Article

Jack in the Box customer experience initiatives paying off

Company signs agreement to outsource distribution business.

August 10, 2012 by Alicia Kelso — Editor, QSRWeb.com

Jack in the Box Inc. reported results for its third quarter, which included a systemwide same-store sales increase of 2.8 percent over last year. Company-owned restaurants were up 3.4 percent.

During Thursday's earnings call, Linda A. Lang, chairman and CEO, attributed the lifts to traffic (1.2 percent) and check growth (2.2 percent).

Additionally, after some slowing in May and June, Jack in the Box began to accelerate sales in July with the help of two strong product promotions – the All-American Combo at $4.99, and the Waffle Breakfast Sandwich. Breakfast continues to be the chain's strongest daypart and the new sandwich is expected to continue to drive morning traffic in the fourth quarter.

Speed of service improvements

Jack in the Box also experienced growth in other dayparts, driven by the company's efforts to improve speed of service.

"For the third quarter, we improved speed of service by 30 seconds versus a year ago. We've now seen six quarters of sequential improvement in speed of service across all dayparts. We believe this improvement is building trust with our guests and driving additional visits," Lang said.

Jack in the Box has been investing in additional guest experience improvement initiatives for the past two years. Lang said all of these initiatives combined are driving sales at Jack in the Box, including restaurant reimaging, which boosts dine-in business; service improvements such as accuracy, friendliness and cleanliness; attention to late-night business; and food improvements and innovation.

"We have rolled out improved burgers and we're seeing higher sales of our core burgers as a result. In the third quarter, we had the Chipotle Chicken Club combo. We also introduced the value deal which included chicken nuggets – a new product for us that really rounded out our value menu. Then you add the Java Cookie Shake and it's all working in concert to really grow the business. Throw great advertising on top of that and it's sort of a winning combination," Lang said.

Distribution business

Jack in the Box announced an agreement to outsource its distribution business to MBM Food Service Distribution. The transaction is expected to be complete by the end of Q1 2013.

"This agreement is expected to provide long-term price stability for both company and franchised restaurants. MBM distributes to many in the restaurant space, including key brands in QSR. The outsourcing of distribution will free up approximately $60 million in working capital currently tied up in franchise receivables and distribution center inventories that we can deploy to further enhance shareholders returns," said Jerry Rebel, CFO.

Financial highlights

Jack in the Box Inc. reported net earnings of $11.6 million, or $0.26 per diluted share, for the third quarter ended July 8, compared with net earnings of $18.7 million, or $0.38 per diluted share, for the Q3 2011.

Gains from refranchising contributed approximately $0.05 per diluted share for the quarter as compared with approximately $0.13 per diluted share in the prior year quarter.

Throughout fiscal 2012, the company has been reviewing its organization structure, including evaluating opportunities for outsourcing, restructuring of certain functions and workforce reductions. As a result, restructuring charges of $11.3 million, or approximately $0.16 per diluted share, were recorded during the third quarter which relate primarily to costs resulting from employees electing to participate in the company's voluntary early retirement program. Additional restructuring charges are expected during the fourth quarter.

Seven new Jack in the Box restaurants opened in the third quarter, including two franchised locations, compared with five new restaurants opened systemwide during the same quarter last year, of which one was franchised.

In the third quarter, 11 Qdoba restaurants opened, including five franchised locations, versus 17 new restaurants in the year-ago quarter, of which 11 were franchised.

At July 8, 2012, the company's system total comprised 2,247 Jack in the Box restaurants, including 1,661 franchised locations, and 614 Qdoba restaurants, including 310 franchised locations.

CMO transition

Chief marketing officer Terri Graham, who has been with the company for 22 years, is leaving the company. She will assist the team during the transition.

Read more about operations management.

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