Jack in the Box Inc. (JACK) posted first-quarter 2011 earnings of 61 cents per share, surpassing the Zacks Consensus Estimate of 46 cents as well as the year-ago quarter earnings of 43 cents. The results included a gain of 34 cents per share from the sale of 88 restaurants to franchisees; however, excluding the gain, earnings were 27 cents per share in the quarter.
Quarter Performance
During the quarter, Jack in the Box total revenue slipped 2.4% to $664.7 million from $681.3 million in the prior-year quarter. However, the company outperformed the Zacks Consensus Estimate of $630.0 million.
The revenue declined as restaurant sales dipped 14.7% to $436.9 million mainly due to the company’s strategy to sell company-owned restaurants to franchisees. However, distribution revenue increased 40.2% to $146.7 million and franchised restaurant revenue climbed 25.6% to $62.7 million.
Jack in the Box same-store sales climbed 1.1%, driven by 1.5% upside at the company-owned and 0.9% hike at franchised restaurants. The comparable sales growth was attributed to higher customer visitation resulting from the company continues focus on efficiency, by improving the quality of food and service. Additionally, to enhance the guest’s dining experience, the company plans to complete its restaurant re-imaging program by 2011. Moreover, same-store sales at Qdoba’s restaurant were up 6.4%, driven by transaction growth and higher catering sales.
Jack in the Box’s restaurant operating margin dipped 170 basis points (bps) to 12.6%. The margin contracted as food and packaging costs were up 80 bps, payroll and employee benefits costs inched up 30 bps and occupancy and other costs increased 60 bps.
Store Update
During the quarter, the company opened 5 new company-owned and 3 franchised Jack in the Box restaurants.
Financial Position
As of January 23, 2011, Jack in the Box had cash and cash equivalents of $16.5 million and long-term debt of $357.0 million, compared with $10.6 million of cash and cash equivalents and $352.6 million of long-term debt at the end of October 3, 2010.
During the quarter, Jack in the Box repurchased shares worth $2.4 million, at an average price of $21.27. The company currently has $50 million available under its existing $100 million share repurchase program.
Outlook
For the second quarter of 2011, the company expects same-store sales to be in the range of flat to down 2% at Jack in the Box company restaurants and up 3% to 5% at Qdoba restaurants. The company also anticipates a cost inflation of 5%.
For fiscal 2011, the company forecasts same-store sales to be between down 2% to up 2% at Jack in the Box company restaurants and up 3% to 5% at Qdoba restaurants. The earnings per share are estimated to be in the range of $1.40 and $1.65. The Zacks Consensus Estimates for fiscal 2011 is pegged at $1.60 per share.
The company plans to open 30 to 35 new Jack in the Box restaurants and 50 to 60 new Qdoba outlets. The company expects to incur capital expenditure of $130 million to $140 million.
Jack in the Box also remains on track to achieve its long-term goal of increasing its percentage of franchise ownership to 70% to 80% by the end of fiscal year 2013.
Our Take
The company is still struggling at company-owned restaurants, and second quarter same-store growth will be negatively impacted by bad weather conditions. Thus, we expect estimates to go down in the coming days.
One of Jack in the Box’s primary competitors, McDonald’s Corporation (MCD), posted fourth-quarter 2010 earnings of $1.16 per share, which was in line with the Zacks Consensus Estimate. The earnings growth was driven by value offerings and premium products, along with a rise in comparable store sales across all regions.
San Diego-based Jack in the Box is a restaurant company that operates and franchises more than 2,200 Jack in the Box quick-service restaurants across 19 states. The company, through a wholly-owned subsidiary, also operates and franchises Qdoba Mexican Grill fast-casual dining chain, with more than 500 restaurants in 43 states and in the District of Columbia.
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