Jack in the Box Inc. Reports Second Quarter FY 2014 Earnings; Updates Guidance for FY 2014

2014-05-15
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  • Jack in the Box Jack in the Box Inc. (NASDAQ: JACK) today reported earnings from continuing operations of $18.3 million, or $0.43 per diluted share, for the second quarter ended April 13, 2014, compared with earnings from continuing operations of $15.1 million, or $0.33 per diluted share, for the second quarter of fiscal 2013.

    Jack in the Box Inc. (NASDAQ: JACK) today reported earnings from continuing operations of $18.3 million, or $0.43 per diluted share, for the second quarter ended April 13, 2014, compared with earnings from continuing operations of $15.1 million, or $0.33 per diluted share, for the second quarter of fiscal 2013.

    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 or losses from refranchising, were $0.51 in the second quarter of fiscal 2014 compared with $0.37 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.

      12 Weeks Ended   28 Weeks Ended
    April 13,   April 14, April 13,   April 14,
    2014   2013 2014   2013
    Diluted earnings per share from

    continuing operations – GAAP

    $

    0.43

    $

    0.33

    $

    1.18

    $

    0.92

    Restructuring charges 0.11 - 0.11 0.02
    (Gains)/losses from refranchising   (0.03 )     0.03   (0.03 )     0.02
    Operating earnings per share – Non-GAAP $ 0.51     $ 0.37 $ 1.26     $ 0.96
     

    In connection with the refinancing of the company’s credit facility in March 2014, the company wrote off $0.8 million in deferred financing costs during the second quarter. This charge is included in interest expense and negatively impacted diluted earnings per share by approximately one cent in the second quarter.

    Lenny Comma, chairman and chief executive officer, said, “Overall, our second quarter results were solid, with a 38 percent increase in operating earnings per share resulting from better than expected same-store sales growth at Qdoba Mexican Grill®, margin expansion and lower overhead, which overcame a shortfall in sales at Jack in the Box®.”

    Increase (decrease) in same-store sales:

    “Jack in the Box company same-store sales increased 0.9 percent for the quarter, as sales trends softened in the last half of the quarter, when we saw an increase in messaging around value promotions from our competitors,” Comma said. “Importantly, both late-night and breakfast dayparts remained strong, and sales have rebounded through the first four weeks of our third quarter. While our same-store sales performance at Jack in the Box was lower than our expectations, system same-store sales growth for the quarter of 0.7 percent exceeded that of the QSR sandwich segment by 1.2 percentage points for the comparable period, according to The NPD Group’s SalesTrack® Weekly for the 12-week time period ended April 13, 2014. Included in this segment are 14 of the top QSR sandwich and burger chains in the country.

    “Qdoba same-store sales in the second quarter increased 7.2 percent for company restaurants and 7.0 percent system-wide. Our results exceeded our expectations following the mid-February introduction of our Queso Bliss promotion featuring two new Queso flavors, Diablo and Verde. Guests clearly responded to the new product news surrounding this limited-time offer. In addition, our company performance reflected less discounting, as well as double-digit growth in catering sales.”

    Consolidated restaurant operating margin increased by 140 basis points to 18.5 percent of sales in the second quarter of 2014, compared with 17.1 percent of sales in the year-ago quarter. Restaurant operating margin for Jack in the Box restaurants increased 150 basis points to 18.6 percent of sales. The improvement was due primarily to lower food and packaging costs and the benefit of refranchising, which were partially offset by higher utility costs. The decrease in food and packaging costs as a percentage of sales resulted from the benefit of price increases and favorable product mix changes, combined with essentially no commodity inflation in the quarter. Restaurant operating margin for Qdoba restaurants increased 110 basis points to 18.3 percent of sales, due primarily to sales leverage, the benefit of less discounting, and commodity deflation of approximately 0.9 percent, which were partially offset by higher incentive compensation for restaurant managers, utilities, maintenance and repairs, credit card fees and beverage equipment rental costs.

    SG&A expense for the second quarter decreased by $3.8 million and was 14.3 percent of revenues as compared to 15.1 percent in the prior year quarter. The decrease reflects a $4.0 million reduction in pension expense, a $1.9 million decrease in incentive and share-based compensation, and a $1.1 million decrease in advertising costs resulting from the Jack in the Box refranchising strategy. These decreases were partially offset by a $1.4 million increase in advertising costs at Qdoba due to the timing of advertising activities, and by a legal settlement of $1.0 million. Mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans positively impacted SG&A by $0.5 million in the second quarter of 2014 as compared to $1.4 million in the second quarter of 2013, resulting in a year-over-year increase in SG&A of $0.9 million.

    The company is continuing its efforts to improve its cost structure and identify opportunities to reduce G&A as well as improve restaurant profitability across both brands. During the second quarter of 2014, the company recorded a $6.4 million charge to write-off restaurant technology software as it plans to integrate certain systems across both brands to create efficiencies while lowering costs. Including this amount, total restructuring charges recorded during the second quarter of 2014 were $7.5 million, or approximately $0.11 per diluted share, as compared to $0.3 million during the second quarter of 2013. These charges are included in “Impairment and other charges, net” in the accompanying consolidated statements of earnings.

    Gains from refranchising were $1.8 million in the second quarter of 2014, or approximately $0.03 per diluted share, compared with a loss of $2.4 million, or approximately $0.03 per diluted share, in the prior year quarter. During the second quarter of fiscal 2014, the company refranchised 14 Jack in the Box restaurants in one market and recognized a gain of $4.2 million. The company also recognized a loss of $3.1 million related to the expected sale of two Jack in the Box markets in the Southeast for which it has received signed letters of intent. Amounts in both years also include additional proceeds received as a result of the extension of underlying franchise and lease agreements for previously refranchised Jack in the Box restaurants.

    In the third quarter of 2013, following the completion of the company’s previously disclosed review of market performance for its Qdoba brand, 62 company-operated Qdoba restaurants were closed, and the results of operations, impairment charges, lease obligations and other exit costs for these restaurants are included in discontinued operations in the accompanying consolidated statements of earnings for all periods presented. Discontinued operations for the second quarter of fiscal 2014 include after-tax charges related to the Qdoba restaurant closures of approximately $0.06 per diluted share, as compared to $0.04 for the second quarter of fiscal 2013.

    Capital Allocation

    The company repurchased approximately 2,100,000 shares of its common stock in the second quarter of 2014 at an average price of $59.54 per share for an aggregate cost of $125.0 million. Year-to-date through the second quarter, the company repurchased approximately 3,678,000 shares at an average price of $54.93 per share, for an aggregate cost of $202.0 million. This leaves $134.7 million remaining under a $200 million stock-buyback program authorized by the company’s Board of Directors in February 2014 that expires in November 2015. The company also separately announced today that its Board of Directors has approved the initiation of a regular quarterly cash dividend of $0.20 per share.

    Guidance

    The following guidance and underlying assumptions reflect the company’s current expectations for the third quarter ending July 6, 2014, and the fiscal year ending September 28, 2014. Fiscal 2014 is a 52-week year, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.

    Third quarter fiscal year 2014 guidance

    • Same-store sales are expected to increase approximately 2.0 to 3.0 percent at Jack in the Box company restaurants versus a 1.2 percent increase in the year-ago quarter.
    • Same-store sales are expected to increase approximately 3.0 to 4.0 percent at Qdoba company restaurants versus a 0.5 percent increase in the year-ago quarter.

    Fiscal year 2014 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 now expected to increase approximately 3.0 to 4.0 percent at Qdoba company restaurants.
    • Overall commodity costs are now expected to increase by approximately 1 to 2 percent for the full year.
    • Restaurant operating margin for the full year, which reflects an approximate 20 basis points impact from the July 2014 minimum wage increase in California, is expected to be approximately 18.0 to 18.5 percent, depending on same-store sales and commodity inflation.
    • SG&A as a percentage of revenue is expected to be approximately 13.5 to 14.0 percent as compared to 14.8 percent in fiscal 2013. G&A as a percentage of system-wide sales is expected to decline to approximately 3.8 percent in fiscal 2014 from 4.3 percent in fiscal 2013.
    • Impairment and other charges as a percentage of revenue are expected to be approximately 70 basis points, excluding restructuring charges.
    • Approximately 10 new Jack in the Box restaurants are expected to open, including approximately 3 company locations.
    • Approximately 50 new Qdoba restaurants are expected to open, of which approximately 20 are expected to be company locations.
    • Capital expenditures are expected to be $75 to $85 million.
    • The tax rate is expected to be approximately 37 to 38 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 or losses from refranchising, are now expected to range from $2.25 to $2.35 in fiscal 2014 as compared to operating earnings per share of $1.82 in fiscal 2013.

    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 2,250 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 46 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 or losses 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.

      12 Weeks Ended   28 Weeks Ended
    April 13,   April 14, April 13,   April 14,
    2014   2013 2014   2013
    Diluted earnings per share from

    continuing operations – GAAP

    $

    0.43

    $

    0.33

    $

    1.18

    $

    0.92

    Restructuring charges 0.11 - 0.11 0.02
    (Gains)/losses from refranchising   (0.03 )     0.03   (0.03 )     0.02
    Operating earnings per share – Non-GAAP $ 0.51     $ 0.37 $ 1.26     $ 0.96
     

     

     
    JACK IN THE BOX INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
    (In thousands, except per share data)
    (Unaudited)
        Quarter     Year-to-Date
    April 13,     April 14, April 13,     April 14,
    2014 2013 2014 2013
    Revenues:
    Company restaurant sales $ 257,773 $ 268,797 $ 596,602 $ 617,703
    Franchise revenues   83,097     78,426     194,350     183,855  
      340,870     347,223     790,952     801,558  
    Operating costs and expenses, net:
    Company restaurant costs:
    Food and packaging 81,422 88,036 189,660 200,572
    Payroll and employee benefits 71,616 76,188 165,432 175,764
    Occupancy and other   56,998     58,619     131,707     135,988  
    Total company restaurant costs 210,036 222,843 486,799 512,324
    Franchise costs 41,996 39,661 97,507 92,149
    Selling, general and administrative expenses 48,660 52,482 107,816 119,168
    Impairment and other charges, net 9,056 2,373 10,965 5,625
    (Gains) losses on the sale of company-operated restaurants   (1,757 )   2,418     (2,218 )   1,670  
      307,991     319,777     700,869     730,936  
    Earnings from operations 32,879 27,446 90,083 70,622
    Interest expense, net   4,311     3,426     8,853     8,791  
    Earnings from continuing operations and before income taxes 28,568 24,020 81,230 61,831
    Income taxes   10,304     8,935     29,956     20,636  
    Earnings from continuing operations 18,264 15,085 51,274 41,195
    Losses from discontinued operations, net of income tax benefit   (2,463 )   (1,795 )   (3,187 )   (7,216 )
    Net earnings $ 15,801   $ 13,290   $ 48,087   $ 33,979  
     
    Net earnings per share - basic:
    Earnings from continuing operations $ 0.44 $ 0.34 $ 1.22 $ 0.95
    Losses from discontinued operations   (0.06 )   (0.04 )   (0.08 )   (0.17 )
    Net earnings per share (1) $ 0.38   $ 0.30   $ 1.14   $ 0.78  
    Net earnings per share - diluted:
    Earnings from continuing operations $ 0.43 $ 0.33 $ 1.18 $ 0.92
    Losses from discontinued operations   (0.06 )   (0.04 )   (0.07 )   (0.16 )
    Net earnings per share (1) $ 0.37   $ 0.29   $ 1.11   $ 0.76  
     
    Weighted-average shares outstanding:
    Basic 41,464 43,747 42,018 43,319
    Diluted 42,632 45,274 43,336 44,736
     
    (1) Earnings per share may not add due to rounding
     

     

     
    JACK IN THE BOX INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (Dollars in thousands, except share data)
    (Unaudited)
          April 13,       September 29,
    2014 2013
    ASSETS
    Current assets:
    Cash and cash equivalents $ 9,112 $ 9,644
    Accounts and other receivables, net 56,317 41,749
    Inventories 7,821 7,181
    Prepaid expenses 45,344 19,970
    Deferred income taxes 26,685 26,685
    Assets held for sale 3,569 11,875
    Other current assets   1,103     108  
    Total current assets   149,951     117,212  
    Property and equipment, at cost 1,507,467 1,516,913
    Less accumulated depreciation and amortization   (772,567 )   (746,054 )
    Property and equipment, net   734,900     770,859  
    Intangible assets, net 16,006 16,390
    Goodwill 149,115 148,988
    Other assets, net   264,414     265,760  
    $ 1,314,386   $ 1,319,209  
    LIABILITIES AND STOCKHOLDERS’ EQUITY
    Current liabilities:
    Current maturities of long-term debt $ 10,851 $ 20,889
    Accounts payable 32,149 36,899
    Accrued liabilities   135,772     153,886  
    Total current liabilities   178,772     211,674  
    Long-term debt, net of current maturities 498,882 349,393
    Other long-term liabilities 275,579 286,124
    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, 79,639,009 and
    78,515,171 issued, respectively 796 785
    Capital in excess of par value 337,678 296,764
    Retained earnings 1,219,910 1,171,823
    Accumulated other comprehensive loss (60,508 ) (62,662 )
    Treasury stock, at cost, 39,604,361 and 35,926,269 shares, respectively   (1,136,723 )   (934,692 )
    Total stockholders’ equity   361,153     472,018  
    $ 1,314,386   $ 1,319,209  
     

     

     
    JACK IN THE BOX INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Dollars in thousands)
    (Unaudited)
          Year-to-Date
    April 13,       April 14,
    2014 2013
    Cash flows from operating activities:
    Net earnings $ 48,087 $ 33,979
    Adjustments to reconcile net earnings to net cash provided by operating activities:
    Depreciation and amortization 49,725 52,590
    Deferred finance cost amortization 1,177 1,249
    Deferred income taxes 5,221 2,536
    Share-based compensation expense 6,348 7,599
    Pension and postretirement expense 7,410 16,772
    Gains on cash surrender value of company-owned life insurance (3,428 ) (5,669 )
    (Gains) losses on the sale of company-operated restaurants (2,218 ) 1,670
    Losses on the disposition of property and equipment 1,745 416
    Impairment charges and other 6,937 4,828
    Loss on early retirement of debt 789 939
    Changes in assets and liabilities, excluding acquisitions and dispositions:
    Accounts and other receivables (14,274 ) 25,227
    Inventories (640 ) 25,883
    Prepaid expenses and other current assets (26,368 ) 751
    Accounts payable 1,725 (32,036 )
    Accrued liabilities (13,543 ) (4,256 )
    Pension and postretirement contributions (7,831 ) (7,052 )
    Other   (9,910 )   (3,821 )
    Cash flows provided by operating activities   50,952     121,605  
    Cash flows from investing activities:
    Purchases of property and equipment (31,196 ) (41,754 )
    Purchases of assets intended for sale and leaseback (19 ) (25,165 )
    Proceeds from the sale of assets 2,105 22,892
    Proceeds from the sale of company-operated restaurants 7,842 2,866
    Collections on notes receivable 1,774 2,987
    Acquisitions of franchise-operated restaurants (1,750 ) (11,014 )
    Other   36     3,694  
    Cash flows used in investing activities   (21,208 )   (45,494 )
    Cash flows from financing activities:
    Borrowings on revolving credit facilities 509,000 479,000
    Repayments of borrowings on revolving credit facilities (379,000 ) (539,000 )
    Proceeds from issuance of debt 200,000 200,000
    Principal repayments on debt (190,549 ) (170,540 )
    Debt issuance costs (3,527 ) (4,392 )
    Proceeds from issuance of common stock 22,457 37,113
    Repurchases of common stock (205,453 ) (40,465 )
    Excess tax benefits from share-based compensation arrangements 12,017 599
    Change in book overdraft   4,774     (36,693 )
    Cash flows used in financing activities   (30,281 )   (74,378 )

    Effect of exchange rate changes on cash and cash equivalents

      5      

    Net (decrease) increase in cash and cash equivalents

    (532 ) 1,733

    Cash and cash equivalents at beginning of period

      9,644     8,469  

    Cash and cash equivalents at end of period

    $ 9,112   $ 10,202  
     

     

     
    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
    Quarter       Year-to-Date
    April 13,       April 14, April 13,       April 14,
    2014 2013 2014 2013
    Revenues:
    Company restaurant sales 75.6 % 77.4 % 75.4 % 77.1 %
    Franchise revenues 24.4 % 22.6 % 24.6 % 22.9 %

    Total revenues

    100.0 % 100.0 % 100.0 % 100.0 %
    Operating costs and expenses, net:
    Company restaurant costs:
    Food and packaging (1) 31.6 % 32.8 % 31.8 % 32.5 %
    Payroll and employee benefits (1) 27.8 % 28.3 % 27.7 % 28.5 %
    Occupancy and other (1) 22.1 % 21.8 % 22.1 % 22.0 %
    Total company restaurant costs (1) 81.5 % 82.9 % 81.6 % 82.9 %
    Franchise costs (1) 50.5 % 50.6 % 50.2 % 50.1 %
    Selling, general and administrative expenses 14.3 % 15.1 % 13.6 % 14.9 %
    Impairment and other charges, net 2.7 % 0.7 % 1.4 % 0.7 %
    (Gains) losses on the sale of company-operated restaurants (0.5 )% 0.7 % (0.3 )% 0.2 %
    Earnings from operations 9.6 % 7.9 % 11.4 % 8.8 %
    Income tax rate (2) 36.1 % 37.2 % 36.9 % 33.4 %
     
    (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)
        Quarter     Year-to-Date
    April 13, 2014     April 14, 2013 April 13, 2014     April 14, 2013
    Jack in the Box:                
    Company restaurant sales $ 181,206 $ 203,439 $ 425,077 $ 470,615
    Company restaurant costs:
    Food and packaging 58,644 32.4 % 68,195 33.5 % 138,510 32.6 % 155,993 33.1 %
    Payroll and employee benefits 50,971 28.1 % 58,108 28.6 % 118,453 27.9 % 135,110 28.7 %
    Occupancy and other   37,831 20.9 %   42,421 20.9 %   87,818 20.7 %   99,009 21.0 %
    Total company restaurant costs $ 147,446 81.4 % $ 168,724 82.9 % $ 344,781 81.1 % $ 390,112 82.9 %
    Qdoba:
    Company restaurant sales $ 76,567 $ 65,358 $ 171,525 $ 147,088
    Company restaurant costs:
    Food and packaging 22,778 29.7 % 19,841 30.4 % 51,150 29.8 % 44,579 30.3 %
    Payroll and employee benefits 20,645 27.0 % 18,080 27.7 % 46,979 27.4 % 40,654 27.6 %
    Occupancy and other   19,167 25.0 %   16,198 24.8 %   43,889 25.6 %   36,979 25.1 %
    Total company restaurant costs $ 62,590 81.7 % $ 54,119 82.8 % $ 142,018 82.8 % $ 122,212 83.1 %
     

     

     
    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:
        April 13, 2014     April 14, 2013
    Company     Franchise     Total Company     Franchise     Total
    Jack in the Box:
    Beginning of year 465 1,786 2,251 547 1,703 2,250
    New 7 7 3 9 12
    Refranchised (14) 14 (4) 4
    Acquired from franchisees 4 (4) 1 (1)
    Closed (4) (4) (1) (5) (6)
    End of period 455 1,799 2,254 546 1,710 2,256
    % of JIB system 20 % 80 % 100 % 24 % 76 % 100 %
    % of consolidated system 60 %



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

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