Industry News | February 23, 2017

Sales Rise at Jack in the Box, Slide at Qdoba in 1Q

Jack in the Box

Jack in the Box Inc. today reported earnings from continuing operations of $37 million, or $1.14 per diluted share, for the first quarter ended January 22, compared with $33.9 million, or $0.94 per diluted share, for the first quarter of fiscal 2016.

During fiscal 2016, the company announced plans to reduce general and administrative costs. A comprehensive review of its organizational structure identified cost savings from workforce reductions, relocation, and consolidation of the Qdoba corporate support center, refranchising initiatives, and information technology synergies across both brands. As a result, restructuring charges of $2 million, or approximately $0.04 per diluted share, were recorded during the first quarter of fiscal 2017. Charges consist primarily of facility closing costs and employee severance pay. These charges are included in “impairment and other charges, net” in the accompanying condensed consolidated statements of earnings.

Lenny Comma, chairman and chief executive officer, says, “Our first quarter results were mixed, with solid results at the Jack in the Box brand offset by lower than expected sales and disappointing margins at Qdoba. We are intent on improving the performance of the Qdoba brand with priorities focused on driving sales growth and managing labor and food costs more effectively.

“We were pleased that Jack in the Box system same-store sales outperformed sluggish industry trends during the quarter. And despite the weaker Qdoba results, our commitments to reduce G&A and to return cash to shareholders contributed to a 27 percent increase in operating earnings per share for the quarter.

“Consistent with restaurant and retail industry data, we've seen an abrupt downturn in February sales trends for both brands. We believe some of this slowdown may be attributable to delayed tax refunds, as well as record rainfall and flooding in California over the past few weeks which have impacted our Jack in the Box results.

“We've made good progress on our refranchising initiative, and as of today, have signed non-binding letters of intent with franchisees to sell approximately 75 restaurants in several different markets.”

Jack in the Box system same-store sales increased 3.1 percent for the quarter and exceeded the quick-service sandwich segment by 1.6 percentage points for the comparable period, according to The NPD Group’s SalesTrack Weekly for the 16-week time period ended January 22. Included in this segment are 16 of the top sandwich and burger chains in the country. Company same-store sales increased 0.6 percent in the first quarter, with average check up 4.9 percent.

Qdoba same-store sales decreased 1 percent system-wide and 1.4 percent for company restaurants in the first quarter. Company same-store sales reflected a 2.5 percent decrease in transactions, partially offset by growth in average check and catering sales.

Consolidated restaurant operating margin decreased by 90 basis points to 18.6 percent of sales in the first quarter of 2017, compared with 19.5 percent of sales in the year-ago quarter. Restaurant operating margin for Jack in the Box company restaurants increased 70 basis points to 21.6 percent of sales. The increase was due primarily to lower costs for food and packaging, partially offset by minimum wage increases in California that went into effect in January 2016 and January 2017. The decrease in food and packaging costs as a percentage of sales resulted from the benefit of commodity deflation of approximately 5.6 percent in the quarter, favorable product mix changes and menu price increases. Restaurant operating margin for Qdoba company restaurants decreased 350 basis points to 13.1 percent of sales. The decrease was due primarily to the impact of new restaurant openings over the last 12 months, sales deleverage, labor staffing inefficiencies and wage inflation, and higher costs for food and packaging. The increase in food and packaging costs as a percentage of sales was impacted by increased promotional activity, partially offset by the benefits from commodity deflation of approximately 3.0 percent in the quarter.

Franchise margin as a percentage of total franchise revenues improved to 54.2 percent in the first quarter from 51.5 percent in the prior year quarter. The improvement was due primarily to higher royalty revenue and rental income from Jack in the Box franchised restaurants resulting from increases in franchise average unit volumes, and a decrease in franchise costs.

Capital Allocation

The company repurchased approximately 992,000 shares of its common stock in the first quarter of 2017 at an average price of $109.04 per share for an aggregate cost of $108.1 million. This leaves approximately $300 million remaining under stock buyback programs authorized by the company's board of directors.

The company also announced today that on February 21, its board of directors declared a quarterly cash dividend of $0.40 per share on the company’s common stock. The dividend is payable on March 20, to shareholders of record at the close of business on March 7.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.

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