Jack in the Box Inc. Reports Record Second Quarter Profit; Raises Fiscal 2007 Earnings Forecast and Provides Third-Quarter Guidance

Fueled by another strong quarter of comparable sales growth at its namesake Jack in the Box® restaurants, Jack in the Box Inc. (NYSE:JBX) today reported that earnings increased to $27.2 million, or 80 cents per diluted share, for the second quarter ended April 15, 2007, compared with $21.8 million, or 61 cents per diluted share, for the same quarter a year ago. Year-to-date net earnings increased to $64.6 million, or $1.83 per diluted share, versus $47.0 million, or $1.31 per diluted share, last year — a 39 percent improvement in EPS.

Second quarter earnings exceeded the high end of the range previously forecast by the company and analysts’ First Call consensus estimate of 70 cents.

“Our commitment to reinvent the Jack in the Box brand has generated new products and new initiatives that drove the increase in restaurant sales for the first half of the year,” said Linda A. Lang, chairman and chief executive officer. “We continue to develop a strong lineup of innovative and high-quality menu items, like our new 100% Sirloin Burger, which we introduced earlier this month and is the only 100% sirloin burger offered by a major quick-serve chain.”

Second quarter financial highlights

Same-store sales at Jack in the Box company restaurants increased 6.4 percent in the second quarter, with an increase in both average check and transactions, on top of a year-ago increase of 4.0 percent. Year to date, same-store sales are up 5.9 percent on top of a 4.9 percent increase for the same period last year. System same-store sales at Qdoba Mexican Grill® increased 3.5 percent in the second quarter on top of a 5.6 percent increase in the second quarter of 2006. Year to date, same-store sales are up 3.8 percent at Qdoba, on top of a 6.8 percent increase for the first half of fiscal 2006.

Restaurant operating margin improved to 18.3 percent of sales in the second quarter compared with 17.6 percent of sales a year ago, due primarily to fixed cost leverage from higher sales in 2007 and lower utility costs. For the first half of fiscal 2007, restaurant operating margin improved to 18.3 percent of sales versus 16.9 percent of sales for the same period a year ago, with the 140 basis point improvement due primarily to the same reasons cited for the quarterly increase as well as lower food and packaging costs.

SG&A expense rate in the second quarter improved to 10.5 percent of revenues compared with 11.2 percent last year, due primarily to leverage from higher sales and franchise revenues, lower pension expense, and the impact of the company’s refranchising strategy.

Ten company and franchised Jack in the Box restaurants opened in the second quarter, compared with 5 new restaurants that opened in the same quarter a year ago. Qdoba opened 13 company and franchised restaurants in the second quarter, the same as last year. At April 15, the company’s system total comprised 2,098 company and franchised Jack in the Box restaurants, including 57 with Quick Stuff convenience stores, and 353 company and franchised Qdoba restaurants.

Gains on sale of company-operated restaurants were $7.2 million in the second quarter, resulting from the sale of 15 Jack in the Box company restaurants to franchisees. In the second quarter of fiscal 2006, gains on sale of company-operated restaurants totaled $7.5 million, resulting from the sale of 13 Jack in the Box company restaurants to franchisees. The difference in average gains is related to the specific sales and cash flows of restaurants sold.

The effective tax rate in the second quarter was 36.5 percent versus 37.0 percent a year ago.

Capital expenditures, including capital lease obligations, were $29.1 million in the quarter compared with $21.5 million in fiscal 2006, with the increase due primarily to investment in the Jack in the Box re-image program.

Second quarter initiatives

In the second quarter, Jack in the Box added several new products as part of the company’s strategy to holistically reinvent the Jack in the Box brand through major upgrades to its menu, restaurant environment and guest service. Menu additions included the following products:

Steak ‘n’ Mushroom Ciabatta Sandwich, which features tender, marinated, 100-percent sirloin steak on toasted ciabatta bread with savory sliced mushrooms, provolone cheese, grilled onions and creamy peppercorn mayo.

Jack’s Sampler Trio, which includes three stuffed jalapenos, three mozzarella cheese sticks and seven Spicy Chicken Bites — a new snack item consisting of chicken breast pieces with a spicy, crunchy coating. The Sampler Trio is served with buttermilk ranch and zesty marinara dipping sauces.

Grilled cheese sandwich, which features two slices of American cheese on sourdough bread. This product joined Jack’s Kids’ Meal® menu along with new 8-ounce milk chugs, available in reduced-fat regular or low-fat chocolate flavors.

Andes® Mint Shake, which blends real vanilla ice cream, mint flavor and pieces of Andes chocolate mint candy and features whipped topping and a maraschino cherry.

Through the first half of fiscal 2007, Jack in the Box re-imaged 56 restaurants and remains on pace to re-image 150-200 restaurants in fiscal 2007 with a comprehensive program that includes a complete redesign of the dining room and common areas. Interior finishes include ceramic tile floors, a mix of seating styles ranging from booths and bars to high-top round tables, decorative pendant lighting, and graphics and wall collages. The program, which is expected to be rolled out to the entire Jack in the Box system in 4-5 years, also includes music, uniforms and packaging, along with new paint schemes, landscaping and other exterior enhancements. According to a proprietary brand image and loyalty study, the newly re-imaged restaurants are expanding their customer base, generating more guest visits, and gaining more loyal users.

“Our re-imaged restaurants are receiving higher ratings on all attributes, from being trendy and a good dining destination to providing friendly, consistent customer service,” Lang said. “This has led to positive sales trends in the re-imaged markets.”

In the second quarter, Jack in the Box also completed the installation of new interior and exterior menu boards at all locations.

Treasury highlights

In the second quarter the company repurchased under a 10b5-1 plan approximately 3.2 million shares of its common stock at an aggregate cost of approximately $220 million. Including 2.3 million shares acquired through a modified Dutch auction tender offer in December, the company has repurchased approximately 5.5 million shares of its stock in fiscal 2007 at an aggregate cost of approximately $363 million. The company still has a $100 million authorization from its board to repurchase Jack in the Box stock.

Using its available cash resources, the company prepaid without penalty $60 million of its $475 million term loan in the second quarter. The paydown will reduce borrowing rates by 25 basis points and result in an annualized interest savings of approximately $2.0 million.

To reduce future exposure to rising interest rates, the company in March entered into interest-rate swap agreements to effectively convert $200 million of its $415 million term loan at floating interest rates to a fixed rate for three years.

Fiscal year 2007 guidance update (in approximate amounts)

Jack in the Box Inc. today updated its earnings guidance and certain underlying assumptions for fiscal year 2007:

$3.45-3.50 per diluted share in earnings.

5.0-6.0 percent same-store sales increase at Jack in the Box company-operated restaurants.

3.0-5.0 percent same-store sales increase at Qdoba system restaurants.

$29-31 million in gains from the sale of 70-80 restaurants to franchisees.

36-37 percent tax rate.

40-45 new company and franchise-operated Jack in the Box restaurants.

80-90 new company and franchise-operated Qdoba restaurants.

$160-170 million in capital expenditures, including investment costs related to the Jack in the Box restaurant re-image program and kitchen enhancements.

Third quarter guidance (in approximate amounts)

Jack in the Box Inc. also today announced the following guidance for the third quarter of 2007:

85-89 cents per diluted share in earnings, which reflects an expected 5-6 percent increase in beef costs versus the prior year’s quarter.

5.0-6.0 percent same-store sales increase at Jack in the Box company-operated restaurants.

Third quarter initiatives

Near the beginning of May, Jack in the Box introduced a 100% Sirloin Burger, the first all-sirloin beef patty among major quick-serve chains. Weighing in at nearly one-third of a pound after cooking, the 100% Sirloin Burger features a sirloin patty on a toasted bakery-style bun with peppercorn mayo, pickle strips, lettuce, tomato, and a choice of American, cheddar or Swiss cheese, grilled or red onions, and bacon.

Earlier this month Jack in the Box added a blackberry flavor to its lineup of shakes. The new shake features real vanilla ice cream blended with pieces of real blackberries and served with creamy whipped topping and a maraschino cherry.

To continue to grow breakfast transactions and build consumer awareness for its Buttermilk Biscuit Sandwiches, Jack in the Box last month launched a 2 for $2 campaign. The two builds of Buttermilk Biscuit Sandwiches feature a freshly fried egg, slice of American cheese, and choice of sausage patty or bacon.

In June, Jack in the Box will launch an upgrade to its line of entrée salads, which will feature a new blend of mostly Romaine lettuce and spring mix, and offer guests the opportunity to customize their salad with grilled or crispy chicken breast strips. The company will also introduce the new BBQ Ranch Chicken Salad, which will be topped with real cheddar cheese, fresh cucumber slices and red onion rings, and served with crunchy barbecue tortilla strips, barbecue sauce and ranch dressing on the side.

About Jack in the Box Inc.

Jack in the Box Inc. (NYSE:JBX), 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 2,000 restaurants in 17 states. The company also operates a proprietary chain of convenience stores called Quick Stuff®, with more than 50 locations, each built adjacent to a full-size Jack in the Box restaurant and including a major-brand fuel station. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Grill®, an emerging leader in fast-casual dining, with more than 350 restaurants in 39 states. For more information, visit www.jackinthebox.com.

Safe harbor statement

Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that are subject to substantial risks and uncertainties. These statements may be identified by the use of words such as “believe,”"expects,”"will,” and other words of similar meaning.

The following are some of the factors that could cause the company’s actual results to differ materially from those expressed in the forward-looking statements: delays in the opening of new or remodeled restaurants; costs that exceed projections; the uncertainty whether test results for products or facility enhancements are predictive of successful results on a larger scale; loss of sales due to restaurant closures related to weather or other adverse conditions in the regions in which restaurants are located; changes in laws, regulations and accounting rules and interpretations; the costs of legal claims by employees, franchisees, customers, stockholders and others; and adverse economic and other local, national and international conditions or events which affect consumer confidence and spending. Further information about factors that could affect the company’s financial and other results is included in the company’s annual report on Form 10-K and its periodic reports on Forms 10-Q filed with the Securities and Exchange Commission. The information in this press release is as of May 15, 2007. The company undertakes no obligation to update or revise any forward-looking statement, whether as the result of new information or otherwise.

JACK IN THE BOX INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

 

Twelve Weeks Ended

Twenty-eight Weeks Ended

April 15, 2007

April 16, 2006

April 15, 2007

April 16, 2006

 

 

 

Revenues:

Restaurant sales

$ 500,445 

$ 487,822 

$1,151,853 

$1,127,702 

Distribution and other sales

129,807 

108,122 

293,557 

248,083 

Franchised restaurant revenues

30,415 

22,819 

71,949 

55,981 

660,667 

618,763 

1,517,359 

1,431,766 

Operating costs and expenses:

Restaurant costs of sales

155,205 

151,569 

357,331 

355,514 

Restaurant operating costs

253,750 

250,418 

583,388 

581,566 

Distribution and other costs of sales

 

128,359 

107,134 

291,154 

245,292 

Franchised restaurant costs

 

12,923 

9,984 

29,343 

22,851 

Selling, general and administrative expenses

 

69,552 

69,131 

158,904 

158,681 

Gains on sale of company-operated restaurants

 

(7,244)

(7,473)

(14,401)

(14,187)

612,545 

580,763 

1,405,719 

1,349,717 

 

Earnings from operations

 

48,122 

38,000 

111,640 

82,049 

 

Interest expense, net

 

5,281 

3,440 

10,775 

7,430 

 

Earnings before income taxes

 

42,841 

34,560 

100,865 

74,619 

 

Income taxes

 

15,632 

12,773 

36,302 

27,609 

 

Net earnings

 

$ 27,209 

$ 21,787 

$ 64,563 

$ 47,010 

 

Net earnings per share:

Basic

 

$ .82 

$ .63 

$ 1.89 

$ 1.35 

Diluted

 

$ .80 

$ .61 

$ 1.83 

$ 1.31 

 

Weighted-average shares outstanding:

Basic

 

33,060 

34,482 

34,249 

34,766 

Diluted

 

33,944 

35,701 

35,213 

35,921 

JACK IN THE BOX INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

April 15, 2007

April 16, 2006

 

 

 

 

 

 

ASSETS

Current assets:

Cash and cash equivalents

$ 77,113 

$ 159,134 

Accounts and notes receivable, net

42,927 

27,200 

Inventories

45,495 

39,789 

Other current assets

98,535 

104,535 

Total current assets

264,070 

330,658 

 

Property and equipment, net

903,997 

867,643 

 

Other assets, net

215,269 

177,547 

 

TOTAL

$1,383,336 

$1,375,848 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

Current maturities of long-term debt

$ 5,950 

$ 7,884 

Other current liabilities

269,410 

264,494 

Total current liabilities

275,360 

272,378 

 

Long-term debt, net of current maturities

429,911 

285,937 

 

Other long-term liabilities

215,523 

215,190 

Total liabilities

920,794 

773,505 

 

Stockholders’ equity

462,542 

602,343 

 

TOTAL

$1,383,336 

$1,375,848