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Jack in the Box CEO: Q1 earnings disappointing

Jack in the Box Inc Chairman and CEO Lenny Comma called the company's first-quarter operating earnings per share "disappointing."

February 18, 2016

Jack in the Box Inc Chairman and CEO Lenny Comma called the company's first-quarter operating earnings per share "disappointing," according to a company press release. 

"At the Jack in the Box brand, margin expansion offset sales that were below our plan," Comma said in a company press release. "Solid sales and traffic growth at Qdoba were hampered by lower than expected margins and some non-repetitive costs."

Jack in the Box Inc, based in San Diego, operates and franchises Jack in the Box hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Eats, with more than 600 restaurants in 47 states, the District of Columbia and Canada.

Second-quarter highlights:

• Jack in the Box Inc reported earnings from continuing operations of $33.9 million, or 94 cents per diluted share, for the first quarter ended Jan. 17, compared with $37.1 million, or 94 cents per diluted share, for the first quarter of fiscal 2015.
• Jack in the Box system same-store sales increased 1.4 percent for the quarter. Company same-store sales increased 0.5 percent, with average check up 3.4 percent.
• Qdoba same-store sales increased 1.8 percent system-wide and 1.5 percent for company restaurants in the first quarter. Company same-store sales reflected a 1.3 percent increase in transactions as well as another quarter of double-digit growth in catering sales.
• Consolidated restaurant operating margin increased by 20 basis points to 19.5 percent of sales in the first quarter of 2016, compared with 19.3 percent of sales in the year-ago quarter. 
• Restaurant operating margin for Jack in the Box company restaurants increased 150 basis points to 20.9 percent of sales. The improvement was due primarily to lower food and packaging costs and the benefit of refranchising. The decrease in food and packaging costs as a percentage of sales resulted from the benefit of favorable product mix changes and lower discounting, commodity deflation of approximately 1.7 percent in the quarter, and menu price increases.
• Restaurant operating margin for Qdoba company restaurants decreased 270 basis points to 16.6 percent of sales, as higher labor staffing, new uniforms and costs associated with a greater number of new restaurant openings more than offset the sales growth and benefits from commodity deflation of approximately 5.4 percent in the quarter.

"Jack in the Box sales in the last part of the quarter were lower than we anticipated as several competitors began promoting aggressive value offers. We also experienced weakness at breakfast and lunch throughout the quarter, which we attribute primarily to our decision to shift the timing of some of our promotional activity around breakfast to the second quarter as compared to the first quarter of last year," Comma said. "In addition, we believe a competitor's messaging around its launch of all-day breakfast had some impact on our results, particularly in the 10:30 a.m. to noon period."

"Qdoba sales were strong on top of double-digit comparisons, driven by the introduction of Knockout Tacos which generated nice traffic growth," Comma added. "Qdoba's profitability for the quarter was impacted by a number of items, including advertising costs which were $0.03 per share higher than last year due to timing, higher pre-opening costs of about $0.02 per share related to a greater number of openings, and costs of about $0.02 per share for new uniforms and a brand-wide conference. In addition to these items, mark-to-market adjustments hurt our consolidated results by approximately $0.01 per share."

The company repurchased approximately 1,274,000 shares of its common stock in the first quarter of 2016 at an average price of $78.48 per share for an aggregate cost of $100 million. This leaves $100.0 million remaining under a stock-buyback program authorized by the company's Board of Directors in September 2015 that expires in November 2017, according to the release.

"In addition, last week our Board of Directors authorized an additional $100 million stock buyback program that also expires in November 2017," Comma said. "The additional authorization underscores the confidence both the management team and our Board of Directors have in our business model and long-term growth plans."

The company also announced today that on Feb. 12 its Board of Directors declared a quarterly cash dividend of 30 cents per share on the company's common stock. The dividend is payable on March 14 to shareholders of record at the close of business on March 1.

Comma expects the following for year 2016:

• Same-store sales increase of approximately 1 to 2 percent at Jack in the Box company restaurants.
• Same-store sales increase of approximately 2 to 3 percent at Qdoba company restaurants.
• Commodity deflation of approximately 2 percent for Jack in the Box and approximately 4 percent at Qdoba.
• Restaurant operating margin of approximately 20 to 20.5 percent.
• Approximately 20 new Jack in the Box restaurants opening system-wide, the majority of which will be franchise locations.
• Approximately 50 to 60 new Qdoba restaurants, of which approximately half are expected to be company locations.
• Capital expenditures of $100 million to $120 million.