Jack In The Box Results

Jack in the Box Inc. Reports Second Quarter FY 2018 Earnings

Jack in the Box

Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for the second quarter ended April 15, 2018.

The company completed the sale of Qdoba Restaurant Corporation ("Qdoba") on March 21, 2018. Qdoba® results are included in discontinued operations for all periods presented.

Earnings from continuing operations were $25.0 million, or $0.85 per diluted share, for the second quarter of fiscal 2018 compared with $31.4 million, or $1.01 per diluted share, for the second quarter of fiscal 2017.

Operating Earnings Per Share(1), a non-GAAP measure, were $0.80 in the second quarter of fiscal 2018 compared with $0.86 in the prior year quarter. A reconciliation of non-GAAP Operating Earnings Per Share 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 15, 2018   April 16, 2017

April 15, 2018   April 16, 2017

Diluted earnings per share from continuing operations – GAAP

$ 0.85

$ 1.01

$ 1.27

$ 2.07

Gains on the sale of company-operated restaurants

(0.13 )

(0.15 )

(0.34 )

(0.15 )
Restructuring charges

0.06

0.07

0.01

Non-cash impact of the Tax Cuts and Jobs Act

0.02

1.05

Excess tax benefits from share-based compensation arrangements

 

 

(0.03 )

 
Operating Earnings Per Share – non-GAAP

$ 0.80  

$ 0.86  

$ 2.02  

$ 1.92  

____________________________

(1) Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains on the sale of company-operated restaurants, restructuring charges, the non-cash impact of the Tax Cuts and Jobs Act, and the excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity previously. See "Reconciliation of Non-GAAP Measurements to GAAP Results."

Adjusted EBITDA(2), a non-GAAP measure, was $60.3 million in the second quarter of fiscal 2018 compared with $69.5 million for the prior year quarter.

Lenny Comma, chairman and chief executive officer, said, “Our second quarter operating results were in line with our expectations. We were pleased that a greater emphasis on value resulted in a sequential improvement in traffic during the quarter. And by balancing our value promotions with innovative premium products, we were able to protect restaurant margins.

"With the refranchising of 63 Jack in the Box® restaurants in the second quarter and 29 thus far in the third quarter, our franchise mix now stands at 93 percent. We currently have signed non-binding letters of intent with franchisees to sell 17 additional restaurants, which would bring the Jack in the Box franchise mix to approximately 94 percent. In addition, we completed the sale of Qdoba during the quarter, which marks an important milestone in the actions we’re taking to enhance shareholder value.

"We resumed share repurchases during the quarter, with the purchase of $100 million of stock, and last week our Board of Directors authorized an additional $200 million stock buyback program. We also completed an amendment and extension of our existing credit facility which is an interim step that provides an immediate increase in our borrowing capacity to 4.5 times EBITDA while we work with our advisors to evaluate longer-term financing alternatives. We remain comfortable with ultimately increasing our leverage up to 5.0 times EBITDA."

Increase/(decrease) in Jack in the Box same-store sales:

  12 Weeks Ended     28 Weeks Ended

April 15,

2018

 

April 16,

2017*

April 15,

2018

 

April 16,

2017*

Company

0.9 %

(2.4 )%

0.5 %

(0.7 )%
Franchise

(0.2 )%

(0.4 )%

(0.3 )%

2.0 %
System

(0.1 )%

(0.8 )%

(0.2 )%

1.4 %

____________________________

*Note: Due to the transition from a 53-week year in fiscal 2016 to a 52-week year in fiscal 2017, year-over-year fiscal period comparisons are offset by one week. The change in same-store sales presented in the 2017 column uses comparable calendar periods to balance the one-week shift from fiscal 2016 and to provide a clearer year-over-year comparison.

Jack in the Box system same-store sales decreased 0.1 percent for the quarter and lagged the QSR sandwich segment by 1.0 percentage points for the comparable period, according to The NPD Group’s SalesTrack® Weekly for the 12-week time period ended April 15, 2018. Included in this segment are 16 of the top QSR sandwich and burger chains in the country. Company same-store sales increased 0.9 percent in the second quarter driven by average check growth of 2.6 percent, partially offset by a 1.7 percent decrease in transactions.

____________________________

(2) Adjusted EBITDA represents net earnings on a GAAP basis excluding earnings from discontinued operations, income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of franchise tenant improvement allowances. See "Reconciliation of Non-GAAP Measurements to GAAP Results."

Restaurant-Level EBITDA(3), a non-GAAP measure, increased by 250 basis points to 26.4 percent of company restaurant sales in the second quarter of 2018 from 23.9 percent a year ago. The increase was due primarily to the benefit of refranchising, which was partially offset by wage and commodity inflation, and higher maintenance and repairs expenses. The decrease in food and packaging costs as a percentage of sales resulted from menu price increases and favorable product mix, partially offset by commodity inflation of approximately 3.6 percent in the quarter. Restaurant Operating Margin(3), a non-GAAP measure, increased to 22.7 percent of company restaurant sales in the second quarter of fiscal 2018 from 19.7 percent in the prior year quarter.

Franchise EBITDA(3), a non-GAAP measure, as a percentage of total franchise revenues decreased to 59.8 percent in the second quarter from 61.2 percent in the prior year quarter. The decrease was due primarily to a decrease in franchise-operated restaurant same-store sales of 0.2 percent in the current quarter, and incremental costs incurred in 2018 related to the implementation of a mystery guest program. Franchise Margin(3), a non-GAAP measure, decreased to 51.5 percent of total franchise revenues in the second quarter of fiscal 2018 compared with 53.1 percent in the second quarter of fiscal 2017.

SG&A expenses for the second quarter increased by $1.2 million and were 12.9 percent of revenues compared with 9.7 percent in the prior year quarter. Advertising costs, which are included in SG&A, were $7.3 million in the second quarter compared with $9.1 million in the prior year quarter. The $1.8 million decrease in advertising costs was due to a $3.3 million decrease resulting from refranchising, which was partially offset by an incremental $1.5 million of spending in the quarter. The $3.0 million increase in G&A excluding advertising was attributable to mark-to-market adjustments on investments supporting the company's non-qualified retirement plans resulting in a $1.8 million year-over-year increase in SG&A, and a $1.6 million increase in incentive compensation. These increases were partially offset by reductions related to refranchising. As a percentage of system-wide sales, G&A excluding advertising was 2.5 percent in the second quarter of 2018 compared with 2.1 percent in the 2017 quarter.

____________________________

(3) Restaurant Operating Margin, Restaurant-Level EBITDA, Franchise Margin, and Franchise EBITDA are non-GAAP measures. These non-GAAP measures are reconciled to earnings from operations, the most comparable GAAP measure, in the attachment to this release. See "Reconciliation of Non-GAAP Measurements to GAAP Results."

In fiscal 2018, the company began presenting depreciation and amortization as a separate line item in its condensed consolidated statements of earnings to better align with similar presentation made by many of its peers and to provide additional disclosure that is meaningful for investors. The prior year condensed consolidated statement of earnings was adjusted to conform with this new presentation. Depreciation and amortization was previously presented within company restaurant costs, franchise occupancy expenses, selling, general and administrative expenses, and impairment and other charges, net, in the company's condensed consolidated statements of earnings.

Restructuring charges of $2.6 million, or approximately $0.06 per diluted share, were recorded during the second quarter of fiscal 2018 compared with $0.2 million, or less than $0.01 per diluted share, in the prior year quarter. Restructuring charges are included in "Impairment and other charges, net" in the accompanying condensed consolidated statements of earnings. Including these charges, impairment and other charges, net, increased in the second quarter to $4.9 million from $1.4 million in the year ago quarter.

Interest expense, net, increased by $1.4 million in the second quarter primarily due to a higher effective interest rate for 2018. The company allocated $1.6 million and $2.0 million of interest expense to Qdoba in the second quarters of 2018 and 2017, respectively.

The Tax Cuts and Jobs Act (the "Tax Act"), enacted into law on December 22, 2017, reduced the federal statutory rate from 35 percent to 21 percent as of January 1, 2018. As a company with a fiscal year-end of September 30, the tax rate reduction will be phased in, resulting in a blended statutory federal tax rate of 24.5 percent for the fiscal year ending September 30, 2018. In addition, the Tax Act resulted in a non-cash increase to the provision for income taxes of $0.6 million, or $0.02 per diluted share, for the second quarter of fiscal 2018, and $31.2 million, or $1.05 per diluted share, for the 28 weeks ended April 15, 2018, related primarily to the revaluation of deferred tax assets and liabilities at the new lower rates. This revaluation was based upon estimates and interpretations of the Tax Act which may be refined as further guidance is issued.

Qdoba Discontinued Operations

In the first quarter of fiscal 2018, the company entered into a definitive agreement to sell Qdoba, a wholly owned subsidiary of the company, to certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, "Apollo"). The transaction closed on March 21, 2018, and operating results for Qdoba are included in discontinued operations for all periods presented. However, the company did not allocate any general and administrative shared services expenses to discontinued operations.

Qdoba generated net earnings of $22.7 million for the second quarter, including an after-tax gain on the sale of $20.0 million compared with net earnings of $1.8 million in the prior year quarter.

Capital Allocation

The company repurchased approximately 1,111,000 shares of its common stock in the second quarter of 2018 at an average price of $89.98 per share for an aggregate cost of $100.0 million. The company currently has approximately $281.0 million remaining under stock-buyback programs authorized by its Board of Directors, including approximately $81.0 million that expires in November 2018 and an additional $200 million authorized by the Board last week that expires in November 2019.

The company also announced today that on May 11, 2018, its Board of Directors declared a cash dividend of $0.40 per share on the company's common stock. The dividend is payable on June 11, 2018, to shareholders of record at the close of business on May 29, 2018.

Guidance

The following guidance and underlying assumptions reflect the company’s current expectations for the third quarter ending July 8, 2018, and fiscal year ending September 30, 2018. Fiscal 2018 and fiscal 2017 are 52-week years, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.

Third quarter fiscal year 2018 guidance

  • Same-store sales of approximately flat to up 1.0 percent at Jack in the Box system restaurants versus a 0.2 percent decrease in the year-ago quarter.

Fiscal year 2018 guidance

  • Same-store sales increase of approximately flat to up 1.0 percent at Jack in the Box system restaurants.
  • Commodity cost inflation of approximately 3.0 percent.
  • Restaurant-Level EBITDA of approximately 26.0 to 27.0 percent, depending on the timing of refranchising transactions and the margins associated with the restaurants sold.
  • SG&A as a percentage of revenues of approximately 12.0 to 12.5 percent, which includes incremental advertising spending on behalf of the system.
  • G&A as a percentage of system-wide sales of approximately 2.3 to 2.5 percent.
  • Approximately 25 new Jack in the Box restaurants opening system-wide, the majority of which will be franchise locations.
  • Capital expenditures of approximately $30 to $35 million.
  • Tenant improvement allowances of approximately $25 million.
  • Tax rate of approximately 29.0 percent, excluding the non-cash impact of the Tax Act and the tax impact of excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity previously.
  • Adjusted EBITDA of approximately $260 to $270 million.

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 and Guam.

 

 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

    12 Weeks Ended   28 Weeks Ended

April 15,

2018

  April 16,

2017

April 15,

2018

  April 16,

2017

Revenues:

Company restaurant sales

$ 113,938

$ 180,275

$ 283,575

$ 418,846

Franchise rental revenues

57,843

51,295

135,060

122,731

Franchise royalties and other

37,991  

34,314  

85,600  

77,488  

209,772  

265,884  

504,235  

619,065  
Operating costs and expenses, net:

Company restaurant costs(1):

Food and packaging

32,638

52,042

81,502

120,031

Payroll and employee benefits

33,096

54,529

82,036

124,712

Occupancy and other

18,143  

30,704  

45,893  

69,645  
Total company restaurant costs(1)

83,877

137,275

209,431

314,388

Franchise occupancy expenses(1)

36,065

31,543

82,586

73,733

Franchise support and other costs

2,583

1,734

5,065

4,271

Selling, general and administrative expenses(1)

27,017

25,862

61,642

66,634

Depreciation and amortization(1)

13,955

16,122

33,112

37,385

Impairment and other charges, net(1)

4,927

1,367

7,184

4,021

Gains on the sale of company-operated restaurants

(5,472 )

(7,779 )

(14,412 )

(7,916 )

162,952  

206,124  

384,608  

492,516  
Earnings from operations

46,820

59,760

119,627

126,549

Interest expense, net

10,413  

9,037  

23,193  

19,446  
Earnings from continuing operations and before income taxes

36,407

50,723

96,434

107,103

Income taxes

11,426  

19,333  

58,564  

41,164  
Earnings from continuing operations

24,981

31,390

37,870

65,939

Earnings from discontinued operations, net of taxes

22,624  

1,704  

21,925  

3,084  
Net earnings

$ 47,605  

$ 33,094  

$ 59,795  

$ 69,023  

 
Net earnings per share - basic:

Earnings from continuing operations

$ 0.86

$ 1.02

$ 1.29

$ 2.09

Earnings from discontinued operations

0.78  

0.06  

0.75  

0.10  
Net earnings per share (2) - basic

$ 1.64  

$ 1.07  

$ 2.04  

$ 2.18  
Net earnings per share - diluted:

Earnings from continuing operations

$ 0.85

$ 1.01

$ 1.27

$ 2.07

Earnings from discontinued operations

0.77  

0.05  

0.74  

0.10  
Net earnings per share (2) - diluted

$ 1.62  

$ 1.06  

$ 2.01  

$ 2.16  
Weighted-average shares outstanding:

Basic

29,040

30,895

29,332

31,622

Diluted

29,356

31,126

29,705

31,883

 
Dividends declared per common share

$ 0.40

$ 0.40

$ 0.80

$ 0.80

 
___________________________
(1) In 2018, the company began presenting depreciation and amortization as a separate line item in its condensed consolidated statements of earnings to better align with similar presentation made by many of its peers and to provide additional disclosure that is meaningful for investors. The prior year condensed consolidated statement of earnings was adjusted to conform with this new presentation.
(2) Earnings per share may not add due to rounding.
 

 

 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

    April 15,

2018

    October 1,

2017

ASSETS

Current assets:

Cash

$ 1,154

$ 4,467

Accounts and other receivables, net

102,404

59,609

Inventories

2,559

3,445

Prepaid expenses

11,947

27,532

Current assets held for sale

23,495

42,732

Other current assets

3,582  

1,493  
Total current assets

145,141  

139,278  
Property and equipment:

Property and equipment, at cost

1,224,738

1,262,117

Less accumulated depreciation and amortization

(781,389 )

(777,841 )
Property and equipment, net

443,349  

484,276  
Other Assets:

Intangible assets, net

710

1,413

Goodwill

47,414

51,412

Non-current assets held for sale

280,796

Other assets, net

238,424  

277,570  
Total other assets

286,548  

611,191  

$ 875,038  

$ 1,234,745  
LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

Current maturities of long-term debt

$ 42,854

$ 64,225

Accounts payable

24,500

28,366

Accrued liabilities

100,181

135,054

Current liabilities held for sale

 

34,345  
Total current liabilities

167,535  

261,990  
Long-term liabilities:

Long-term debt, net of current maturities

900,402

1,079,982

Non-current liabilities held for sale

32,078

Other long-term liabilities

238,011  

248,825  
Total long-term liabilities

1,138,413  

1,360,885  
Stockholders’ deficit:

Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued

Common stock $0.01 par value, 175,000,000 shares authorized, 81,945,792 and 81,843,483 issued, respectively

819

818

Capital in excess of par value

459,821

453,432

Retained earnings

1,521,934

1,485,820

Accumulated other comprehensive loss

(123,045 )

(137,761 )
Treasury stock, at cost, 53,522,782 and 52,411,407 shares, respectively

(2,290,439 )

(2,190,439 )
Total stockholders’ deficit

(430,910 )

(388,130 )

$ 875,038  

$ 1,234,745  
 

 

 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

    28 Weeks Ended

April 15, 2018     April 16, 2017
Cash flows from operating activities:

Net earnings

$ 59,795

$ 69,023

Earnings from discontinued operations

21,925  

3,084  
Income from continuing operations

37,870

65,939

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

33,112

37,385

Amortization of franchise tenant improvement allowances

265

48

Deferred finance cost amortization

1,725

1,919

Excess tax benefits from share-based compensation arrangements

(816 )

(4,034 )
Deferred income taxes

34,726

2,428

Share-based compensation expense

6,148

6,270

Pension and postretirement expense

1,252

2,269

Gains on cash surrender value of company-owned life insurance

(312 )

(73 )
Gains on the sale of company-operated restaurants

(14,412 )

(7,916 )
Losses on the disposition of property and equipment, net

481

957

Impairment charges and other

1,502

745

Changes in assets and liabilities, excluding dispositions:

Accounts and other receivables

(13,876 )

30,666

Inventories

886

528

Prepaid expenses and other current assets

(5,458

)

18,560

Accounts payable

(3,742 )

(1,637 )
Accrued liabilities

(35,959 )

(30,003

)
Pension and postretirement contributions

(3,077 )

(2,773 )

Franchise tenant improvement allowance distributions

(3,487 )

Other

(7,551 )

(6,111 )
Cash flows provided by operating activities

29,277

 

115,167  
Cash flows from investing activities:

Purchases of property and equipment

(18,347 )

(15,596 )
Purchases of assets intended for sale and leaseback

(5,491 )

(1,752 )
Proceeds from the sale and leaseback of assets

4,949

2,466

Proceeds from the sale of company-operated restaurants

16,844

31,389

Collections on notes receivable

9,722

1,121

Proceeds from the sale of property and equipment

600

2,082

Other

2,969  

(172 )
Cash flows provided by investing activities

11,246  

19,538  
Cash flows from financing activities:

Borrowings on revolving credit facilities

283,200

534,500

Repayments of borrowings on revolving credit facilities

(199,100 )

(305,000 )
Principal repayments on debt

(282,626 )

(28,738 )
Debt issuance costs

(1,367 )

Dividends paid on common stock

(23,370 )

(25,462 )
Proceeds from issuance of common stock

39

4,840

Repurchases of common stock

(100,000 )

(322,687 )
Excess tax benefits from share-based compensation arrangements

4,034

Change in book overdraft

1,397

Payroll tax payments for equity award issuances

(4,268 )

(5,706 )
Cash flows used in financing activities

(326,095 )

(144,219 )
Cash flows used in continuing operations

(285,572

)

(9,514 )
Net cash provided by operating activities of discontinued operations

5,503

16,692

Net cash provided by (used in) investing activities of discontinued operations

273,653

(17,788 )
Net cash used in financing activities of discontinued operations

(78 )

(62 )
Net cash provided by (used in) discontinued operations

279,078

 

(1,158 )
Effect of exchange rate changes on cash

6  

 
Cash at beginning of period, including discontinued operations cash

7,642  

17,030  
Cash at end of period, including discontinued operations cash

$ 1,154  

$ 6,358  
 

 

JACK IN THE BOX INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

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

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA

(Unaudited)

 

    12 Weeks Ended   28 Weeks Ended

April 15,

2018

  April 16,

2017

April 15,

2018

  April 16,

2017

Revenues:

Company restaurant sales

54.3 %

67.8 %

56.2 %

67.7 %
Franchise rental revenues

27.6 %

19.3 %

26.8 %

19.8 %
Franchise royalties and other

18.1 %

12.9 %

17.0 %

12.5 %
Total revenues

100.0 %

100.0 %

100.0 %

100.0 %
Operating costs and expenses, net:

Company restaurant costs:

Food and packaging (1)

28.6 %

28.9 %

28.7 %

28.7 %
Payroll and employee benefits (1)

29.0 %

30.2 %

28.9 %

29.8 %
Occupancy and other (1)

15.9 %

17.0 %

16.2 %

16.6 %
Total company restaurant costs (1)

73.6 %

76.1 %

73.9 %

75.1 %
Franchise occupancy expenses (2)

62.3 %

61.5 %

61.1 %

60.1 %
Franchise support and other costs (3)

6.8 %

5.1 %

5.9 %

5.5 %
Selling, general and administrative expenses

12.9 %

9.7 %

12.2 %

10.8 %
Depreciation and amortization

6.7 %

6.1 %

6.6 %

6.0 %
Impairment and other charges, net

2.3 %

0.5 %

1.4 %

0.6 %
Gains on the sale of company-operated restaurants

(2.6 )%

(2.9 )%

(2.9 )%

(1.3 )%
Earnings from operations

22.3 %

22.5 %

23.7 %

20.4 %
Income tax rate (4)

31.4 %

38.1 %

60.7 %

38.4 %
 
____________________________
(1)     As a percentage of company restaurant sales.
(2)

As a percentage of franchise rental revenues.
(3)

As a percentage of franchise royalties and other.
(4)

As a percentage of earnings from continuing operations and before income taxes.

 
 

Jack in the Box system sales (dollars in thousands):

 

    12 Weeks Ended     28 Weeks Ended

April 15,

2018

 

April 16,

2017

April 15,

2018

  April 16,

2017

Company-owned restaurant sales

$ 113,938

$ 180,275

$ 283,575

$ 418,846
Franchised restaurant sales (1)

685,514  

621,788  

1,584,576  

1,455,074
System sales (1)

$ 799,452  

$ 802,063  

$ 1,868,151  

$ 1,873,920
 
____________________________
(1)     Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales includes company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues and percentage rent revenues are calculated based on a percentage of franchised sales. We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the company's profitability.
 

 

The following table summarizes the year-to-date changes in the number and mix of Jack in the Box company and franchise restaurants:

 

SUPPLEMENTAL RESTAURANT ACTIVITY INFORMATION

(Unaudited)

 

    2018   2017

Company   Franchise   Total

Company   Franchise   Total

 
Beginning of year

276

1,975

2,251

417

1,838

2,255

New

1

8

9

2

13

15

Refranchised

(85 )

85

(60 )

60

Acquired from franchisees

19

(19 )

Closed

(4 )

(11 )

(15 )

(7 )

(3 )

(10 )
End of period

188  

2,057  

2,245  

371  

1,889  

2,260  
% of system

8 %

92 %

100 %

16 %

84 %

100 %

 

 

JACK IN THE BOX INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS

(Unaudited)

Within this release, the company makes reference to Operating Earnings Per Share, Adjusted EBITDA, Restaurant Operating Margin, Restaurant-Level EBITDA, Franchise Margin and Franchise EBITDA, which are non-GAAP financial measures. Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains or losses on the sale of company-operated restaurants, restructuring charges, the one-time, non-cash impact of the Tax Act, and the excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity previously. Adjusted EBITDA represents net earnings on a GAAP basis excluding gains or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, depreciation and amortization, and the amortization of franchise tenant improvement allowances. Restaurant-Level EBITDA and Franchise EBITDA represent earnings from operations on a GAAP basis adjusted to exclude depreciation and amortization allocated to company restaurant operations and franchise operations, the amortization of franchise tenant improvement allowances, and other operating expenses, such as general and administrative expenses, which include the costs of functions such as accounting, finance and human resources, and other costs such as pension expense, share-based compensation, impairment and other charges, net, and gains or losses on the sale of company-operated restaurants. Restaurant Operating Margin and Franchise Margin are derived from Restaurant-Level EBITDA and Franchise EBITDA, respectively, plus depreciation and amortization and the amortization of franchise tenant improvement allowances.

The company is presenting Operating Earnings Per Share, Adjusted EBITDA, Restaurant Operating Margin, Restaurant-Level EBITDA, Franchise Margin and Franchise EBITDA because it believes that they provide a meaningful supplement to net earnings of the company's core business operating results, as well as a comparison to those of other similar companies. Management believes that these measurements, when viewed with the company's results of operations in accordance with GAAP and the accompanying reconciliations in the tables below, provide useful information about operating performance and period-over-period changes, and provide additional information that is useful for evaluating the operating performance of the company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA, Restaurant-Level EBITDA and Franchise EBITDA permit investors to gain an understanding of the factors and trends affecting the company's ongoing cash earnings, from which capital investments are made and debt is serviced.

However, Operating Earnings Per Share, Adjusted EBITDA, Restaurant Operating Margin, Restaurant-Level EBITDA, Franchise Margin and Franchise EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net earnings, earnings from operations or cash flow from operating activities as indicators of operating performance or liquidity. The company encourages investors to rely upon its GAAP numbers but includes these non-GAAP financial measures as supplemental metrics to assist investors. These non-GAAP financial measures should not be considered as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In addition, these non-GAAP financial measures 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 15,

2018

 

April 16,

2017

April 15,

2018

 

April 16,

2017

Diluted earnings per share from continuing operations – GAAP

$ 0.85

$ 1.01

$ 1.27

$ 2.07

Gains on the sale of company-operated restaurants

(0.13 )

(0.15 )

(0.34 )

(0.15 )
Restructuring charges

0.06

0.07

0.01

Non-cash impact of the Tax Cuts and Jobs Act

0.02

1.05

Excess tax benefits from share-based compensation arrangements

 

 

(0.03 )

 
Operating Earnings Per Share – non-GAAP

$ 0.80  

$ 0.86  

$ 2.02  

$ 1.92  

 

Below is a reconciliation of non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands).

   

 

12 Weeks Ended

28 Weeks Ended

April 15, 2018   April 16, 2017

April 15, 2018   April 16, 2017
Net earnings - GAAP

$ 47,605

$ 33,094

$ 59,795

$ 69,023

Earnings from discontinued operations, net of taxes

(22,624 )

(1,704 )

(21,925 )

(3,084 )
Income taxes

11,426

19,333

58,564

41,164

Interest expense, net

10,413  

9,037  

23,193  

19,446  
Earnings from operations

46,820

59,760

119,627

126,549

Gains on the sale of company-operated restaurants

(5,472 )

(7,779 )

(14,412 )

(7,916 )
Impairment and other charges, net

4,927

1,367

7,184

4,021

Depreciation and amortization

13,955

16,122

33,112

37,385

Amortization of franchise tenant improvement allowances

118  

23  

265  

48  
Adjusted EBITDA – non-GAAP

$ 60,348  

$ 69,493  

$ 145,776  

$ 160,087  

 

 

Below is a reconciliation of non-GAAP Restaurant Operating Margin, Restaurant-Level EBITDA, Franchise Margin and Franchise EBITDA to the most directly comparable GAAP measure, earnings from operations (in thousands).

 

    12 Weeks Ended     28 Weeks Ended

April 15,

2018

 

 

April 16,

2017

 

April 15,

2018

 

 

April 16,

2017

 

Earnings from operations (1) - GAAP

$ 46,820  

$ 59,760  

$ 119,627  

$ 126,549  

Other operating expenses, net:

Selling, general and administrative expenses

$ (27,017 )

$ (25,862 )

$ (61,642 )

$ (66,634 )

Impairment and other charges, net

(4,927 )

(1,367 )

(7,184 )

(4,021 )

Gains on the sale of company-operated restaurants

5,472  

7,779  

14,412  

7,916  

Total other operating expenses, net

$ (26,472 )

$ (19,450 )

$ (54,414 )

$ (62,739 )

 
Franchise operations:

Franchise rental revenues

$ 57,843

$ 51,295

$ 135,060

$ 122,731

Franchise royalties and other

37,991  

34,314  

85,600  

77,488  

Total franchise revenues

95,834

85,609

220,660

200,219

Franchise occupancy expenses

(36,065 )

(31,543 )

(82,586 )

(73,733 )

Franchise support and other costs

(2,583 )

(1,734 )

(5,065 )

(4,271 )

Amortization of franchise tenant improvement allowances

118  

 

23  

 

265  

 

48  

 
Franchise EBITDA - non-GAAP(2)

57,304

59.8 %

52,355

61.2 %

133,274

60.4 %

122,263

61.1 %
Depreciation and amortization(2)

(7,801 )

8.1 %

(6,850 )

8.0 %

(17,909 )

8.1 %

(16,076 )

8.0 %
Amortization of franchise tenant improvement allowances(2)

(118 )

0.1 %

(23 )

%

(265 )

0.1 %

(48 )

%
Franchise Margin - non-GAAP(2)

$ 49,385  

51.5 %

$ 45,482  

53.1 %

$ 115,100  

52.2 %

$ 106,139  

53.0 %

 
Company restaurant operations:

Company restaurant sales

$ 113,938

$ 180,275

$ 283,575

$ 418,846

Food and packaging(3)

(32,638 )

28.6 %

(52,042 )

28.9 %

(81,502 )

28.7 %

(120,031 )

28.7 %
Payroll and employee benefits(3)

(33,096 )

29.0 %

(54,529 )

30.2 %

(82,036 )

28.9 %

(124,712 )

29.8 %
Occupancy and other(3)

(18,143 )

15.9 %

(30,704 )

17.0 %

(45,893 )

16.2 %

(69,645 )

16.6 %
Restaurant-Level EBITDA - non-GAAP(3)

30,061

26.4 %

43,000

23.9 %

74,144

26.1 %

104,458

24.9 %
Depreciation and amortization(3)

(4,188 )

3.7 %

(7,523 )

4.2 %

(10,631 )

3.7 %

(17,433 )

4.2 %
Restaurant Operating Margin - non-GAAP(3)

$ 25,873  

22.7 %

$ 35,477  

19.7 %

$ 63,513  

22.4 %

$ 87,025  

20.8 %

 
Depreciation and amortization:

Company restaurant occupancy and other

$ (4,188 )

$ (7,523 )

$ (10,631 )

$ (17,433 )

Franchise occupancy expenses

(7,801 )

(6,850 )

(17,909 )

(16,076 )

Impairment and other charges, net

(6 )

(5 )

(14 )

(13 )

Selling, general and administrative expenses

(1,960 )

(1,744 )

(4,558 )

(3,863 )

Total depreciation and amortization

$ (13,955 )

$ (16,122 )

$ (33,112 )

$ (37,385 )

 
____________________________
(1) Earnings from operations is the sum of total other operating expenses, net, Franchise EBITDA, Restaurant-Level EBITDA, and depreciation and amortization, plus the amortization of franchise tenant improvement allowances.
(2) Percentages are calculated based on a percentage of total franchise revenues.
(3) Percentages are calculated based on a percentage of company restaurant sales.



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