Jack in the Box May Revamp Your Portfolio

Jack in the Box Inc. (JACK, Financial), 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 21 states and Guam. The company also owns Qdoba Mexican Grill, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada.

Recent Quarter Earnings

JACK reported earnings from continuing operations of $37.1 million, or $0.94 per diluted share, for the first quarter ended January 18, compared with earnings from continuing operations of $33.0 million, or $0.75 per diluted share, for the first quarter of fiscal 2014.

Operating earnings per share, a non-GAAP measure which the company defines as diluted earnings per share from continuing operations on a GAAP basis excluding restructuring charges and gains or losses from refranchising, were $0.93 in the first quarter of fiscal 2015 compared with $0.75 in the prior year quarter.

“Jack in the Box company same-store sales increased 3.9 percent for the quarter, as we experienced a significant acceleration in trends in the last half of the quarter. Transactions were positive, and sales increased across all dayparts, with breakfast and late night remaining the strongest,” said Jack in the Box CEO Leonard Comma.

Jack in the Box system same-store sales growth for the quarter of 4.4 percent exceeded that of the QSR sandwich segment by 3.4 percentage points for the comparable period, according to The NPD Group’s SalesTrack Weekly for the 16-week time period ended January 18, 2015. Included in this segment are 16 of the top QSR sandwich and burger chains in the country.

“Qdoba same-store sales in the first quarter increased 12.9% for company restaurants and 14.0% system-wide, as the implementation of our new simplified menu pricing structure was well received by our guests. In addition, company same-store sales reflected positive traffic, less discounting and double-digit growth in catering sales,” Comma concluded.

Consolidated restaurant operating margin increased by 100 basis points to 19.3 percent of sales in the first quarter of 2015, compared with 18.3 percent of sales in the year-ago quarter. Restaurant operating margin for Jack in the Box restaurants increased 30 basis points to 19.4 percent of sales. The improvement was due primarily to sales leverage and the benefit of refranchising, which were partially offset by commodity inflation of approximately 3.9 percent and the impact of the increase in the California minimum wage in July 2014. Restaurant operating margin for Qdoba restaurants increased 290 basis points to 19.3 percent of sales, due primarily to sales leverage, including the benefit of the new menu pricing structure, which was partially offset by commodity inflation of approximately 6.2 percent.

SG&A expense for the first quarter increased by $3.9 million and was 13.5 percent of revenues as compared to 13.1 percent in the prior year quarter. The increase reflects a $1.5 million increase in pension expense resulting from lower discount rates. Advertising costs were also $1.0 million higher at Qdoba due to changes in the timing of advertising activities. Mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans negatively impacted SG&A by $0.2 million in the first quarter of 2015, compared to a positive impact of $1.4 million in the first quarter of 2014, resulting in a year-over-year increase in SG&A of $1.6 million.

Gains from refranchising were $0.9 million in the first quarter of 2015, or approximately $0.01 per diluted share, compared with $0.5 million, or approximately $0.01 per diluted share, in the prior year quarter. Amounts in both years represent additional proceeds received as a result of the extension of underlying franchise and lease agreements for previously refranchised Jack in the Box restaurants, and the sale of one restaurant in the first quarter of 2015.

The tax rate for the first quarter of 2015 was 36.1 percent versus 37.3 percent for the first quarter of 2014. The lower tax rate in the first quarter of fiscal 2015 was due primarily to legislation that retroactively reinstated Work Opportunity Tax Credits for calendar year 2014.

In the third quarter of 2013, following the completion of the company’s previously disclosed review of market performance for its Qdoba brand, 62 company-operated Qdoba restaurants were closed, and the results of operations, impairment charges, lease obligations and other exit costs for these restaurants are included in discontinued operations in the accompanying consolidated statements of earnings for all periods presented. Discontinued operations for the first quarter of fiscal 2015 include after-tax charges related to the Qdoba restaurant closures of approximately $0.03 per diluted share, as compared to $0.01 for the first quarter of fiscal 2014.

Capital Allocation

The company repurchased approximately 1,307,000 shares of its common stock in the first quarter of 2015 at an average price of $77.70 per share for an aggregate cost of $101.6 million. This leaves $115.5 million remaining under two stock-buyback programs authorized by the company’s Board of Directors, of which $15.5 million expires in November 2015 and $100 million expires in November 2016.

The company also announced today that on February 12, 2015, its Board of Directors declared a quarterly cash dividend of $0.20 per share on the company’s common stock. The dividend is payable on March 19, 2015, to shareholders of record at the close of business on March 6, 2015.

Guidance

The following guidance and underlying assumptions reflect the company’s current expectations for the second quarter ending April 12, 2015, and the fiscal year ending September 27, 2015. Fiscal 2015 is a 52-week year, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.

Second quarter fiscal year 2015 guidance

  • Same-store sales increase of approximately 5.0 to 7.0 percent at Jack in the Box company restaurants versus a 0.9 percent increase in the year-ago quarter.
  • Same-store sales increase of approximately 7.0 to 9.0 percent at Qdoba company restaurants versus a 7.2 percent increase in the year-ago quarter.

Fiscal year 2015 guidance

  • Same-store sales increase of approximately 3.5 to 4.5 percent at Jack in the Box company restaurants.
  • Same-store sales increase of approximately 7.5 to 9.5 percent at Qdoba company restaurants.
  • Overall commodity cost inflation of approximately 3 percent for the full year.
  • Restaurant operating margin of approximately 19.1 to 19.9 percent, depending on same-store sales and commodity inflation.
  • SG&A as a percentage of revenue of approximately 13.5 to 14.0 percent as compared to 13.9 percent in fiscal 2014, and reflects $5.0 million of higher pension expense in fiscal 2015. G&A as a percentage of system-wide sales declining to approximately 3.7 percent in fiscal 2015 from 3.8 percent in fiscal 2014.
  • Impairment and other charges as a percentage of revenue of approximately 60 basis points, excluding restructuring charges.
  • Approximately 10 to 15 new Jack in the Box restaurants opening system-wide.
  • Approximately 50 to 60 new Qdoba restaurants opening, approximately half of which will be company locations.
  • Capital expenditures of $90 to $100 million.
  • Tax rate of approximately 37 percent.
  • Operating earnings per share, which the company defines as diluted earnings per share from continuing operations on a GAAP basis excluding restructuring charges and gains or losses from refranchising, ranging from $2.85 to $2.97 in fiscal 2015 as compared to operating earnings per share of $2.45 in fiscal 2014.

(Source: Company’s Website)

To End

JACK is a popular name in the restaurant industry and is growing fast. It has distinguished itself from its peers and has been able to carve a niche for itself. It is making continuous efforts to reposition itself in this fast-food industry. It is expected to create shareholder returns. Investors may consider adding this restaurant stock to their portfolio.