SAN DIEGO - (BUSINESS WIRE) - May 15, 2019 - Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for the second quarter ended April 14, 2019.
The company completed the sale of Qdoba Restaurant Corporation ("Qdoba") on March 21, 2018. Qdoba results are included in discontinued operations for all periods presented.
Earnings from continuing operations were $25.1 million, or $0.96 per diluted share, for the second quarter of fiscal 2019 compared with $25.0 million, or $0.85 per diluted share, for the second quarter of fiscal 2018.
Operating Earnings Per Share(1), a non-GAAP measure, were $0.99 in the second quarter of fiscal 2019 compared with $0.80 in the prior year quarter. A reconciliation of non-GAAP Operating Earnings Per Share to GAAP results is provided below, with additional information included in the attachment to this release.
Adjusted EBITDA(2), a non-GAAP measure, was $61.2 million in the second quarter of fiscal 2019 compared with $60.3 million for the prior year quarter.
Lenny Comma, chairman and chief executive officer, said, "Our greater emphasis on bundled value in the second quarter resulted in a sequential improvement in traffic and sales without sacrificing restaurant margins. We’re pleased that this momentum has accelerated through the first four weeks of our third quarter as same-store sales have increased by more than two percent. Our guests are responding favorably to our promotional line-up which leverages our strategy around compelling value bundles, including both new product innovation as well as guest favorites, without devaluing our core menu items.
"Our long-term goals are centered around meeting evolving consumer needs, with emphasis on improving operations consistency and targeted investments designed to maximize our returns. We remain focused on balancing the interests of all our stakeholders, including our franchisees, customers, employees and shareholders."
Increase/(decrease) in same-store sales:
Jack in the Box ® system same-store sales increased 0.2 percent for the quarter. Company same-store sales increased 0.6 percent in the second quarter driven by average check growth of 2.8 percent, partially offset by a 2.2 percent decrease in transactions.
Restaurant-Level Margin(3), a non-GAAP measure, increased by 120 basis points to 27.6 percent of company restaurant sales in the second quarter of fiscal 2019 from 26.4 percent a year ago. The increase was due primarily to the benefit of refranchising and lower maintenance and repairs expenses, partially offset by wage and commodity inflation. Food and packaging costs, as a percentage of company restaurant sales, decreased 30 basis points in the quarter as menu price increases and favorable product mix offset higher ingredient costs. Commodity costs increased 0.7 percent in the quarter as compared with the prior year.
Effective fiscal 2019, the company adopted the new US GAAP revenue recognition standard (Topic 606) using the modified retrospective method, and therefore no prior periods have been restated. The new revenue standard resulted in an increase to franchise revenues and a corresponding increase to franchise expenses primarily related to the reclassification of marketing fees received from franchisees. In addition, certain amounts previously netted in general and administrative expenses are now reflected as franchise revenues and expenses. Although the prior year results have not been restated for the impact of this accounting change, a reconciliation to a recast statement of earnings is included within the "Supplemental Information" section of this release.
Also effective fiscal 2019, the company adopted the new US GAAP pension standard (Topic 715) and began presenting certain pension cost components in Other pension and post-retirement expenses, net in its condensed consolidated statements of earnings. The prior year condensed consolidated statement of earnings was adjusted to conform with this new presentation.
Franchise-Level Margin(3), a non-GAAP measure, as a percentage of total franchise revenues, was 41.7 percent in the second quarter of fiscal 2019. This compared with 59.8 percent in the prior year quarter, or 41.6 percent using recast 2018 figures as though Topic 606 had been applied retrospectively to the prior year.
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(3) Restaurant-Level Margin and Franchise-Level Margin are non-GAAP measures. These non-GAAP measures are reconciled to earnings from operations, the most comparable GAAP measure, in the attachment to this release. See "Reconciliation of Non-GAAP Measurements to GAAP Results."
SG&A expenses for the second quarter of fiscal 2019 decreased by $9.0 million and were 8.2 percent of revenues compared with 12.7 percent in the prior year quarter, or 10.4 percent using recast 2018 figures. Advertising costs, which are included in SG&A, were $3.9 million in the second quarter compared with $7.3 million in the prior year quarter. The $3.4 million decrease in advertising costs was due to a $1.9 million decrease resulting from refranchising, and a decrease of $1.5 million resulting from incremental spending in the prior year quarter. The $5.6 million decrease in G&A excluding advertising was primarily driven by:
As a percentage of system-wide sales, G&A, which excludes advertising, was 1.7 percent in the second quarter of fiscal 2019 compared with 2.4 percent in the 2018 quarter, or 2.3 percent using recast 2018 figures.
Restructuring charges of $0.9 million, or approximately $0.03 per diluted share, were recorded during the second quarter of fiscal 2019, primarily related to severance costs and the company's evaluation of strategic alternatives, compared with $2.6 million, or $0.06 per diluted share, in the prior year quarter. Restructuring charges are included in Impairment and other charges, net in the accompanying condensed consolidated statements of earnings. Including these charges, Impairment and other charges, net, decreased in the second quarter to $1.1 million from $4.9 million in the year ago quarter.
Interest expense, net, increased by $2.9 million in the second quarter due in part to a higher effective interest rate for 2019. In addition, the increase resulted from the allocation of $1.6 million of interest expense to Qdoba in the second quarter of 2018, which was included in discontinued operations.
The Tax Cuts and Jobs Act (the "Tax Act"), enacted into law on December 22, 2017, reduced the statutory federal rate from 35 percent to 21 percent as of January 1, 2018. The tax rate reduction was phased in, resulting in a blended statutory federal tax rate of 24.5 percent for the fiscal year ended September 30, 2018. In addition, the Tax Act resulted in a non-cash increase to the provision for income taxes of $0.6 million, or $0.02 per diluted share, for the second quarter of fiscal 2018 related primarily to the revaluation of deferred tax assets and liabilities at the new lower rates. This revaluation was based upon estimates and interpretations of the Tax Act which were refined as further guidance was issued. The statutory federal tax rate for fiscal year 2019 is 21.0 percent. The effective tax rate for the second quarter of 2019 of 25.0 percent benefited from favorable mark-to-market adjustments on investments supporting the company's non-qualified retirement plans.
Qdoba Discontinued Operations
In the first quarter of fiscal 2018, the company entered into a definitive agreement to sell Qdoba, a wholly owned subsidiary of the company, to certain funds managed by affiliates of Apollo Global Management, LLC. The transaction closed on March 21, 2018, and operating results for Qdoba are included in discontinued operations for all periods presented. However, the company did not allocate any general and administrative shared services expenses to discontinued operations prior to the sale.
Capital Allocation
The company did not repurchase any shares of its common stock in the second quarter of fiscal 2019. The company currently has approximately $101.0 million remaining under stock-buyback programs authorized by its Board of Directors that expire in November 2019.
The company also announced today that on May 9, 2019, its Board of Directors declared a cash dividend of $0.40 per share on the company's common stock. The dividend is payable on June 14, 2019, to shareholders of record at the close of business on May 29, 2019.
Guidance
This release includes forward-looking guidance for certain non-GAAP financial measures, including Restaurant-Level Margin and Adjusted EBITDA. The company is unable without unreasonable effort to provide reconciliations of these forward-looking non-GAAP measures.
Fiscal Year 2019 Guidance
The following guidance and underlying assumptions reflect the company’s current expectations for the fiscal year ending September 29, 2019. Fiscal 2019 and fiscal 2018 are 52-week years, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.
Updated from prior guidance:
Consistent with prior guidance:
Conference Call
The company will host a conference call for financial analysts and investors on Thursday, May 16, 2019, beginning at 8:30 a.m. PT (11:30 a.m. ET). The conference call will be broadcast live over the Internet 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 May 16, 2019.
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 21 states and Guam. For more information on Jack in the Box, including franchising opportunities, visit www.jackinthebox.com.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to: the success of new products, marketing initiatives and restaurant remodels and drive-thru enhancements; the impact of competition, unemployment, trends in consumer spending patterns and commodity costs; the company's ability to reduce G&A and operate efficiently; the company’s ability to achieve and manage its planned growth, which is affected by the availability of a sufficient number of suitable new restaurant sites, the performance of new restaurants, risks relating to expansion into new markets and successful franchisee development; litigation risks; risks associated with disagreements with franchisees; supply chain disruption; food-safety incidents or negative publicity impacting the reputation of the company's brand; the company’s ability to obtain additional financing and increase its debt leverage; 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 http://investors.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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JACK IN THE BOX INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.
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The following table summarizes the year-to-date changes in the number and mix of Jack in the Box company and franchise restaurants:
SUPPLEMENTAL INFORMATION
(Unaudited)
Recast 2018 Condensed Consolidated Statement of Earnings
The company applied the modified retrospective method upon adoption of the new revenue recognition standard. The recast condensed consolidated statement of earnings reflects adjustments for the implementation of the new revenue recognition standard as if the full retrospective method was applied upon adoption.
Below is a reconciliation of the recast condensed consolidated statement of earnings for the 12 weeks ended and 28 weeks ended April 15, 2018 to the condensed consolidated statement of earnings that was previously reported for those periods (in thousands).
JACK IN THE BOX INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(Unaudited)
To supplement the consolidated financial statements, which are presented in accordance with GAAP, the company uses the following non-GAAP measures: Operating Earnings Per Share, Adjusted EBITDA, Restaurant-Level Margin and Franchise-Level Margin. Management believes that these measurements, when viewed with the company's results of operations in accordance with GAAP and the accompanying reconciliations in the tables below, provide useful information about operating performance and period-over-period changes, and provide additional information that is useful for evaluating the operating performance of the company's core business without regard to potential distortions.
Operating Earnings Per Share
Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains or losses on the sale of company-operated restaurants, restructuring charges, the non-cash impact of the Tax Act, and the excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity prior to fiscal year 2018. Operating Earnings Per Share should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Operating Earnings Per Share provides investors with a meaningful supplement of the company’s operating performance and period-over-period changes without regard to potential distortions.
Below is a reconciliation of non-GAAP Operating Earnings Per Share to the most directly comparable GAAP measure, diluted earnings per share from continuing operations. Figures may not add due to rounding.
Adjusted EBITDA
Adjusted EBITDA represents net earnings on a GAAP basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of franchise tenant improvement allowances. Adjusted EBITDA should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Adjusted EBITDA is useful to investors to gain an understanding of the factors and trends affecting the company's ongoing cash earnings, from which capital investments are made and debt is serviced.
Below is a reconciliation of non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands).
Restaurant-Level Margin
Restaurant-Level Margin is defined as company restaurant sales less restaurant operating costs (food and packaging, labor, and occupancy costs) and is neither required by, nor presented in accordance with GAAP. Restaurant-Level Margin excludes revenues and expenses of our franchise operations and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, impairment and other charges, net, gains or losses on the sale of company-operated restaurants, and other costs that are considered normal operating costs. As such, Restaurant-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Restaurant-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Restaurant-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company's core business operating results, as well as a comparison to those of other similar companies. Management utilizes Restaurant-Level Margin as a key performance indicator to evaluate the profitability of company-owned restaurants.
Below is a reconciliation of non-GAAP Restaurant-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):
Franchise-Level Margin
Franchise-Level Margin is defined as franchise revenues less franchise operating costs (occupancy expenses, advertising contributions, and franchise support and other costs) and is neither required by, nor presented in accordance with GAAP. Franchise-Level Margin excludes revenue and expenses of our company-operated restaurants and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, impairment and other charges, net, amortization of tenant improvement allowances, and other costs that are considered normal operating costs. As such, Franchise-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Franchise-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Franchise-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company's core business operating results, as well as a comparison to those of other similar companies. Management utilizes Franchise-Level Margin as a key performance indicator to evaluate the profitability of our franchise operations.
Below is a reconciliation of non-GAAP Franchise-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):
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Carol DiRaimo
Investor Relations
(858) 571-2407
Brian Luscomb
Media Relations
(858) 571-2291
SOURCE 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.