JACK Misses EPS Estimates By $0.06 And Misses On Revenues

Jack in the Box Inc. Reports Third Quarter FY 2017 Earnings; Updates Guidance for FY 2017; Declares Quarterly Cash Dividend

JACK Misses EPS Estimates Jack in the Box Inc. (JACK) today reported earnings from continuing operations of $37.

JACK Misses EPS Estimates Jack in the Box Inc. (JACK) today reported earnings from continuing operations of $37.1 million, or $1.25 per diluted share, for the third quarter ended July 9, 2017, compared with $30.8 million, or $0.93 per diluted share, for the third quarter of fiscal 2016.

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 $0.99 in the third quarter of fiscal 2017 compared with $1.07 in the prior year quarter.

A reconciliation of non-GAAP measurements to GAAP results is provided below, with additional information included in the attachment to this release. Figures may not add due to rounding.



JACK Misses EPS Estimate

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12 Weeks Ended 40 Weeks Ended
July 9, 2017 July 3, 2016 July 9, 2017 July 3, 2016
Diluted earnings per share from continuing operations – GAAP $ 1.25 $ 0.93 $ 3.46 $ 2.72
Restructuring charges 0.04 0.15 0.12 0.14
Gains from refranchising (0.30 ) (0.01 ) (0.43 ) (0.02 )
Operating earnings per share – Non-GAAP $ 0.99 $ 1.07 $ 3.15 $ 2.84

Restructuring charges of $1.8 million, or approximately $0.04 per diluted share, were recorded during the third quarter of fiscal 2017, including $1.7 million related to the evaluation of potential alternatives with respect to the Qdoba® brand. These charges are included in “Impairment and other charges, net” in the accompanying condensed consolidated statements of earnings.

During the third quarter of fiscal 2017, the company took over 31 franchised Jack in the Box restaurants from an underperforming franchisee and incurred costs of $4.4 million, or approximately $0.10 per diluted share, related to these restaurants, which negatively impacted operating earnings per share. These costs are reflected in franchise revenue ($1.0 million), G&A ($2.4 million) and impairment ($1.0 million).

Lenny Comma, chairman and chief executive officer, said, “While same-store sales for both brands improved sequentially, our third quarter performance was below our expectations. Jack in the Box® same-store sales and transactions improved as we focused more of our advertising on value messages, but company restaurant margins were negatively impacted by higher labor and repairs and maintenance costs, and the return of commodity inflation. System same-store sales at Qdoba restaurants turned positive in the quarter, as guests responded favorably to menu innovation, including the launch of Fire-Roasted Shrimp. Company restaurant margins at Qdoba improved sequentially to over 16 percent in the quarter as we were able to manage labor costs more effectively.

“We continue to make significant progress on our Jack in the Box refranchising initiative, with the sale of 58 restaurants in the third quarter and 118 year-to-date. At the end of the quarter, we had signed non-binding letters of intent with franchisees to sell 63 additional restaurants.”

Morgan Stanley & Co. LLC continues to assist the company’s Board of Directors in its evaluation of potential alternatives with respect to Qdoba, as well as other ways to enhance shareholder value. There can be no assurance that the evaluation process will result in any transaction. The company has not set a timetable for completion of the evaluation process, and it does not intend to comment further unless a specific transaction is approved by the Board, the evaluation process is concluded, or it is otherwise determined that further disclosure is appropriate or required by law.

Increase/(decrease) in same-store sales*:

12 Weeks Ended 40 Weeks Ended
July 9, 2017 * July 3, 2016 July 9, 2017 * July 3, 2016
Jack in the Box:
Company (1.6 )% (0.2 )% (0.9 )% (0.2 )%
Franchise 0.1 % 1.5 % 1.5 % 1.3 %
System (0.2 )% 1.1 % 0.9 % 0.9 %
Qdoba:
Company (1.1 )% 1.0 % (2.7 )% 1.8 %
Franchise 2.3 % 0.1 % 0.5 % 1.3 %
System 0.5 % 0.6 % (1.2 )% 1.6 %

*Note: Due to the transition from a 53-week to a 52-week fiscal year, year-over-year fiscal period comparisons are offset by one week. The change in same-store sales presented in the 2017 columns uses comparable calendar periods to balance the one-week shift and to provide a clearer year-over-year comparison.

Jack in the Box system same-store sales decreased 0.2 percent for the quarter and lagged the QSR sandwich segment by 1.9 percentage points for the comparable period, according to The NPD Group’s SalesTrack® Weekly for the 12-week time period ended July 9, 2017. Included in this segment are 16 of the top QSR sandwich and burger chains in the country. Company same-store sales decreased 1.6 percent in the third quarter driven by a 4.4 percent decrease in transactions, partially offset by average check growth of 2.8 percent.

Qdoba same-store sales increased 0.5 percent system-wide and decreased 1.1 percent for company restaurants in the third quarter. Company same-store sales reflected a 2.8 percent decrease in transactions, partially offset by growth in catering sales and average check.

Consolidated restaurant operating margin, a non-GAAP measure1, decreased by 380 basis points to 18.1 percent of sales in the third quarter of 2017, compared with 21.9 percent of sales in the year-ago quarter. Restaurant operating margin for Jack in the Box company restaurants, a non-GAAP measure1, decreased 320 basis points to 19.3 percent of sales. The decrease was due primarily to higher labor costs including wage inflation, as well as higher repairs and maintenance costs, an increase in food and packaging costs as a percentage of sales, and sales deleverage, which were partially offset by the benefit of refranchising activities in 2017. The increase in food and packaging costs as a percentage of sales resulted from commodity inflation of approximately 4.9 percent in the quarter, partially offset by favorable product mix changes and menu price increases. Restaurant operating margin for Qdoba company restaurants, a non-GAAP measure1, decreased 420 basis points to 16.4 percent of sales. The decrease was due primarily to sales deleverage, the impact of new restaurant openings, an increase in food and packaging costs, and the impact of wage inflation, which were partially offset by lower workers’ compensation costs. The increase in food and packaging costs as a percentage of sales was impacted by unfavorable product mix and commodity inflation of approximately 2.5 percent in the quarter, partially offset by a decrease in discounting.

Franchise margin, a non-GAAP measure1, as a percentage of total franchise revenues improved to 54.0 percent in the third quarter from 52.8 percent in the prior year quarter. The improvement was due primarily to higher franchise fees related to the sale of 58 company-operated Jack in the Box restaurants to franchisees in the third quarter, higher rental revenues and royalties related to the refranchising of 118 Jack in the Box restaurants in the second and third quarters of fiscal 2017, and to a decrease in franchise support and other costs. These increases were partially offset by decreases in rental revenues and royalties resulting from the acquisition of 50 franchise-operated Jack in the Box restaurants in the second and third quarters of fiscal 2017.

SG&A expense for the third quarter decreased by $4.4 million and was 10.7 percent of revenues as compared to 11.6 percent in the prior year quarter. Key items contributing to the decrease were the impact of the company’s restructuring activities, a $3.5 million decrease in incentive compensation, a $2.1 million decrease in pension and postretirement benefits, and a $2.0 million decrease in insurance costs. These decreases were partially offset by a $2.5 million legal settlement benefit recognized in the prior year related to an oil spill in the Gulf of Mexico in 2010, and $2.4 million of costs incurred while the 31 franchised Jack in the Box restaurants taken back during the third quarter of 2017 were closed.

Interest expense, net, increased by $3.8 million in the third quarter due to increased leverage and a higher effective interest rate for 2017.

The tax rate for the third quarter of 2017 was 33.2 percent versus 36.0 percent for the third quarter of 2016. The lower tax rate was due primarily to state tax credits becoming usable as a result of overall increases in taxable income, including the impact of refranchising gains.

____________________________

(1) Restaurant operating margin and franchise margin are non-GAAP measures. These non-GAAP measures are reconciled to consolidated earnings from operations, the most comparable GAAP measure, in the attachment to this release. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”

Capital Allocation

The company did not repurchase any shares of its common stock in the third quarter of 2017 due to the evaluation of potential alternatives with respect to Qdoba. Year-to-date through the third quarter, the company has repurchased approximately 3,220,000 shares at an average price of $101.59 per share for an aggregate cost of $327.2 million. The company currently has approximately $181.0 million remaining under stock buyback programs authorized by the company’s Board of Directors that expire in November 2018.

The company also announced today that on August 3, 2017, 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 September 5, 2017, to shareholders of record at the close of business on August 22, 2017.

Guidance

The following guidance and underlying assumptions reflect the company’s current expectations for the fourth quarter and fiscal year ending October 1, 2017. Fiscal 2017 is a 52-week year, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters. Fiscal 2016 was a 53-week year, with the additional week occurring in the fourth quarter.

Fourth quarter fiscal year 2017 guidance

  • Same-store sales of flat to down 2.0 percent at Jack in the Box system restaurants versus a 2.0 percent increase in same-store sales in the year-ago quarter.
  • Same-store sales of flat to down 2.0 percent at Qdoba company restaurants versus a 1.2 percent increase in the year-ago quarter.

Fiscal year 2017 guidance

  • Same-store sales increase of approximately 0.5 percent at Jack in the Box system restaurants.
  • Same-store sales decrease of approximately 2.0 to 2.5 percent at Qdoba company restaurants.
  • Commodity costs of approximately flat for both Jack in the Box and Qdoba.
  • Consolidated restaurant operating margin of approximately 18.0 to 18.5 percent, depending on the timing of refranchising transactions and the margins associated with the restaurants sold.
  • SG&A as a percentage of revenues of approximately 11.0 percent as compared to 12.7 percent in fiscal 2016.
  • Impairment and other charges as a percentage of revenues of approximately 70 basis points, excluding restructuring charges.
  • Approximately 20 to 25 new Jack in the Box restaurants opening system-wide, the majority of which will be franchise locations.
  • Approximately 45 new Qdoba restaurants opening system-wide, of which approximately 25 are expected to be company locations.
  • Capital expenditures of approximately $80 to $90 million.
  • Tax rate of approximately 37.0 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 $4.00 to $4.15 (which includes approximately $0.10 of costs related to the 31 franchised Jack in the Box restaurants taken back in the third quarter).

Conference call

The company will host a conference call for financial analysts and investors on Thursday, August 10, 2017, beginning at 8:30 a.m. PT (11:30 a.m. ET). The conference call will be broadcast live over the Internet (HHH) via the Jack in the Box Inc. corporate 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 11:30 a.m. PT on August 10, 2017.

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Richard Dambrosi (JADTECNIC) Has Been Sharing FOREX INVESTORS ANALYSIS FORECAST since 2011. Editors and Founder of InvestorsBuz.com, has a passion for Forex Social Sharing analysis and Market Trends Such as Self Driving Cars, Electric Cars, Medical Marijuana, 3d printing and Cloud computing, Refers to Readers as BUZ INVESTORS.

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