San Diego, CA (RestaurantNews.com) Jack in the Box Inc. (NASDAQ: JACK) today reported net earnings of $21.6 million, or $0.48 per diluted share, for the second quarter ended April 15, 2012, compared with net earnings of $6.8 million, or $0.13 per diluted share, for the second quarter of fiscal 2011.
Operating earnings per share, a non-GAAP measure which the company defines as diluted earnings per share on a GAAP basis less gains from refranchising, were $0.27 per diluted share compared with $0.12 per diluted share in the prior year quarter. A reconciliation of non-GAAP measurements to GAAP results is attached to this release. Included in operating earnings per share were re-image incentive payments of $0.8 million, or approximately $0.01 per share in the second quarter of 2012 as compared to $1.4 million, or approximately $0.02 per share in the prior year quarter.
During fiscal 2012, the company has been engaged in a comprehensive review of its overhead structure, including evaluating opportunities for outsourcing, restructuring of certain functions and workforce reductions. As a result, restructuring charges of $1.5 million, or approximately $0.02 per share, were recorded during the quarter which relate primarily to severance costs for positions that were eliminated. These charges are included in “impairment and other charges, net” in the accompanying consolidated statement of earnings. The company expects to incur additional restructuring charges during fiscal 2012 relating to this review.
Gains from refranchising contributed approximately $0.21 per diluted share for the quarter as compared with approximately $0.01 per diluted share in the prior year quarter.
Increase (decrease) in same-store sales:
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Linda A. Lang, chairman and chief executive officer, said, “Jack in the Box company same-store sales increased 5.6 percent in the second quarter, driven by a combination of traffic growth and an increase in average check. We believe these results have been largely driven by the investments we have made to enhance the entire guest experience at the Jack in the Box brand, including the substantial completion of our system-wide re-image program in January.
“Qdoba’s same-store sales in the second quarter increased 3.8 percent for company restaurants and 3.0 percent system-wide. Importantly, company restaurant operating margin at Qdoba improved substantially during the quarter,” Lang said.
Consolidated restaurant operating margin was 15.5 percent of sales in the second quarter of 2012, compared with 12.3 percent of sales in the year-ago quarter.
Food and packaging costs in the quarter were 80 basis points lower than prior year. The decrease resulted from the benefit of price increases and favorable product mix as well as a greater proportion of Qdoba company restaurants which combined to more than offset commodity inflation. Overall commodity costs were approximately 3 percent higher in the quarter, driven by higher costs for most commodities other than produce and poultry.
Payroll and employee benefits costs were 120 basis points lower than the year-ago quarter, reflecting the leverage from same-store sales increases and the benefits of refranchising. These decreases were offset by higher levels of incentive compensation.
Occupancy and other costs decreased 130 basis points in the second quarter due primarily to leverage from same-store sales increases and the benefits of refranchising. These decreases were partially offset by higher debit card fees, higher depreciation expense related to the Jack in the Box re-image program and higher rent expense as a percentage of sales due to the greater proportion of company-operated Qdoba restaurants versus the prior year.
SG&A expense for the second quarter increased by $1.9 million and was 10.8 percent of revenues as compared to 10.4 percent in the prior year quarter. The increase in SG&A was attributable primarily to higher incentive compensation accruals, increased G&A related to Qdoba growth, and higher pension and pre-opening costs which were partially offset by lower advertising and overhead costs resulting from the company’s refranchising strategy. Mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans positively impacted SG&A by $1.1 million in the second quarter as compared to a positive impact of $1.3 million in last year’s second quarter, resulting in a year-over-year increase in SG&A of $0.2 million.
Gains on the sale of 37 company-operated Jack in the Box restaurants to franchisees totaled $14.1 million in the second quarter, or approximately $0.21 per diluted share, compared with $0.9 million, or approximately $0.01 per diluted share, in the year-ago quarter from the sale of 26 restaurants. For the second quarter of 2012 average gains were $380,000 per restaurant, and total proceeds related to refranchising were $20.7 million, or an average of $560,000 per restaurant.
Impairment and other charges increased in the quarter to $5.1 million from $4.5 million a year ago. This increase related primarily to restructuring charges of $1.5 million discussed above, the impairment of one underperforming Jack in the Box restaurant in 2012 and an increase in costs associated with closed restaurants. These increases were partially offset by a decrease in accelerated depreciation related to the company’s re-image program.
As previously disclosed, the company acquired 25 franchised Qdoba restaurants in two markets during the second quarter of 2012 for $33.0 million. These acquisitions are expected to be accretive to fiscal 2012 restaurant operating margin and earnings per share.
In November 2011, the company’s board of directors approved a new $100 million stock-buyback program that expires in November 2013. The company did not repurchase any shares of its common stock during the second quarter; and as of April 15, 2012, $100 million remains available under this authorization.
Seven new Jack in the Box restaurants opened in the second quarter, including 3 franchised locations, compared with 8 new restaurants opened system-wide during the same quarter last year, of which 6 were franchised.
In the second quarter, 8 Qdoba restaurants opened, including 6 franchised locations, versus 10 new restaurants in the year-ago quarter, of which 5 were franchised.
At April 15, 2012, the company’s system total comprised 2,242 Jack in the Box restaurants, including 1,641 franchised locations, and 605 Qdoba restaurants, including 316 franchised locations.
The following guidance and underlying assumptions reflect the company’s current expectations for the third quarter ending July 8, 2012, and the fiscal year ending September 30, 2012. Fiscal 2012 is a 52-week year, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.
Third quarter fiscal year 2012 guidance
- Same-store sales are expected to increase approximately 3 to 4 percent at Jack in the Box company restaurants versus a 4.7 percent increase in the year-ago quarter.
- Same-store sales are expected to increase approximately 3 to 4 percent at Qdoba system restaurants versus a 5.1 percent increase in the year-ago quarter.
Fiscal year 2012 guidance
- Same-store sales are expected to increase approximately 3.5 to 4.5 percent at Jack in the Box company restaurants.
- Same-store sales are expected to increase approximately 3.5 to 4.5 percent at Qdoba system restaurants.
- Overall commodity costs are now expected to increase by approximately 3 to 4 percent for the full year, with lower inflation in the second half of the fiscal year.
- Restaurant operating margin for the full year is expected to be approximately 14.5 to 15.0 percent, depending on same-store sales and commodity inflation.
- 30 to 35 new Jack in the Box restaurants are expected to open, including approximately 15 company locations.
- 60 to 70 new Qdoba restaurants are expected to open, of which approximately 25 to 30 are expected to be company locations.
- The company expects to sell 80 to 120 Jack in the Box restaurants to franchisees with expected gains of $20 to $25 million and total proceeds of $40 to $50 million resulting from the sales.
- Capital expenditures are expected to be $85 to $95 million.
- SG&A is expected to be in the high-10 percent range with the increase from prior guidance due primarily to higher incentive compensation.
- Impairment and other charges are expected to be approximately 60 basis points, excluding additional restructuring charges in the third and fourth quarters.
- The tax rate is expected to be approximately 35 to 36 percent.
- Diluted earnings per share are expected to range from $1.28 to $1.50, excluding additional restructuring charges in the third and fourth quarters. Operating earnings per share, which the company defines as diluted earnings per share on a GAAP basis less gains from refranchising, are expected to range from $1.00 to $1.15 per diluted share, excluding additional restructuring charges in the third and fourth quarters. Gains from refranchising are expected to contribute $0.28 to $0.35 to diluted earnings per share, as compared to approximately $0.78 in fiscal 2011.
- Diluted earnings per share includes approximately $0.10 to $0.11 of re-image incentive payments to Jack in the Box franchisees in fiscal 2012 to complete the re-image program as compared to $0.11 in fiscal 2011.
The company will host a conference call for financial analysts and investors on Thursday, May 17, 2012, beginning at 7:30 a.m. PT (10:30 a.m. ET). The conference call will be broadcast live over the Internet via the Jack in the Box website. To access the live call through the Internet, log onto the Investors section of the Jack in the Box Inc. website at http://investors.jackinthebox.com at least 15 minutes prior to the event in order to download and install any necessary audio software. A replay of the call will be available through the Jack in the Box Inc. corporate website for 21 days, beginning at approximately 10:30 a.m. PT on May 17.
About Jack in the Box Inc.
Jack in the Box Inc. (NASDAQ: JACK), based in San Diego, is a restaurant company that operates and franchises Jack in the Box® restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 20 states. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Grill®, a leader in fast-casual dining, with more than 600 restaurants in 42 states and the District of Columbia. For more information on Jack in the Box and Qdoba, including franchising opportunities, visit www.jackinthebox.com or www.qdoba.com.
Safe harbor statement
This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to substantial risks and uncertainties. A variety of factors could cause the company’s actual results to differ materially from those expressed in the forward-looking statements, including the success of new products and marketing initiatives, the impact of competition, unemployment, trends in consumer spending patterns, commodity costs, the timing of sales of Jack in the Box restaurants to franchisees, and stock market volatility. These and other factors are discussed in the company’s annual report on Form 10-K and its periodic reports on Form 10-Q filed with the Securities and Exchange Commission which are available online at www.jackinthebox.com or in hard copy upon request. The company undertakes no obligation to update or revise any forward-looking statement, whether as the result of new information or otherwise.
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