News
Jack in the Box: Negative comps to continue in first half FY2010
November 19, 2009
Jack in the Box Inc. has reported that same-store sales at its Jack in the Box and fast casual Qdoba Mexican Grill brands were down for the fourth quarter ended Sept. 27.
Same-store sales at Jack in the Box company restaurants were down 6.0 percent for the quarter, reflecting weakening trends during the last half of the quarter. This compares to a year-ago decrease of 0.8 percent, which reflected a negative impact of approximately 1.0 percent from Hurricane Ike. For the fiscal year, same-store sales at company Jack in the Box restaurants were down 1.2 percent compared to a 0.2 percent increase last year.
Same-store sales at Qdoba Mexican Grill were down 3.1 percent in the fourth quarter vs. a year-ago decline of 1.0 percent. For the full year, same-store sales decreased 2.3 percent at Qdoba compared to an increase of 1.6 percent last year.
Linda A. Lang, Jack in the Box chairman and chief executive, told investors and analysts on the company's earnings conference call that traffic at Jack in the Box was fairly steady during the quarter but check average was eroded by the success of the company's $1 Big Cheeseburger even though sales of premium offerings such as the Teriyaki Bowl were up. Sales at breakfast and for mid-tier menu items continues to be weak.
Lang attributed the negative sales trend to the chain's high concentration in California, Arizona, and Nevada, which have experienced higher than average unemployment. High unemployment in the brand's core demographic of young males and Hispanics created an additional impact.
Revenues for the quarter were down 7 percent at $540.3 million, compared to $582.7 million in the in same period last year. For the year, revenues were down 3 percent at $2.47 billion, compared to $2.55 billion last year.
Net income for the quarter was up 51 percent at $40.6 million, compared to $26.9 million in the same period last year. For the fiscal year, net income was down 0.75 percent at $118.5 million vs. $119.3 million last year.
As previously announced, the company completed the sale of its 61 Quick Stuff convenience stores during the fourth quarter of fiscal 2009 in multiple transactions with cash proceeds totaling $34.4 million. The company recorded after-tax charges totaling $15.0 million in fiscal 2009, which reduced diluted earnings per share by approximately 26 cents.
"Our ability to grow earnings in a recessionary environment, marked by the highest unemployment levels in 26 years, was largely due to the successful execution of strategic initiatives, such as refranchising, new unit growth and improving our cost structure," Lang said in a news release. "Our performance in these areas more than offset ongoing weakness in sales while strengthening our core brand and positioning the company for continued growth and margin expansion when the economy recovers."
Jack in the Box refranchising, reimaging
Gains on the sale of 96 company-operated Jack in the Box restaurants to franchisees totaled $34.3 million in the fourth quarter compared with $23.1 million in the year-ago quarter from the sale of 41 restaurants. For the year, gains on the sale of 194 company-operated restaurants to franchisees totaled $78.6 million compared with $66.3 million last year from the sale of 109 company-operated restaurants.
Despite the tight credit markets, the number of restaurants sold as well as total proceeds and gains exceeded the company's guidance for fiscal year 2009. Excluding a loss of $2.4 million recorded in the third quarter related to the expected sale of a lower-performing Jack in the Box company-operated market, average gains were $418,000 for fiscal 2009. Total proceeds for the year related to refranchising, including cash and notes receivable, were $116.5 million, or an average of $601,000 per restaurant.
The company provided $7.8 million in financing during the quarter for four of the eight refranchising transactions and collected $7.9 million during the quarter related to previous refranchising transactions. As of the end of the fourth quarter, notes receivable from franchisees related to refranchising activities totaled $12.2 million.
"Refranchising is a critical element in transforming the company to a business model that is less capital intensive and not as susceptible to cost fluctuations," Lang said. "Over the last four years, we have refranchised 461 restaurants and increased franchise ownership from 25 percent to 46 percent of the system. The company remains on track to achieve its long-term goal to increase the percentage of franchise ownership in the Jack in the Box system to 70 to 80 percent by the end of fiscal year 2013."
The company also progressed on its comprehensive restaurant reimaging program, a major element in it brand-reinvention initiative. Approximately 53 percent of company restaurants and 46 percent of the Jack in the Box system, including new construction, now feature all interior and exterior elements of the program. Exterior enhancements, including new paint schemes, lighting and landscaping, are now completed at 96 percent of the Jack in the Box system.
Restaurant openings
Fifteen new Jack in the Box restaurants opened in the fourth quarter, including seven franchised locations, compared with 15 new restaurants opened system-wide during the same quarter last year, of which five were franchised locations. For the year, 64 new Jack in the Box restaurants opened, including 21 franchised locations, compared with 38 system openings in 2008, of which 15 were franchised locations.
During the year, Jack in the Box expanded into several new contiguous markets, including Colorado Springs, Colo., Albuquerque, N.M., Bend, Ore., and Abilene and Wichita Falls, Texas. Jack in the Box will continue expanding into new contiguous markets in fiscal 2010, including locations currently under construction in Oklahoma City and Tulsa, Okla.
In the fourth quarter, 21 Qdoba restaurants opened, including 11 franchised locations, versus 25 new restaurants in the year-ago quarter, 13 of which were franchised. For the full year, 62 new Qdoba restaurants opened, including 38 franchised locations, compared with 77 new restaurants in fiscal 2008, 56 of which were franchised.
As of Sept. 27, the company's system total comprised 2,212 Jack in the Box restaurants, including 1,022 franchised locations, and 510 Qdoba restaurants, including 353 franchised locations.
Upcoming initiatives, guidance
Lang said the company intends to balance innovative premium products with value-priced offerings fiscal 2010.
Product innovations include the October reintroduction of the Bonus Jack, a double-patty favorite from the 1970s featuring two beef patties topped with two slices of American cheese, lettuce, pickle and Secret Sauce and served in a triple-decker bun.
Last week, Jack in the Box launched a Southwest Chicken Bowl, capitalizing on the popularity of Teriyaki bowls launched last year. Available for a limited time, the Southwest Chicken Bowl is priced at $4.29 and is made with fajita-seasoned chicken, rice, grilled onions and peppers, and topped with shredded cheddar cheese and a tangy cilantro lime sauce.
Guidance for the first quarter includes:
- Same-store sales are expected to decrease approximately 10 percent at Jack in the Box company restaurants versus a 1.7 percent increase in the year-ago quarter.
- Same-store sales are expected to decrease approximately 5 percent at Qdoba system restaurants versus a 1.1 percent decrease in the year-ago quarter.
Guidance for the fiscal year 2010 includes:
- Three to 7 percent decrease in same-store sales at Jack in the Box company restaurants, with trends improving in the second half of the fiscal year
- 3 to 5 percent decrease in same-store sales at Qdoba system restaurants
- Overall commodity costs are expected to be approximately flat, with greater favorability in the first half of the fiscal year
- Opening of 45 to 50 new Jack in the Box restaurants, including approximately 30 company locations
- Opening of 30 to 40 new Qdoba restaurants, including approximately 15 company locations.
- Gains on the sale of 150 to 170 Jack in the Box restaurants to franchisees of $60 to $70 million, with $85 to $95 million in total proceeds resulting from the sales
- Capital expenditures of $125 to $135 million, a level expected to remain in this range through fiscal year 2012. Following the planned completion of the Jack in the Box re-image program, annual capital expenditures are anticipated to be approximately $110 million or less.
Conference call replay
A replay of the company's conference call for financial analysts and investors is available through the conference-call link on the Jack in the Box Inc. investors Web site for 21 days.
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