Jack in the Box Cancels JBX Test

Jack in the Box Inc. today announced that its board of directors has affirmed the organization's long-term strategy to become a national restaurant company. The goal was approved during the board's annual budget and strategic plan review last week. Since announcing its strategic plan three years ago, the company has executed a multifaceted growth strategy and is making progress by upgrading its menu, service levels and restaurant facilities.

"To realize our vision of being a national restaurant company, we will focus on three key strategic initiatives: profitably growing the business, reinventing the Jack in the Box brand, and driving product innovation and building customer loyalty for all of our brands," says Linda Lang, president and chief operating officer. "To be a leader in the quick-serve and fast-casual segments of the restaurant industry, our brands must deliver on the ever-increasing expectations of consumers. Unit growth alone will not ensure future success or inspire our stakeholders. To increase market share and shareholder value, we must become a preferred destination for consumers."

To that end, Jack in the Box will continue to execute a multifaceted growth strategy designed to grow same-store sales and to improve profits and returns on invested capital by focusing on new unit growth of Jack in the Box restaurants and Quick Stuff convenience stores in existing and contiguous markets; Iincreasing the number of franchised Jack in the Box restaurants through new unit growth and continued sales of restaurants to franchisees; and aggressive franchise growth of Qdoba Mexican Grill

Jack in the Box also plans to pursue a “holistic approach” to reinvent the Jack in the Box brand to further differentiate the chain from other quick-serve restaurants. Key elements of brand reinvention include menu innovation, upgrading service execution, re-imaging existing restaurant facilities; and leveraging the JBX Grill experience and learnings.

"By developing innovative products and using high-quality ingredients such as hearth-baked ciabatta bread, we can continue to make the Jack in the Box menu relevant to a broader customer base," Lang says. "We'll continue to evaluate trends in other industry segments, and leverage the extensive resources at our Innovation Center, from test kitchens to consumer research facilities, to efficiently deliver those products in a quick-serve environment."

Lang says the restaurant re-imaging program, which is currently in test at several locations, entails comprehensive interior and exterior enhancements that more effectively integrate Jack's personality into the facility. Interior and exterior design elements are planned to include new color schemes, furniture, lighting, flooring and landscaping, as well as music, menuboards, product packaging and employee uniforms.

Jack in the Box’s third major strategic initiative focuses on driving product innovation and building customer loyalty for each of the company's brands.

"Successful execution of this strategy can create relevance among a broader base of guests and build long-term customer loyalty to Jack in the Box, Qdoba and Quick Stuff," Lang says. "For our Jack in the Box and Qdoba brands, that means developing a pipeline of differentiated products that guests crave as well as enhancing our existing products to create menus that drive incremental traffic, build average check and foster brand loyalty."

The company's multifaceted growth strategy also calls for Jack in the Box to enter new contiguous markets in fiscal 2006. Leveraging the company's convenience-store concept, the first restaurants in these new markets will be constructed adjacent to Quick Stuff stores, which include a major-brand fuel station.

"By leveraging our convenience-store concept as a tool for new market expansion, we can benefit from the combined revenues and shared development costs of three separate businesses, while securing the best possible locations in high-traffic areas," Lang says. "Additionally, we have an existing infrastructure of operations and distribution capabilities to efficiently support new restaurants in contiguous markets."

As part of its strategic plan, the company has decided to cancel its test of JBX Grill as a stand-alone fast-casual burger and sandwich concept. The company believes that the innovative menu, service initiatives and creative restaurant design elements of JBX Grill can be best leveraged across the existing 2,000 restaurants comprising the core Jack in the Box brand rather than through a separate concept. This strategy will require lower capital investments and is likely to generate higher returns.

"In addition to testing a new facility design and guest-service initiatives, JBX Grill was a great catalyst for developing innovative products, many of which we were able to deliver at our Jack in the Box restaurants, like Natural Cut Fries and our line of ciabatta burgers and sandwiches, including the new Ciabatta Breakfast Sandwich that we introduced earlier this month," Lang says. The decision to cease the testing of JBX Grill will result in an after-tax charge of approximately $2 million, or 5 cents per diluted share, in the fourth quarter of fiscal 2005.

The company says today that its board of directors has authorized a $150 million program to repurchase shares of the company's common stock at prevailing market prices, in the open market or in private transactions, from time to time at management's discretion, over the next three years. Repurchases under the program are subject to bank approval, which the company expects to obtain. Such repurchases will be made using the company's own cash resources and are intended over time to offset the dilutive impact of stock options and maintain average shares outstanding at approximately 37 million shares.

The company now estimates fourth-quarter same-store sales at Jack in the Box to increase approximately 1.5 percent compared with approximately 3.0 percent previously forecast, with the decrease primarily due to lower-than-expected sales of the chain's new Ultimate Club premium sandwich and higher gasoline prices, which may now be impacting consumer habits. For fiscal 2005, Jack in the Box same-store sales are now estimated to increase approximately 2.0-2.5 percent compared with an increase of approximately 2.5-3.0 percent previously forecast. The lower same-store sales growth along with higher-than-expected utility costs are forecast to negatively impact the fourth-quarter and fiscal-year earnings by approximately 2 cents per diluted share. Same-store sales at Qdoba are now expected to increase in the low double-digit range for fiscal 2005 compared with a mid single-digit increase previously forecast. Qdoba is expected to be accretive to earnings for the year.

As a result of the after-tax charge related to JBX Grill (approximately 5 cents), which was described above, and the lower same-store sales estimate and higher utility costs (approximately 2 cents), the company now expects to earn approximately 56 cents per diluted share in the fourth quarter and $2.45 per diluted share in fiscal 2005.