Jack in the Box Inc. Reports Fourth Quarter FY 2017 Earnings

SAN DIEGO - November 29, 2017 - (BUSINESS WIRE) - Jack in the Box Inc. (NASDAQ: JACK) today reported earnings from continuing operations of $30.3 million, or $1.02 per diluted share, for the fourth quarter ended October 1, 2017, compared with $32.6 million, or $0.98 per diluted share, for the fourth quarter of fiscal 2016. Fiscal 2017 earnings from continuing operations totaled $138.3 million, or $4.47 per diluted share, compared with $126.3 million, or $3.70 per diluted share in 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 $0.73 in the fourth quarter of fiscal 2017 compared with $1.03 in the prior year quarter. For fiscal year 2017, operating earnings per share were $3.88 compared with $3.86 last year.

The fourth quarter and fiscal year ended October 1, 2017, included 12 weeks and 52 weeks, respectively, as compared to 13 weeks and 53 weeks in the fourth quarter and fiscal year ended October 2, 2016, respectively. The company estimates that the extra week benefited diluted earnings per share by approximately $0.09 in both the fourth quarter and fiscal 2016.

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.

                                 
       

12 Weeks
Ended

     

13 Weeks
Ended

     

52 Weeks
Ended

     

53 Weeks
Ended

       

October 1,
2017

     

October 2,
2016

     

October 1,
2017

     

October 2,
2016

Diluted earnings per share from continuing operations – GAAP

      $ 1.02         $ 0.98       $ 4.47         $ 3.70  
Restructuring charges         0.06           0.05         0.18           0.19  
Gains from refranchising         (0.35 )                 (0.77 )         (0.02 )
Operating earnings per share – Non-GAAP       $ 0.73         $ 1.03       $ 3.88         $ 3.86  
                                               


Restructuring charges of $2.8 million, or approximately $0.06 per diluted share, were recorded during the fourth quarter of fiscal 2017, as compared with $2.3 million, or approximately $0.05 per diluted share, in the prior year quarter. Total restructuring charges in the fourth quarter of fiscal 2017 included $3.6 million related to the evaluation of potential alternatives with respect to Qdoba®, and also reflected a $0.9 million reduction in future lease commitment costs resulting from the early termination of the lease for the Qdoba corporate support center. Restructuring charges are included in "Impairment and other charges, net" in the accompanying consolidated statements of earnings, which increased in the fourth quarter to $9.5 million from $4.5 million in the year ago quarter. Excluding restructuring charges, the increase was due primarily to charges related to the impairment of three underperforming Qdoba locations, as well as impairment and accelerated depreciation of furniture and equipment resulting from Qdoba design changes and remodels, totaling $3.3 million, or approximately $0.07 per diluted share.

Lenny Comma, chairman and chief executive officer, said, "Our fourth quarter operating results concluded a challenging year for both brands. Our key initiatives in 2018 will be focused on regaining momentum in a highly competitive environment.

"We continue to make significant progress on our Jack in the Box refranchising initiative, with the sale of 60 restaurants in the fourth quarter and 178 during the fiscal year. We currently have signed non-binding letters of intent with franchisees to sell 32 additional restaurants, and now anticipate the Jack in the Box franchise mix to approach the high end of our previous expected range.

"The company returned over $376 million to shareholders in fiscal 2017, including over $327 million in share repurchases and $49 million in dividends. We remain committed to returning cash to shareholders in the future as we adjust our capital structure to reflect a less capital-intensive business model."

The company's Board of Directors, with the assistance of Morgan Stanley & Co. LLC, has made substantial progress 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 or other specific course of action. The company does not intend to comment further until the evaluation process is concluded. The company will provide guidance for fiscal 2018 following the completion of the Qdoba evaluation process.

 

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

 
       

12 Weeks
Ended

     

13 Weeks
Ended

     

52 Weeks
Ended

     

53 Weeks
Ended

       

October 1,
2017*

     

October 2,
2016

     

October 1,
2017*

     

October 2,
2016

Jack in the Box:                                
Company       (2.0)%       0.5%       (1.1)%       0.0%
Franchise       (0.7)%       2.4%       0.9%       1.6%
System       (1.0)%       2.0%       0.5%       1.2%
Qdoba:                                
Company       (4.0)%       1.2%       (3.0)%       1.7%
Franchise       0.0%       0.4%       0.4%       1.1%
System       (2.1)%       0.8%       (1.4)%       1.4%

*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 1.0 percent for the quarter and lagged the QSR sandwich segment by 2.9 percentage points for the comparable period, according to The NPD Group’s SalesTrack® Weekly for the 12-week time period ended October 1, 2017. Included in this segment are 16 of the top QSR sandwich and burger chains in the country. Company same-store sales decreased 2.0 percent in the fourth quarter driven by a 5.4 percent decrease in transactions, partially offset by average check growth of 3.4 percent. The company estimates that Hurricane Harvey negatively impacted company, franchise and system same-store sales by 40, 20 and 30 basis points, respectively, in the fourth quarter.

Qdoba same-store sales decreased 2.1 percent system-wide and decreased 4.0 percent for company restaurants in the fourth quarter. Company same-store sales reflected a 6.4 percent decrease in transactions, partially offset by growth in average check and catering sales.

Consolidated restaurant operating margin, a non-GAAP measure1, decreased by 390 basis points to 15.8 percent of sales in the fourth quarter of 2017, compared with 19.7 percent of sales in the year-ago quarter. Restaurant operating margin for Jack in the Box company restaurants, a non-GAAP measure1, decreased 180 basis points to 19.2 percent of sales. The decrease was due primarily to sales deleverage, higher repairs and maintenance costs and higher labor costs including wage inflation, which were partially offset by a decrease in food and packaging costs as a percentage of sales and the benefit of refranchising activities in 2017. The decrease in food and packaging costs as a percentage of sales resulted from favorable product mix changes and menu price increases, partially offset by commodity inflation of approximately 3.3 percent in the quarter. Restaurant operating margin for Qdoba company restaurants, a non-GAAP measure1, decreased 610 basis points to 11.2 percent of sales. The decrease was due primarily to the impact of new restaurant openings, an increase in food and packaging costs, sales deleverage, and the impact of wage inflation. The increase in food and packaging costs as a percentage of sales was impacted by unfavorable product mix, operating inefficiencies and commodity inflation of approximately 3.6 percent in the quarter, including a more than 50 percent spike in avocado prices, partially offset by a decrease in discounting.

Franchise margin, a non-GAAP measure1, as a percentage of total franchise revenues decreased to 52.2 percent in the fourth quarter from 53.7 percent in the prior year quarter. The decrease was due primarily to a decrease in rental revenues and royalties related to the 50 franchise-operated Jack in the Box restaurants the company took over in the second and third quarters of fiscal 2017, and an increase in franchise support and other costs. These decreases were partially offset by higher franchise fees related to the sale of 60 company-operated Jack in the Box restaurants to franchisees in the fourth quarter, as well as higher rental revenues and royalties related to the refranchising of 178 Jack in the Box restaurants in the second, third and fourth quarters of fiscal 2017.

SG&A expense for the fourth quarter decreased by $12.4 million and was 10.6 percent of revenues as compared to 12.1 percent in the prior year quarter. Key items contributing to the decrease were the impact of the company's restructuring activities, a $6.4 million decrease in incentive compensation, a $3.0 million decrease related to the 53rd week in the prior year, a $2.1 million decrease in pension and postretirement benefits, and mark-to-market adjustments on investments supporting the company's non-qualified retirement plans resulting in a $0.7 million year-over-year decrease in SG&A.

____________________________
(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."

Interest expense, net, increased by $3.0 million in the fourth quarter due to increased leverage and a higher effective interest rate for 2017.

The tax rate for the fourth quarter of 2017 was 38.1 percent versus 35.6 percent for the fourth quarter of 2016. The higher tax rate was due primarily to an increase in state taxes and an overall decrease in tax credits.

Capital Allocation

The company did not repurchase any shares of its common stock in the fourth quarter of 2017 due to the evaluation of potential alternatives with respect to Qdoba. During fiscal year 2017, the company 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.

Conference Call

The company will host a conference call for financial analysts and investors on Thursday, November 30, 2017, 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 November 30, 2017.

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 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises QDOBA MEXICAN EATS®, a leader in fast-casual dining, with more than 700 restaurants in 47 states, the District of Columbia and Canada. 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 following: the success of new products and marketing initiatives; the impact of competition, unemployment, trends in consumer spending patterns and commodity costs; the company's ability to reduce G&A; the company's ability to execute its refranchising strategy; 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, and risks relating to expansion into new markets; litigation risks; the company's ability to enhance shareholder value, including through potential alternatives with respect to Qdoba; food-safety incidents or negative publicity impacting the reputations of the company's brands; 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.

For full wide spreadsheet report, go to: http://www.businesswire.com/news/home/20171129006158/en/Jack-Box-Reports-Fourth-Quarter-FY-2017

Contacts:

Carol DiRaimo
Jack in the Box Inc.
Investor Contact:
(858) 571-2407

Brian Luscomb
Media Relations
(858) 571-2291

SOURCE Jack in the Box Inc.

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