately half of which was due to refranchising.
• Mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans positively impacted SG&A by $0.7 million in the second quarter as compared to a positive impact of $1.9 million in last year’s second quarter, resulting in a year-over-year increase in SG&A of $1.2 million.
• Facility charges declined by $1.7 million due primarily to lower impairment charges. Facility charges are expected to be higher in the back half of the year due to the timing of interior re-images.
• Incentive compensation declined by $3.3 million.
• Pension expense increased by $3.9 million due primarily to lower discount rates. Higher pension expense is expected to continue throughout the year and is non-cash in nature. The company expects cash pension contributions for the full year to be similar to last year.

The company sold 30 company-operated Jack in the Box restaurants to franchisees during the quarter, below its internal expectations due to the timing of one transaction involving 21 restaurants. The closing of that sale to a new franchisee was delayed until early in the third quarter.

Gains on refranchising transactions totaled $3.0 million in the second quarter compared with $17.2 million in the year-ago quarter from the sale of 46 restaurants. Average gains were $100,000 for the second quarter of fiscal 2010 as compared to $375,000 in the second quarter of fiscal 2009. The restaurants sold in the second quarter had lower-than-average sales volumes and cash flows; however, the company expects these transactions to be accretive to future operating earnings while generating $7.5 million in cash proceeds from the sales.

“More than 48 percent of the Jack in the Box system is now franchised, and we expect to cross the 50 percent mark later this quarter,” Lang said. “We remain on track to achieve our long-term goal to increase the percentage of franchise ownership to 70 to 80 percent by the end of fiscal year 2013.”

The company did not provide any financing during the quarter for refranchising transactions, but collected $3.3 million related to previous refranchising transactions. As of the end of the second quarter, notes receivable from franchisees related to refranchising activities totaled $7.2 million.

The company repurchased approximately 464,000 shares of its common stock in the second quarter of 2010 at an average price of $21.54 per share. Through the first two quarters of fiscal 2010, the company repurchased approximately 2,569,000 shares of its common stock at an average price of $19.44 per share. Approximately $47 million remains available for additional purchases according to the terms of the company’s credit facility under a three-year stock-buyback program authorized by the company’s board of directors in November 2007.

Restaurant openings

Eleven new Jack in the Box restaurants opened in the second quarter, including 4 franchised locations, compared with 18 new restaurants opened system-wide during the same quarter last year, of which 4 were franchised locations.

In the second quarter, 4 Qdoba restaurants opened, including 3 franchised locations, versus 15 new restaurants in the year-ago quarter, 8 of which were franchised.

At April 11, 2010, the company’s system total comprised 2,233 Jack in the Box restaurants, including 1,080 franchised locations, and 505 Qdoba restaurants, including 345 franchised locations.

Second quarter FY 2010 initiatives

In early February, the company debuted a new platform, Grilled Sandwiches, with two varieties, each served on a new grilled artisan bread: Turkey, Bacon & Cheddar, which features roasted turkey, two slices of cheddar cheese and two bacon strips topped with a sun-dried tomato sauce; and Deli Trio, which features Genoa salami, sliced ham, roasted turkey, two slices of provolone cheese and two pickle fillets topped with a creamy Italian sauce. Grilled Sandwiches are generally priced at $3.99, plus tax.

In March, Jack in the Box introduced new, crispier French fries, which have a shorter cook time and maintain their temperature longer.

Also in March, Jack in the Box expanded its line of entreè salads by adding a Grilled Chicken Salad, which features a blend of fresh Romaine, Iceberg and Spring Mix along with shredded cheddar cheese, grape tomatoes, cucumber slices, red onion and shredded carrots served with seasoned croutons and low-fat balsamic dressing on the side. The salad is topped with strips of grilled chicken and meets the nutritional criteria for HealthyDiningFinder.com, an online resource featuring dietician-approved healthy dining menu options.

On the value front, Jack in the Box continued to offer its Jumbo Deal through February, which included a Jumbo Jack® hamburger, two tacos, a small order of fries, and a small drink – all for just $3.49, plus tax. For the last six weeks of the quarter, a breakfast value message – two biscuits with sausage or bacon and cheese for $3, plus tax – was featured. In addition, during Lent, Jack in the Box offered a Fish Sandwich for just $1.49, plus tax.

Third quarter FY 2010 initiatives

Jack in the Box continues to have a robust pipeline of new products that are in various stages of development and test. “Our marketing strategy is to target multiple dayparts and balance our advertising and promotions to feature innovative premium products along with value-priced offerings,” Lang said.

Jack in the Box launched two new products in April and debuted a mix-and-match option offering guests a unique opportunity to build their own combo meals:

• Leveraging the new Grilled Sandwich platform, Jack in the Box expanded its breakfast menu with a Grilled Breakfast Sandwich. Featuring premium grilled artisan bread, the new sandwich includes two fried eggs and two slices each of American cheese, ham and bacon.
• Jack in the Box introduced a new premium blend of coffee made with Kona coffee beans. The new Kona Classic® coffee blend is being brewed for the chain’s hot and iced coffee drinks.

• Jack in the Box began offering guests the opportunity to mix and match any three of the following eight menu items for just $3, plus tax: Hamburger Deluxe, Jr. Bacon Cheeseburger, chicken sandwich, onion rings, egg roll, small French fries, small fountain drink and mini churros.

This week, Jack in the Box expanded its beverage platforms by introducing a Raspberry Smoothie and a Raspberry Shake made with real ice cream.

Guidance

The following guidance and underlying assumptions reflect the company’s current expectations for the third quarter ending July 4, 2010, and fiscal year ending Oct. 3, 2010. Fiscal 2010 is a 53-week year, with 16 weeks in the first quarter, 12 weeks in each of the second and third quarters, and 13 weeks in the fourth quarter versus 12 weeks in the fourth quarter of fiscal 2009.

Q3 FY 2010 guidance

• Same-store sales are expected to decrease 7 to 9 percent at Jack in the Box company restaurants versus a 1.0 percent decrease in the year-ago quarter.
• Same-store sales are expected to increase 2 to 4 percent at Qdoba system restaurants versus a 2.8 percent decrease in the year-ago quarter.
• Refranchising gains are expected to be higher than the year-ago quarter.

Fiscal year 2010 guidance

• 6.5 to 8.5 percent decrease in same-store sales at Jack in the Box company restaurants.
• 1 to 3 percent increase in same-store sales at Qdoba system restaurants.
• Overall commodity costs are expected to decrease by approximately 1 percent for the full year, reflecting the approximate 4.5 percent decrease experienced during the first two quarters of the year. Commodity costs are expected to increase by approximately 2 percent in the third quarter and 3 percent in the fourth quarter as compared to prior year.
• Restaurant operating margin for the full year is expected to range from 15 to 16 percent, depending on same-store sales.
• 45 to 50 new Jack in the Box restaurants, including approximately 30 company locations.
• 30 to 40 new Qdoba restaurants, including approximately 15 company locations.

• $60 to $70 million in gains on the sale of approximately 200 Jack in the Box restaurants to franchisees, with $85 to $95 million in total proceeds resulting from the sales.
• Capital expenditures of $125 to $135 million. Capital expenditures are expected to remain in this range through fiscal year 2012. Following the planned completion of the Jack in the Box re-image program, annual capital expenditures are anticipated to be approximately $110 million or less.
• SG&A expense in the mid-11 percent range, reflecting higher advertising spending in the last half of the fiscal year.
• Tax rate of approximately 36 to 37 percent.
• Diluted earnings per share of $1.85 to $2.05. The impact of the 53^rd week is estimated to contribute approximately 4 cents per diluted share.

About Jack in the Box Inc.

Jack in the Box Inc. (NASDAQ: JACK), based in San Diego, is a restaurant company that operates and franchises Jack in the Box^® restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 18 states. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Grill^®, a leader in fast-casual dining, with more than 500 restaurants in 43 states and the District of Columbia. 

JACK IN THE BOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share data) (Unaudited)
				Quarter								Year-to-Date
				April 11,				April 12,				April 11,				April 12,
					2010				2009				2010				2009
Revenues:
	Restaurant sales			$	388,301			$	468,326			$	900,395			$	1,096,975
	Distribution sales				90,762				67,460				195,380				158,983
	Franchised restaurant revenues				50,643				42,625				115,249				99,126
					529,706				578,411				1,211,024				1,355,084
Operating costs and expenses:
	Food and packaging				122,316				150,654				284,643				364,328
	Payroll and employee benefits				117,133				140,428				273,485				330,498
	Occupancy and other				89,888				99,947				210,041				233,374
		Company restaurant costs			329,337				391,029				768,169				928,200
	Distribution costs of sales				90,910				67,035				196,279				157,614
	Franchised restaurant costs				23,102				17,561				52,512				39,690
	Selling, general and administrative expenses				58,194				66,910				131,550				157,689
	Gains on the sale of company-operated restaurants, net				(2,987	)			(17,234	)			(12,367	)			(35,595	)
					498,556				525,301				1,136,143				1,247,598
Earnings from operations					31,150				53,110				74,881				107,486
Interest expense					4,125				4,979				9,897				13,180
Interest income					(252	)			(406	)			(589	)			(880	)
	Interest expense, net				3,873				4,573				9,308				12,300
Earnings from continuing operations and before income taxes					27,277				48,537				65,573				95,186
Income taxes					9,597				18,951				23,645				37,633
Earnings from continuing operations					17,680				29,586				41,928				57,553
Earnings from discontinued operations, net					-				275				-				705
Net earnings				$	17,680			$	29,861			$	41,928			$	58,258
Net earnings per share - basic:
	Earnings from continuing operations			$	0.32			$	0.52			$	0.75			$	1.02
	Earnings from discontinued operations, net				-				0.01				-				0.01
Net earnings per share				$	0.32			$	0.53			$	0.75			$	1.03
Net earnings per share - diluted:
	Earnings from continuing operations			$	0.32			$	0.51			$	0.74			$	1.00
	Earnings from discontinued operations, net				-				0.01				-				0.01
Net earnings per share				$	0.32			$	0.52			$	0.74			$	1.01
Weighted-average shares outstanding:
	Basic				54,972				56,714				55,711				56,644
	Diluted				55,797				57,704				56,499				57,554

 

JACK IN THE BOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Unaudited)
				April 11,				September 27,
				2010				2009
ASSETS
Current assets:
	Cash and cash equivalents			$	12,461			$	53,002
	Accounts and other receivables, net				56,142				49,036
	Inventories				37,768				37,675
	Prepaid expenses				29,979				8,958
	Deferred income taxes				44,614				44,614
	Assets held for sale				92,687				99,612
	Other current assets				5,193				7,152
		Total current assets			278,844				300,049
Property and equipment, at cost					1,603,575				1,602,247
Less accumulated depreciation and amortization					(708,665	)			(665,957	)
	Property and equipment, net				894,910				936,290
Other assets, net					226,728				219,571
				$	1,400,482			$	1,455,910
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current maturities of long-term debt			$	50,797			$	67,977
	Accounts payable				68,641				63,620
	Accrued liabilities				165,312				206,100
		Total current liabilities			284,750				337,697
Long-term debt, net of current maturities					348,419				357,270
Other long-term liabilities					233,609				234,190
Deferred income taxes					1,660				2,264
Stockholders’ equity:
	Preferred stock $.01 par value, 15,000,000 authorized, none issued				-				-
	Common stock $.01 par value, 175,000,000 authorized, 74,234,137 and
	73,987,070 issued, respectively				742				740
	Capital in excess of par value				178,217				169,440
	Retained earnings				954,138				912,210
	Accumulated other comprehensive loss, net				(76,594	)			(83,442	)
	Treasury stock, at cost, 19,294,745 and 16,726,032 shares				(524,459	)			(474,459	)
		Total stockholders' equity			532,044				524,489
				$	1,400,482			$	1,455,910

 

JACK IN THE BOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
				Year-to-Date
				April 11,				April 12,
					2010				2009
Cash flows from operating activities:
	Net earnings			$	41,928			$	58,258
	Earnings from discontinued operations, net				-				(705	)
	Net earnings from continuing operations				41,928				57,553
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			54,152				53,885
		Deferred finance cost amortization			724				836
		Deferred income taxes			(3,267	)			(168	)
		Share-based compensation expense			5,500				4,962
		Pension and postretirement expense			15,661				6,594
		Losses (gains) on cash surrender value of company-owned life insurance			(6,026	)			10,006
		Gains on the sale of company-operated restaurants, net			(12,367	)			(35,595	)
		Gains on the acquisition of franchise-operated restaurants			-				(958	)
		Losses on the disposition of property and equipment, net			2,360				5,784
		Impairment charges			1,503				4,857
	Changes in assets and liabilities, excluding acquisitions and dispositions:
		Receivables			(11,811	)			(10,957	)
		Inventories			(93	)			4,085
		Prepaid expenses and other current assets			(19,833	)			(5,609	)
		Accounts payable			(3,309	)			(14,913	)
		Pension and postretirement contributions			(11,824	)			(9,524	)
		Other			(26,652	)			(5,670	)
		Cash flows provided by operating activities from continuing operations			26,646				65,168
		Cash flows provided by (used in) operating activities from discontinued operations			(2,172	)			2,173
		Cash flows provided by operating activities			24,474				67,341
Cash flows from investing activities:
	Purchases of property and equipment				(42,632	)			(91,171	)
	Proceeds from the sale of company-operated restaurants				19,093				40,429
	Proceeds from (purchases of) assets held for sale and leaseback, net				8,889				(22,760	)
	Collections on notes receivable				7,675				21,356
	Acquisition of franchise-operated restaurants				-				(6,760	)
	Other				1,031				(2,093	)
		Cash flows used in investing activities from continuing operations			(5,944	)			(60,999	)
		Cash flows used in investing activities from discontinued operations			-				(849	)
		Cash flows used in investing activities			(5,944	)			(61,848	)
Cash flows from financing activities:
	Borrowings on revolving credit facility				313,000				246,000
	Repayments of borrowings on revolving credit facility				(293,000	)			(287,000	)
	Principal repayments on debt				(46,031	)			(1,647	)
	Proceeds from issuance of common stock				2,445				2,136
	Repurchase of common stock				(50,000	)			-
	Excess tax benefits from share-based compensation arrangements				690				450
	Change in book overdraft				13,825				(2,308	)
		Cash flows used in financing activities			(59,071	)			(42,369	)
Net decrease in cash and cash equivalents					(40,541	)			(36,876	)
Cash and cash equivalents at beginning of period					53,002				47,884
Cash and cash equivalents at end of period				$	12,461			$	11,008

 

JACK IN THE BOX INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION (Unaudited)
The following table sets forth, unless otherwise indicated, the percentage relationship to total revenues of certain items included in our condensed consolidated statements of earnings:
				Quarter						Year-to-Date
				April 11,			April 12,			April 11,			April 12,
				2010			2009			2010			2009
Statement of Earnings Data:
Revenues:
	Restaurant sales			73.3	%		81.0	%		74.4	%		81.0	%
	Distribution sales			17.1	%		11.7	%		16.1	%		11.7	%
	Franchised restaurant revenues			9.6	%		7.3	%		9.5	%		7.3	%
Total revenues				100.0	%		100.0	%		100.0	%		100.0	%
Operating costs and expenses:
	Food and packaging (1)			31.5	%		32.2	%		31.6	%		33.2	%
	Payroll and employee benefits (1)			30.2	%		30.0	%		30.4	%		30.1	%
	Occupancy and other (1)			23.1	%		21.3	%		23.3	%		21.3	%
		Company restaurant costs (1)		84.8	%		83.5	%		85.3	%		84.6	%
Distribution costs of sales (1)				100.2	%		99.4	%		100.5	%		99.1	%
Franchised restaurant costs (1)				45.6	%		41.2	%		45.6	%		40.0	%
Selling, general and administrative expenses				11.0	%		11.6	%		10.9	%		11.6	%
Gains on the sale of company-operated restaurants, net				(0.6	%)		(3.0	%)		(1.0	%)		(2.6	%)
Earnings from operations				5.9	%		9.2	%		6.2	%		7.9	%
Income tax rate (2)				35.2	%		39.0	%		36.1	%		39.5	%
(1) As a percentage of the related sales and/or revenues (2) As a percentage of earnings from continuing operations and before income taxes

The following table summarizes the year-to-date changes in the number of Jack in the Box and Qdoba company-operated and franchised restaurants:
				April 11, 2010										April 12, 2009
				Company			Franchised			Total				Company			Franchised			Total
Jack in the Box:
	Beginning of period			1,190			1,022			2,212				1,346			812			2,158
		New		16			12			28				26			8			34
		Refranchised		(53	)		53			-				(75	)		75			-
		Acquired by the Company		1			(1	)		-				-			-			-
		Closed		(1	)		(6	)		(7	)			(5	)		(1	)		(6	)
	End of period			1,153			1,080			2,233				1,292			894			2,186
		% of system		52	%		48	%		100	%			59	%		41	%		100	%
Qdoba:
	Beginning of period			157			353			510				111			343			454
		New		3			7			10				9			23			32
		Acquired by the Company		-			-			-				22			(22	)		-
		Closed		-			(15	)		(15	)			-			(2	)		(2	)
	End of period			160			345			505				142			342			484
		% of system		32	%		68	%		100	%			29	%		71	%		100	%
Consolidated:
	Total system			1,313			1,425			2,738				1,434			1,236			2,670
		% of system		48	%		52	%		100	%			54	%		46	%		100	%

 

Logos, product and company names mentioned are the property of their respective owners.

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