Jack in the Box Inc. Reports First Quarter FY 2013 Earnings; Updates Guidance for FY 2013

2013-02-21
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  • Jack in the Box Jack in the Box Inc. (NASDAQ: JACK) reported earnings from continuing operations of $23.9 million, or $0.54 per diluted share, for the first quarter ended January 20, 2013, compared with earnings from continuing operations of $12.0 million, or $0.27 per diluted share, for the first quarter of fiscal 2012.

    Operating earnings per share, a non-GAAP measure which the company defines as diluted earnings per share from continuing operations on a GAAP basis excluding restructuring charges and gains from refranchising, were $0.54 per share in the first quarter of fiscal 2013 compared with $0.25 per share in the prior year quarter. Gains from refranchising contributed approximately $0.01 per diluted share for the quarter as compared with approximately $0.02 per diluted share in the prior year quarter.

    A reconciliation of non-GAAP measurements to GAAP results is provided below with additional information included in the attachment to this release. Figures may not add due to rounding.

        16 Weeks Ended
    January 20,

    2013

      January 22,

    2012

    Diluted earnings per share from

    continuing operations – GAAP

    $ 0.54   $ 0.27
    Plus: Restructuring charges 0.01 ?
    Less: Gains from refranchising   (0.01 )     (0.02 )
    Operating earnings per share – Non-GAAP $ 0.54     $ 0.25  

    During the first quarter of 2013, the company continued to review and refine its organization to create a structure that more efficiently supports its business model. As a result, restructuring charges of $0.8 million, or approximately $0.01 per diluted share, were recorded during the first quarter of 2013. These charges are included in “impairment and other charges, net” in the accompanying consolidated statements of earnings.

    As previously announced, during the fourth quarter of 2012, the company began outsourcing its distribution business, and the transition was completed in the first quarter of fiscal 2013. As a result of the outsourcing, the company recorded an after-tax charge totaling $3.3 million in the first quarter of fiscal 2013, which reduced diluted net earnings per share by approximately $0.07. This charge and the results of operations for the distribution business are included in discontinued operations in the accompanying consolidated statements of earnings for all periods presented.

    Increase in same-store sales:

        16 Weeks Ended

    January 20, 2013

        16 Weeks Ended

    January 22, 2012

    Jack in the Box®:
    Company 2.1 % 5.3 %
    Franchise 1.8 % 2.8 %
    System 1.9 % 3.6 %
    Qdoba®:
    Company 1.5 % 3.5 %
    Franchise 0.5 % 4.0 %
    System 1.0 % 3.8 %

    Linda A. Lang, chairman and chief executive officer, said, “Jack in the Box company same-store sales increased 2.1 percent and system same-store sales increased 1.9 percent in the first quarter. Jack in the Box system same-store sales growth for the quarter exceeded that of the QSR sandwich segment for the comparable period, according to The NPD Group’s SalesTrack Weekly for the 16-week time period ended January 20, 2013. Included in this segment are the top 15 sandwich and QSR burger chain competitors.

    “Qdoba same-store sales in the first quarter increased 1.5 percent for company restaurants, driven by transaction and catering growth. One of our key priorities for 2013 is to drive traffic at Qdoba, and we believe our promotional efforts aimed at differentiating the brand resulted in the improvement in traffic and sales trends.

    “Numerous companies in both the restaurant and retail space have reported some weakening in sales in the last part of January and first half of February which has been attributed to higher payroll taxes, delayed tax refunds and the rapid increase in gas prices over the last month. Our sales guidance for the second quarter reflects the softness we’ve seen thus far in the quarter and the uncertainty surrounding consumer spending,” Lang said.

    Consolidated restaurant operating margin improved by 220 basis points to 15.7 percent of sales in the first quarter of 2013, compared with 13.5 percent of sales in the year-ago quarter. Restaurant operating margin increased 320 basis points to 17.1% of sales for Jack in the Box and decreased 40 basis points to 11.6% of sales for Qdoba.

    Food and packaging costs in the quarter were 130 basis points lower than prior year. The decrease resulted from the benefit of price increases, favorable product mix at Jack in the Box, and a greater proportion of Qdoba company restaurants which combined to more than offset slight commodity inflation and the impact of promotional activity at Qdoba. Overall commodity costs were up less than 1 percent in the quarter.

    Payroll and employee benefits costs were 40 basis points lower than the year-ago quarter, reflecting leverage from same-store sales increases, the favorable impact of recent acquisitions of Qdoba franchised restaurants, and a modest benefit from refranchising Jack in the Box restaurants.

    Occupancy and other costs decreased 50 basis points in the first quarter due primarily to leverage from same-store sales increases and the favorable impact of recent acquisitions of Qdoba franchised restaurants.

    SG&A expense for the first quarter increased by $1.6 million and was 14.5 percent of revenues as compared to 14.4 percent in the prior year quarter. Mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans positively impacted SG&A by $1.3 million in the first quarter as compared to a positive impact of $3.2 million in last year’s first quarter, resulting in a year-over-year increase in SG&A of $1.9 million. The increase in SG&A was also due to higher incentive compensation, increased G&A related to Qdoba growth, and higher pension costs which were partially offset by the benefit of the company’s restructuring activities as well as lower advertising and overhead costs resulting from the Jack in the Box refranchising strategy.

    Impairment and other charges decreased $1.1 million in the quarter compared to a year ago primarily due to income of $2.1 million recognized in 2013 in connection with the resolution of two eminent domain matters involving Jack in the Box restaurants.

    Gains on the sale of company-operated Jack in the Box restaurants were $0.7 million in the 2013 quarter, or approximately $0.01 per diluted share, which primarily represented additional proceeds received as a result of the extension of underlying franchise and lease agreements for previously sold restaurants. This compares to gains of $1.1 million, or approximately $0.02 per diluted share, in the year-ago quarter.

    The tax rate for the first quarter of 2013 was 30.2 percent versus 34.3 percent for the first quarter of 2012. The lower tax rate in the first quarter of fiscal 2013 was due primarily to legislation that retroactively reinstated 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. The company now expects its full year tax rate to be approximately 35 to 36 percent as a result of the reinstated tax credits.

    The company repurchased approximately 985,000 shares of its common stock in the first quarter at an average price of $27.26 per share for an aggregate cost of $26.9 million, leaving $50 million remaining under a $100 million stock-buyback program authorized by the company’s board of directors that expires in November 2013, and $100 million remaining under an authorization that expires in November 2014.

    Restaurant openings

    Nine new Jack in the Box restaurants opened in the first quarter of fiscal 2013, including six franchised locations, compared with 16 new restaurants opened system-wide during the same quarter last year, of which 11 were franchised.

    In the first quarter, 17 Qdoba restaurants opened, including 14 franchised locations, versus 15 new restaurants in the year-ago quarter, of which 9 were franchised. The company also acquired 6 Qdoba restaurants from franchisees in the quarter.

    At January 20, 2013, the company’s system total comprised 2,255 Jack in the Box restaurants, including 1,704 franchised locations, and 636 Qdoba restaurants, including 311 franchised locations.

    Guidance

    The following guidance and underlying assumptions reflect the company’s current expectations for the second quarter ending April 14, 2013, and the fiscal year ending September 29, 2013. Fiscal 2013 is a 52-week year, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.

    Second quarter fiscal year 2013 guidance

    • Same-store sales are expected to be approximately flat at Jack in the Box company restaurants versus a 5.6 percent increase in the year-ago quarter.
    • Same-store sales are expected to be flat to down 2 percent at Qdoba company restaurants versus a 3.8 percent increase in the year-ago quarter.

    Fiscal year 2013 guidance

    • Same-store sales are expected to increase approximately 1.5 to 2.5 percent at Jack in the Box company restaurants.
    • Same-store sales are expected to increase approximately 1.0 to 2.0 percent at Qdoba company restaurants.
    • Overall commodity costs are expected to increase by approximately 2 to 3 percent for the full year.
    • Restaurant operating margin for the full year is expected to range from approximately 15.5 to 16.0 percent, depending on same-store sales and commodity inflation.
    • SG&A as a percentage of revenue is expected to be in the mid-14 percent range as compared to 14.7% in fiscal 2012. G&A as a percentage of system-wide sales is expected to decline to approximately 4.3% in fiscal 2013 from 4.6% in fiscal 2012.
    • Impairment and other charges as a percentage of revenue are expected to be approximately 50 to 70 basis points, excluding restructuring charges.
    • The company no longer provides guidance with respect to refranchising gains or proceeds.
    • 20 to 25 new Jack in the Box restaurants are expected to open, including approximately 10 company locations.
    • 70 to 85 new Qdoba restaurants are expected to open, of which approximately 40 to 45 are expected to be company locations.
    • Capital expenditures are expected to be $95 to $105 million.
    • The tax rate is expected to be approximately 35 to 36 percent.
    • Operating earnings per share, which the company defines as diluted earnings per share from continuing operations on a GAAP basis excluding restructuring charges and gains from refranchising, are now expected to range from $1.48 to $1.63 in fiscal 2013 as compared to operating earnings per share of $1.20 in fiscal 2012.
    • Diluted earnings per share includes approximately $0.04 of incentive payments to Jack in the Box franchisees in fiscal 2013 to complete the installation of new signage as compared to $0.11 in fiscal 2012 to complete the re-image program.

    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 21 states. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Grill®, a leader in fast-casual dining, with more than 600 restaurants in 44 states, the District of Columbia and Canada.

    JACK IN THE BOX INC. AND SUBSIDIARIES

    RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS

    (Unaudited)

    Operating earnings per share, a non-GAAP measure, is defined by the company as diluted earnings per share from continuing operations on a GAAP basis excluding restructuring charges and gains from refranchising. Management believes this non-GAAP financial measure provides important supplemental information to assist investors in analyzing the performance of the company’s core business. In addition, the company uses operating earnings per share in establishing performance goals for purposes of executive compensation. The company encourages investors to rely upon its GAAP numbers but includes this non-GAAP financial measure as a supplemental metric to assist investors. This non-GAAP financial measure should not be considered as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In addition, this non-GAAP financial measure used by the company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

    Below is a reconciliation of non-GAAP operating earnings per share to the most directly comparable GAAP measure, diluted earnings per share from continuing operations. Figures may not add due to rounding.

        16 Weeks Ended
    January 20,

    2013

      January 22,

    2012

    Diluted earnings per share from

    continuing operations – GAAP

    $ 0.54   $ 0.27
    Plus: Restructuring charges 0.01 ?
    Less: Gains from refranchising   (0.01 )     (0.02 )
    Operating earnings per share – Non-GAAP $ 0.54     $ 0.25  

     

                         
    JACK IN THE BOX INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
    (In thousands, except per share data)
    (Unaudited)
     
    Sixteen Weeks Ended
    January 20,

    2013

    January 22,

    2012

    Revenues:
    Company restaurant sales $ 360,094 $ 364,102
    Franchise revenues   105,429     93,819  
      465,523     457,921  
    Operating costs and expenses, net:
    Company restaurant costs:
    Food and packaging 116,101 122,107
    Payroll and employee benefits 104,064 106,811
    Occupancy and other   83,354     85,943  
    Total company restaurant costs 303,519 314,861
    Franchise costs 52,488 49,859
    Selling, general and administrative expenses 67,336 65,717
    Impairment and other charges, net 3,263 4,351
    Gains on the sale of company-operated restaurants   (748 )   (1,122 )
      425,858     433,666  
    Earnings from operations 39,665 24,255
    Interest expense, net   5,365     6,057  
    Earnings from continuing operations and before income taxes 34,300 18,198
    Income taxes   10,356     6,248  
    Earnings from continuing operations 23,944 11,950
    Losses from discontinued operations, net of income tax benefit

     

    (3,255 )

     

     
    Net earnings $ 20,689   $ 11,950  
     
    Net earnings per share - basic:
    Earnings from continuing operations $ 0.56 $ 0.27
    Losses from discontinued operations   (0.08 )    
    Net earnings per share $ 0.48   $ 0.27  
    Net earnings per share - diluted:
    Earnings from continuing operations $ 0.54 $ 0.27
    Losses from discontinued operations   (0.07 )    
    Net earnings per share $ 0.47   $ 0.27  
     
    Weighted-average shares outstanding:
    Basic 42,997 43,863
    Diluted 44,356 44,659
     

     

                         
    JACK IN THE BOX INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (Dollars in thousands, except share data)
    (Unaudited)
     
    January 20,

    2013

    September 30,

    2012

    ASSETS
    Current assets:
    Cash and cash equivalents $ 9,542 $ 8,469
    Accounts and other receivables, net 40,489 78,798
    Inventories 8,235 7,752
    Prepaid expenses 20,543 32,821
    Deferred income taxes 26,931 26,932
    Assets held for sale and leaseback 44,847 45,443
    Assets of discontinued operations held for sale 30,591
    Other current assets   671     375  
    Total current assets   151,258     231,181  
    Property and equipment, at cost 1,528,889 1,529,650
    Less accumulated depreciation and amortization   (729,755 )   (708,858 )
    Property and equipment, net   799,134     820,792  
    Goodwill 147,283 140,622
    Other assets, net   279,614     271,130  
    $ 1,377,289   $ 1,463,725  
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY
    Current liabilities:
    Current maturities of long-term debt $ 20,976 $ 15,952
    Accounts payable 38,231 94,713
    Accrued liabilities   150,579     164,637  
    Total current liabilities   209,786     275,302  
    Long-term debt, net of current maturities 374,947 405,276
    Other long-term liabilities 367,387 371,202
    Stockholders’ equity:
    Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued

    Common stock $0.01 par value, 175,000,000 shares authorized, 76,427,051 and 75,827,894 issued, respectively

    764 758
    Capital in excess of par value 236,672 221,100
    Retained earnings 1,141,360 1,120,671
    Accumulated other comprehensive loss (132,168 ) (136,013 )
    Treasury stock, at cost, 32,941,042 and 31,955,606 shares, respectively   (821,459 )   (794,571 )
    Total stockholders’ equity   425,169     411,945  
    $ 1,377,289   $ 1,463,725  
     

     

                         
    JACK IN THE BOX INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Dollars in thousands)
    (Unaudited)
     
    Sixteen Weeks Ended
    January 20,

    2013

    January 22,

    2012

    Cash flows from operating activities:
    Net earnings $ 20,689 $ 11,950
    Adjustments to reconcile net earnings to net cash provided by operating activities:
    Depreciation and amortization 30,016 29,534
    Deferred finance cost amortization 729 788
    Deferred income taxes (1,370 ) (1,203 )
    Share-based compensation expense 4,062 2,022
    Pension and postretirement expense 9,584 8,212
    Gains on cash surrender value of company-owned life insurance (2,836 ) (6,742 )
    Gains on the sale of company-operated restaurants (748 ) (1,122 )
    (Gains) losses on the disposition of property and equipment (832 ) 1,083
    Impairment charges and other 4,458 1,199
    Loss on early retirement of debt 939
    Changes in assets and liabilities, excluding acquisitions and dispositions:
    Accounts and other receivables 38,766 8,630
    Inventories 26,361 (6,462 )
    Prepaid expenses and other current assets 11,980 (1,412 )
    Accounts payable (33,966 ) 2,222
    Accrued liabilities (9,141 ) (21,849 )
    Pension and postretirement contributions (5,525 ) (996 )
    Other   (3,201 )   1,938  
    Cash flows provided by operating activities   89,965     27,792  
    Cash flows from investing activities:
    Purchases of property and equipment (21,394 ) (26,945 )
    Purchases of assets intended for sale and leaseback (13,357 ) (11,046 )
    Proceeds from sale and leaseback of assets 13,513 3,143
    Proceeds from the sale of company-operated restaurants 833 1,249
    Collections on notes receivable 1,848 3,539
    Disbursements for loans to franchisees (2,604 )
    Acquisitions of franchise-operated restaurants (7,800 ) (6,195 )
    Other   2,042     14  
    Cash flows used in investing activities   (24,315 )   (38,845 )
    Cash flows from financing activities:
    Borrowings on revolving credit facilities 385,148 222,020
    Repayments of borrowings on revolving credit facilities (445,148 ) (191,295 )
    Proceeds from issuance of debt 200,000
    Principal repayments on debt (165,305 ) (5,380 )
    Debt issuance costs (4,386 )
    Proceeds from issuance of common stock 10,733 785
    Repurchases of common stock (26,888 ) (6,901 )
    Excess tax benefits from share-based compensation arrangements 675 191
    Change in book overdraft   (19,406 )   (6,147 )
    Cash flows provided by (used in) financing activities   (64,577 )   13,273  
    Net increase in cash and cash equivalents 1,073 2,220
    Cash and cash equivalents at beginning of period   8,469     11,424  
    Cash and cash equivalents at end of period $ 9,542   $ 13,644  
     

     

     
    JACK IN THE BOX INC. AND SUBSIDIARIES
    SUPPLEMENTAL INFORMATION

    (Unaudited)

     
     

    The following table presents certain income and expense items included in our consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated.  Percentages may not add due to rounding.

                         
    CONSOLIDATED STATEMENTS OF EARNINGS DATA
     
    Sixteen Weeks Ended
    January 20,

    2013

    January 22,

    2012

    Revenues:
    Company restaurant sales

    77.4

    %

    79.5

    %

    Franchise revenues

    22.6

    %

    20.5

    %

    Total revenues

    100.0

    %

    100.0

    %

    Operating costs and expenses, net:
    Company restaurant costs:

    Food and packaging(1)

    32.2

    %

    33.5

    %

    Payroll and employee benefits(1)

    28.9

    %

    29.3

    %

    Occupancy and other(1)

    23.1

    %

    23.6

    %

    Total company restaurant costs(1)

    84.3

    %

    86.5

    %

    Franchise costs(1)

    49.8

    %

    53.1

    %

    Selling, general and administrative expenses

    14.5

    %

    14.4

    %

    Impairment and other charges, net

    0.7

    %

    1.0

    %

    Gains on the sale of company-operated restaurants (0.2 )% (0.2 )%
    Earnings from operations

    8.5

    %

    5.3

    %

    Income tax rate(2)

    30.2

    %

    34.3

    %

    (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 presents Jack in the Box and Qdoba company restaurant sales, costs and costs as a percentage of the related sales. Percentages may not add due to rounding.

                   
    SUPPLEMENTAL COMPANY-OPERATED RESTAURANTS STATEMENTS OF EARNINGS DATA
    (Dollars in thousands)
     
          Sixteen Weeks Ended
    January 20, 2013 January 22, 2012
    Jack in the Box:      
    Company restaurant sales $ 267,176 $ 294,353
    Company restaurant costs:
    Food and packaging 87,798

    32.9

    %

    101,591

    34.5

    %

    Payroll and employee benefits 77,002

    28.8

    %

    86,569

    29.4

    %

    Occupancy and other   56,588

    21.2

    %

     

    65,291

    22.2

    %

    Total company restaurant costs $ 221,388

    82.9

    %

    $

    253,451

    86.1

    %

    Qdoba:
    Company restaurant sales $ 92,918 $ 69,749
    Company restaurant costs:
    Food and packaging 28,303

    30.5

    %

    20,516

    29.4

    %

    Payroll and employee benefits 27,062

    29.1

    %

    20,242

    29.0

    %

    Occupancy and other   26,766

    28.8

    %

     

    20,652

    29.6

    %

    Total company restaurant costs $ 82,131

    88.4

    %

    $

    61,410

    88.0

    %

     

     

     

    JACK IN THE BOX INC. AND SUBSIDIARIES

    SUPPLEMENTAL INFORMATION

    (Unaudited)

     

    The following table summarizes the changes in the number and mix of Jack in the Box and Qdoba company and franchise restaurants in each fiscal year:

                                       
    January 20, 2013 January 22, 2012
    Company Franchise Total Company Franchise Total
    Jack in the Box:
    Beginning of year 547 1,703 2,250 629 1,592



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

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