Jack IN The Box (NYSE:JBX)
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Jack in the Box Inc. (NYSE: JBX) today reported net earnings of $26.9
million, or 47 cents per diluted share, for the fourth quarter ended
Sept. 28, 2008, as compared to net earnings of $26.8 million, or 43
cents per diluted share, for the fourth quarter of fiscal 2007. For
fiscal 2008, net earnings totaled $119.3 million, or $2.01 per diluted
share, compared with $125.6 million, or $1.87 per diluted share in
fiscal 2007. Both the fourth quarter and fiscal year 2008 included a
negative impact of approximately 4 to 5 cents per diluted share for
losses and costs related to Hurricane Ike.
As previously announced, in September 2008 the company’s board of
directors approved plans to sell its Quick Stuff® convenience stores.
The results of operations for Quick Stuff are included in discontinued
operations in the accompanying consolidated statements of earnings for
all periods presented. Diluted earnings per share from continuing
operations were 46 cents for the fourth quarter of fiscal 2008 and $1.99
for fiscal year 2008, compared to 42 cents for the fourth quarter of
fiscal 2007 and $1.85 for fiscal year 2007.
Fourth quarter and FY2008 financial highlights
Same-store sales at Jack in the Box® company restaurants decreased 0.8
percent in the fourth quarter versus a year-ago increase of 5.2 percent.
Excluding the impact from Hurricane Ike, the company estimates that
same-store sales for the quarter would have been slightly positive and
in line with its expectations. Although as many as 228 restaurants (182
company, 46 franchised) were closed when the storm made landfall on
Sept. 12, only four company locations remain closed today. Company
restaurant sales reflected the loss of approximately 1,300 total
restaurant operating days in the fourth quarter from restaurant closures
caused by the storm. Reduced franchise royalties and rent from
approximately 250 lost operating days due to the hurricane were not
material.
For the year, same-store sales at company Jack in the Box restaurants
increased 0.2 percent on top of a 6.1 percent increase in fiscal 2007.
The effective price increase at company restaurants was approximately
1.4 percent for the fourth quarter and 2.2 percent for the full year. In
November 2008, Jack in the Box company restaurants raised prices by
approximately 2.5 percent.
“Sales and traffic continue to be negatively impacted by the current
economic crisis,” said Linda A. Lang, chairman and chief executive
officer. “While we’ve seen some easing in fuel costs, unemployment
continues to rise, and consumers have become much more conservative in
their discretionary spending. As a result, we remain cautious on how
aggressively we take price increases in this environment. On an
encouraging note, trends in California continued to improve during the
fourth quarter, with same-store sales turning positive.”
System same-store sales at Qdoba Mexican Grill® decreased 1.0 percent in
the fourth quarter on top of a year-ago increase of 5.8 percent.
Although Qdoba restaurants were not significantly impacted by
hurricanes, they are feeling the impact that the challenging economic
environment is having on consumer spending. For the full year, system
same-store sales were up 1.6 percent at Qdoba on top of a fiscal 2007
increase of 4.6 percent.
The company’s restaurant operating margin was 13.6 percent of sales in
the fourth quarter of 2008 compared with 17.4 percent in the same
quarter last year. The company estimates that Hurricane Ike negatively
impacted margins by approximately 50 basis points during the quarter.
The company anticipates insurance recoveries in fiscal 2009 related to
the hurricane, but it cannot currently predict the amount or timing of
such payments.
Excluding the impact of Hurricane Ike, restaurant operating margin was
330 basis points lower in the fourth quarter of fiscal 2008 due
primarily to higher costs for food and utilities, as well as sales
deleverage. Food and packaging costs were 180 basis points higher than
the same quarter last year. Beef costs, which represent the company’s
largest single commodity expense, increased by more than 18 percent in
the quarter, double the inflation rate the company had expected in early
August, and negatively impacted margins by approximately 100 basis
points. In addition, higher costs for shortening, potatoes and bakery
items contributed to a 7 percent increase in overall commodity costs for
the quarter. Utilities were 60 basis points higher than last year due to
higher rates and mark-to-market accounting on a hedging arrangement. The
company also experienced higher maintenance and repair costs of
approximately 30 basis points.
SG&A expense related to continuing operations improved to 11.5 percent
of revenues in the fourth quarter compared with 12.3 percent last year,
due primarily to lower field and corporate G&A and the impact of the
company’s refranchising strategy. Hurricane losses, an impairment charge
and losses on the cash surrender value of insurance products used to
fund the company’s non-qualified retirement plans negatively impacted
SG&A in the quarter, and substantially offset the impact of reduced
corporate bonuses as a result of the company’s lower earnings growth as
compared to last year.
Gains on the sale of 41 company-operated Jack in the Box restaurants to
franchisees totaled $23.1 million in the fourth quarter compared with
$11.9 million in the year-ago quarter from the sale of 24 restaurants.
The restaurants refranchised during the quarter were located in
California and Houston. For fiscal 2008, gains on the sale of 109
company-operated restaurants to franchisees totaled $66.3 million
compared with $38.1 million in fiscal 2007 from the sale of 76
company-operated restaurants. Despite the tightening of the credit
markets, the number of restaurants sold and the gains on sale exceeded
the company’s guidance for fiscal year 2008. Due to delays in credit
funding to franchisees by their lenders, the company provided temporary
financing totaling approximately $20 million during the fourth quarter
to facilitate the closing of two transactions, of which $11 million has
already been repaid and the remaining $9 million is expected to be
repaid as soon as the franchisee receives funding from independent
sources.
“Refranchising is an important element in our long-term goal to increase
the percentage of franchise ownership in the Jack in the Box system to
70 to 80 percent, which should create a business model that is less
capital intensive and not as susceptible to cost fluctuations,” Lang
said. “Over the last three years, we have refranchised 267 restaurants
and increased franchise ownership from 25 percent to 38 percent of the
system.
“We can afford to be patient in this current tight credit environment
because cash flows generated by our restaurants’ operations and the
availability of funds from our credit facility should enable us to
continue to meet our capital requirements and other business needs. We
continue to see high demand to purchase Jack in the Box restaurants from
existing franchisees as well as strong interest generated from our new
franchisee recruiting efforts. While the lending environment is
currently much more difficult than we’ve seen in the past, we plan to
accelerate the pace of our refranchising efforts over the next 5 years,
which would allow us to reach our franchise ownership goals by the end
of fiscal year 2013. We have the flexibility of a strong balance sheet,
which will enable us to provide bridge or mezzanine financing, if
necessary, to facilitate the completion of transactions.”
The tax rate for the fourth quarter was 35.5 percent compared with 35.3
percent in the prior year, and the full-year tax rate was 37.3 percent
versus 35.6 percent for fiscal 2007. The higher tax rate for fiscal year
2008 was due primarily to 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.
Capital expenditures in fiscal year 2008 increased to $180.6 million
compared with $154.2 million last year with the increase due primarily
to investment in kitchen enhancements, smoothie equipment, and the Jack
in the Box restaurant re-image program. The kitchen enhancements are
expected to increase restaurant capacity for new product introductions
while also reducing utility expense through the use of more
energy-efficient equipment.
Due to uncertainty in the financial markets, the company did not
repurchase any shares of its common stock in the fourth quarter, and
chose to maintain approximately $38 million of additional borrowings
under its revolving credit facility at quarter end, given uncertainty
surrounding the stability and liquidity in the credit markets.
Approximately $100 million remains available for additional purchases
under a three-year stock-buyback program authorized by the company’s
board of directors in November 2007.
Restaurant openings and new market expansion
Fifteen new Jack in the Box restaurants opened in the fourth quarter,
including 5 franchised locations, compared with 28 restaurants that
opened a year ago, 5 of which were franchised. For the year, 38 Jack in
the Box restaurants opened, including 15 franchised locations, versus 58
restaurants opened in fiscal 2007, 16 of which were franchised.
During the year, franchisees expanded Jack in the Box into several new
contiguous markets in Texas, including San Angelo, Midland, Sweetwater
and Odessa, while the company opened its first restaurants in Denver and
continued to add locations in Corpus Christi, Texas. Franchisees are
expected to continue expanding Jack in the Box into new contiguous
markets in fiscal 2009, with locations scheduled to open in Colorado
Springs, Colo., Albuquerque, N.M., and Abilene and Wichita Falls, Texas.
In addition, several new markets have been approved for initial
development (or “seeding”) by the company. It is anticipated that these
markets will be refranchised in the future.
In the fourth quarter, 25 Qdoba restaurants opened, including 13
franchised locations, versus 27 new restaurants in the year ago quarter,
20 of which were franchised. For the full year, 77 new Qdoba restaurants
opened, including 56 franchised locations, compared with 87 new
restaurants in fiscal 2007, 77 of which were franchised. Qdoba continued
expanding into new markets during the fourth quarter, opening its first
restaurants in Houston, Topeka, Kan., and Sandusky, Ohio. New markets
opened earlier in the year include Eugene, Ore., Fresno, Calif., and
Boise, Idaho.
At Sept. 28, the company’s system total comprised 2,158 Jack in the Box
restaurants, including 812 franchised locations, and 454 Qdoba
restaurants, including 343 franchised locations.
Fourth quarter initiatives
Several new items debuted on the Jack in the Box menu in the fourth
quarter, including two new product platforms: Breakfast Bowls and Pita
Snacks. Two versions of Breakfast Bowls, which provide a complete
breakfast in an easy-to-eat, portable bowl, are currently being offered.
Both include scrambled eggs, cheddar cheese sauce, shredded cheddar
cheese and hash brown sticks, with the Hearty Breakfast Bowl also
including bacon and sausage, and the Denver Breakfast Bowl including
sliced ham, and red and green peppers. Pita Snacks are currently
available in several varieties, each featuring a whole grain pita
stuffed with shredded cheddar cheese, shredded lettuce, a smoky chipotle
sauce and choice of grilled or crispy chicken fillet, strips of
marinated sirloin steak or a fish fillet.
In the fourth quarter, Jack in the Box continued to re-image restaurants
with a comprehensive program that includes a complete redesign of the
dining room and common areas. The company re-imaged 270 restaurants
during the year, and franchisees re-imaged another 85 locations. Since
the current re-image program was approved in 2006, approximately 750
company and franchised Jack in the Box restaurants have been re-imaged.
“With over 40 percent of the system now reflecting our updated look, we
believe there is an opportunity to achieve a more cohesive brand image
in all of our markets by prioritizing the completion of all exterior
elements of our re-image program within the next 12 months,” Lang said.
“The exterior enhancements, including new paint schemes, lighting and
landscaping, are very visible to our guests when driving by a re-imaged
restaurant, and we remain on track to complete the interior re-image of
all restaurants, including franchise locations, by the end of fiscal
year 2011.”
First-quarter FY2009 initiatives
Jack in the Box added several new products to its menu in October and
November, in both its top tier and snack categories.
Teriyaki Bowls, which include steamed rice, broccoli and carrots with
a choice of all-white-meat chicken or sirloin steak topped with
teriyaki sauce, were introduced at most of the chain’s restaurants in
the Western U.S.
A Homestyle Chicken Fillet with a buttery, crispy coating is featured
on two new products currently available in the company’s Central and
Southeastern U.S. markets: the Homestyle Ranch Chicken Club, which
also includes bacon, Swiss-style cheese, green leaf lettuce and sliced
tomato topped with ranch sauce and served on a toasted bakery-style
bun; and the Breakfast Homestyle Chicken Biscuit, which includes a
warm buttermilk biscuit.
Mini Churros, crunchy, bite-sized pastries with a cinnamon sugar
filling, offer an additional option to the menu as a dessert or snack.
In November, two seasonal favorites rejoined the chain’s line of
shakes featuring real vanilla ice cream: Pumpkin Pie and Egg Nog.
In October, Jack in the Box debuted a new antenna ball as part of a
systemwide promotion that is raising money for Big Brothers Big Sisters
(“BBBS”). Available for just $1, plus tax, the new “Beanie Jack” antenna
ball features a classic Jack-style antenna ball wearing a multi-colored
beanie cap topped with a propeller. All profits from Beanie Jack sales
will go to BBBS, the primary charitable partner of The Jack in the Box
Foundation for the past 10 years. Later in the quarter, Jack in the Box
will also promote its BBBS partnership at the 2009 Tournament of Roses
Parade in Pasadena, Calif., where the company will debut its first-ever
float.
Strategic plan update
In September, the company’s board of directors approved the continuation
of the strategic plan for Jack in the Box Inc. and the following four
key initiatives comprising that updated plan:
Brand reinvention – To
differentiate Jack in the Box from the competition and deliver a
restaurant experience superior to that typically found in the QSR
segment by holistically reinventing the brand. Brand reinvention
focuses on major improvements in the following areas:
Menu innovation. Jack in the Box will continue to differentiate
its menu and broaden the brand’s consumer appeal by developing new
products and platforms that are unique to the QSR segment, such as
Real Fruit Smoothies, Teriyaki and Breakfast Bowls, and items
featuring premium ingredients like sirloin steak.
Enhanced restaurant environment. The company is accelerating
the pace at which it will complete the exterior enhancements of its
comprehensive restaurant re-image program. By the end of fiscal 2009,
the exteriors of all restaurants, including franchise locations, are
expected to be re-imaged. Interior elements of the re-image program,
including a complete redesign of dining rooms and common areas, are
expected to be completed system-wide by the end of fiscal 2011.
Service improvements. To improve the level and consistency of
guest service, Jack in the Box will continue to focus on improving
productivity, maximizing retention, and leveraging new technologies to
improve speed of service and guest satisfaction. In 2008, the company
expanded its test of self-serve kiosks, which offer guests an
alternative method of ordering inside Jack in the Box restaurants. The
company plans on installing the kiosks where the frequency of use is
expected to be highest, based on restaurants that experienced positive
results in the test.
Expand franchising – To continue
expanding franchise operations to generate higher margins and returns
for the company, while creating a business model that is less capital
intensive and not as susceptible to cost fluctuations. The company’s
long-term goal is to increase the percentage of franchise ownership to
the 70 to 80 percent range by the end of fiscal year 2013 through
acceleration of refranchising and franchisee development of new
restaurants. The Jack in the Box system was approximately 38 percent
franchised as of the end of fiscal year 2008.
Improve the business model – To
improve restaurant profitability and returns as Jack in the Box
transitions to a new business model comprised of predominantly
franchised restaurant locations. As previously announced, the company
plans to sell its chain of Quick Stuff convenience stores, which will
further enable the company to maximize the potential of its Jack in
the Box and Qdoba brands. The company will focus on reducing food,
packaging and labor costs through product design, menu innovation, and
operations simplification, as well as pricing optimization. As the
percentage of franchised locations increases, SG&A will continue to
decrease as the company completes its refranchising strategy and
continues reengineering its processes and systems.
Growth – To grow earnings,
same-store sales, and other key operating and financial metrics, as
well as expand the Jack in the Box and Qdoba brands. Both brands will
continue to fill in existing markets, as well as enter new markets.
Qdoba will continue expanding mostly through franchise investment,
although the company will accelerate the pace of new company
restaurant openings to benefit from higher returns on investment.
Based on its success in entering new markets with its new prototype,
Jack in the Box, which is currently in 18 states, will accelerate
growth in new markets where brand awareness is high.
Guidance (from continuing operations)
The following guidance and underlying assumptions reflect the company’s
current expectations for the first quarter and fiscal year ending Sept.
27, 2009, in approximate amounts:
Q1 FY2009 guidance
Flat to 2 percent same-store sales increase at Jack in the Box company
restaurants on top of a 1.5 percent increase in the year-ago quarter.
Approximately flat same-store sales at Qdoba system restaurants on top
of a 4.5 percent increase in the year-ago quarter.
Overall commodity costs are expected to increase in the 7 to 8 percent
range, including an approximate 20 percent increase in beef costs.
Restaurant operating margin is expected to be between 15.0 and 15.5
percent.
Diluted earnings per share from continuing operations of 50 to 55
cents, including franchise gains of $15 to $18 million. Diluted
earnings per share are expected to be lower than prior year results
due to higher commodity costs and continued volatility in the
financial markets, which is expected to impact SG&A and the tax rate.
Fiscal year 2009 guidance
Flat to 2 percent increase in same-store sales at Jack in the Box
company restaurants.
Flat to 2 percent increase in same-store sales at Qdoba system
restaurants.
Overall commodity costs are expected to moderate through the year,
with a full-year increase of 3 to 4 percent.
Restaurant operating margin for the full year is expected to be
approximately 16.0 percent, similar to fiscal year 2008.
40 to 45 new Jack in the Box restaurants, including 14 to 19
franchised locations.
60 to 80 new Qdoba restaurants, including 30 to 50 franchised
locations.
$60 to $70 million in gains on the sale of 120-140 Jack in the Box
restaurants to franchisees, with $80 to $90 million in cash proceeds
resulting from the sales.
$175 to $185 million in capital expenditures.
SG&A expense related to continuing operations in the 11.0 to 11.5
percent range.
Tax rate of approximately 39 to 40 percent.
For guidance purposes, share repurchases are assumed to offset
dilution from stock option exercises.
Diluted earnings per share from continuing operations of $2.00 to
$2.20, including franchise gains. Earnings per share guidance from
continuing operations excludes the results for Quick Stuff, which
contributed 2 cents per diluted share in fiscal 2008, as well as any
potential insurance recoveries related to Hurricane Ike.
Long-term goals (2010 to 2013)
Long-term goals below assume that the current economic downturn does not
extend beyond fiscal year 2009.
Earnings growth of 12 to 15 percent per year, with continued focus on
improving returns on invested capital.
Same-store sales growth of 2 to 4 percent annually at Jack in the Box
restaurants.
Same-store sales growth of 3 to 5 percent annually at Qdoba
restaurants.
Increased new unit growth of Jack in the Box restaurants to
approximately 3 to 4 percent per year system-wide.
Increased company growth for Qdoba, with 30 to 40 new locations per
year, with total system growth of approximately 75 to 100 units per
year.
Continued refranchising of Jack in the Box restaurants, with the goal
to be 70 to 80 percent franchised by end of fiscal year 2013.
Capital expenditures are estimated to decrease following the planned
completion of the restaurant re-image program in 2011, after which
capital expenditures should be approximately $125 million or less
annually.
Conference Call
The company will host a conference call for financial analysts and
investors on Wednesday, Nov. 19, 2008, beginning at 8:30 a.m. PST (11:30
a.m. EST). The conference call will be broadcast live over the Internet
via the Jack in the Box website. To access the live call through the
Internet, log onto the Jack in the Box Inc. home page at www.jackinthebox.com
at least 15 minutes prior to the event in order to download and install
any necessary audio software. A replay of the call will be available
through the conference-call link on the Jack in the Box
Inc. home page for 21 days, beginning at approximately 11:00 a.m. PST on
Nov. 19.
About Jack in the Box Inc.
Jack in the Box Inc. (NYSE: JBX), 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 2,100
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 450 restaurants in 41
states and the District of Columbia. The company also operates a
proprietary chain of 61 convenience stores called Quick Stuff®, each
built adjacent to a full-size Jack in the Box restaurant and including a
major-brand fuel station. The company has announced plans to sell its
Quick Stuff brand. For more information, visit www.jackinthebox.com.
Safe harbor statement
This press release contains forward-looking statements within the
meaning of the federal securities laws. Such statements are subject to
substantial risks and uncertainties. A variety of factors could cause
the company’s actual results to differ materially from those expressed
in the forward-looking statements. These factors are discussed in the
company’s annual report on Form 10-K and its periodic reports on Form
10-Q filed with the Securities and Exchange Commission which are
available online at www.jackinthebox.com
or in hard copy upon request. The company undertakes no obligation to
update or revise any forward-looking statement, whether as the result of
new information or otherwise.
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
Twelve Weeks Ended
Fifty-two Weeks Ended
Sept. 28,
Sept. 30,
Sept. 28,
Sept. 30,
2008
2007
2008
2007
Revenues:
Restaurant sales
$
473,828
$
496,052
$
2,101,576
$
2,150,985
Distribution sales
67,808
57,238
275,225
222,560
Franchised restaurant revenues
41,031
34,786
162,760
139,886
582,667
588,076
2,539,561
2,513,431
Operating costs and expenses:
Restaurant costs of sales
163,659
162,448
701,051
685,179
Restaurant operating costs
245,751
247,513
1,063,092
1,080,871
Distribution costs of sales
67,116
56,506
273,369
220,240
Franchised restaurant costs
15,805
13,947
64,955
56,491
Selling, general and administrative expenses
67,156
72,269
287,555
291,745
Gains on the sale of company-operated restaurants
(23,124
)
(11,850
)
(66,349
)
(38,091
)
536,363
540,833
2,323,673
2,296,435
Earnings from operations
46,304
47,243
215,888
216,996
Interest expense
6,175
6,897
28,070
32,127
Interest income
(272
)
(422
)
(642
)
(8,792
)
Interest expense, net
5,903
6,475
27,428
23,335
Earnings from continuing operations and before income taxes
40,401
40,768
188,460
193,661
Income taxes
14,327
14,398
70,251
68,982
Earnings from continuing operations
26,074
26,370
118,209
124,679
Earnings from discontinued operations, net
800
398
1,070
904
Net earnings
$
26,874
$
26,768
$
119,279
$
125,583
Net earnings per share - basic:
Earnings from continuing operations
$
0.46
$
0.43
$
2.03
$
1.91
Earnings from discontinued operations
0.02
0.01
0.02
0.01
Net earnings per share
$
0.48
$
0.44
$
2.05
$
1.92
Net earnings per share - diluted:
Earnings from continuing operations
$
0.46
$
0.42
$
1.99
$
1.85
Earnings from discontinued operations
0.01
0.01
0.02
0.02
Net earnings per share
$
0.47
$
0.43
$
2.01
$
1.87
Weighted-average shares outstanding:
Basic
56,405
60,836
58,249
65,314
Diluted
57,433
62,550
59,445
67,263
JACK IN THE BOX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
Sept. 28,
Sept. 30,
2008
2007
ASSETS
Current assets:
Cash and cash equivalents
$
47,884
$
15,702
Accounts and other receivables, net
70,290
41,091
Inventories
45,206
40,745
Prepaid expenses
20,061
29,311
Deferred income taxes
46,166
47,063
Assets held for sale
112,994
42,583
Current assets of discontinued operations
-
6,188
Other current assets
7,480
5,383
Total current assets
350,081
228,066
Property and equipment, at cost:
Land
99,421
98,103
Buildings
874,019
809,235
Restaurant and other equipment
560,485
558,637
Construction in progress
71,572
67,806
1,605,497
1,533,781
Less accumulated depreciation and amortization
(662,435
)
(623,776
)
Property and equipment, net
943,062
910,005
Intangible assets, net
19,249
20,057
Goodwill
85,789
87,621
Noncurrent assets of discontinued operations
-
43,485
Other assets, net
100,237
85,456
$
1,498,418
$
1,374,690
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt
$
2,331
$
5,787
Accounts payable
99,708
97,489
Accrued liabilities
213,631
226,629
Total current liabilities
315,670
329,905
Long-term debt, net of current maturities
516,250
427,516
Other long-term liabilities
161,277
168,722
Deferred income taxes
48,110
38,962
Stockholders’ equity:
Preferred stock $.01 par value, 15,000,000 authorized, none issued
-
-
Common stock $.01 par value, 175,000,000 shares authorized,
73,506,049 and 72,515,171 issued, respectively
735
725
Capital in excess of par value
155,023
132,081
Retained earnings
795,657
676,378
Accumulated other comprehensive loss, net
(19,845
)
(25,140
)
Treasury stock, at cost, 16,726,032 and 12,779,609 shares,
respectively
(474,459
)
(374,459
)
Total stockholders' equity
457,111
409,585
$
1,498,418
$
1,374,690