Market Overview

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

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Jack in the Box Inc. (NASDAQ:JACK) today reported earnings from
continuing operations of $37.0 million, or $1.14 per diluted share, for
the first quarter ended January 22, 2017, compared with $33.9 million,
or $0.94 per diluted share, for the first 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 $1.18 in the first quarter of fiscal 2017 compared
with $0.93 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.

  Sixteen Weeks Ended

January 22,
2017

 

January 17,
2016

Diluted earnings per share from continuing operations – GAAP

$ 1.14 $ 0.94
Restructuring charges 0.04
Gains from refranchising     (0.01 )
Operating earnings per share – Non-GAAP $ 1.18 $ 0.93  

During fiscal 2016, the company announced plans to reduce general and
administrative costs. A comprehensive review of its organizational
structure identified cost savings from workforce reductions, relocation
and consolidation of the Qdoba corporate support center, refranchising
initiatives, and information technology synergies across both brands. As
a result, restructuring charges of $2.0 million, or approximately $0.04
per diluted share, were recorded during the first quarter of fiscal
2017. Charges consist primarily of facility closing costs and employee
severance pay. These charges are included in "impairment and other
charges, net" in the accompanying condensed consolidated statements of
earnings.

Lenny Comma, chairman and chief executive officer, said, "Our first
quarter results were mixed, with solid results at the Jack in the Box®
brand offset by lower than expected sales and disappointing margins at
Qdoba®. We are intent on improving the performance of the
Qdoba brand with priorities focused on driving sales growth and managing
labor and food costs more effectively.

"We were pleased that Jack in the Box system same-store sales
outperformed sluggish industry trends during the quarter. And despite
the weaker Qdoba results, our commitments to reduce G&A and to return
cash to shareholders contributed to a 27 percent increase in operating
earnings per share for the quarter.

"Consistent with restaurant and retail industry data, we've seen an
abrupt downturn in February sales trends for both brands. We believe
some of this slowdown may be attributable to delayed tax refunds, as
well as record rainfall and flooding in California over the past few
weeks which have impacted our Jack in the Box results.

"We've made good progress on our refranchising initiative, and as of
today, have signed non-binding letters of intent with franchisees to
sell approximately 75 restaurants in several different markets."

Increase/(decrease) in same-store sales:

  Sixteen Weeks Ended

January 22,
2017 *

 

January 17,
2016

Jack in the Box:
Company 0.6% 0.5%
Franchise 3.9% 1.8%
System 3.1% 1.4%
Qdoba:
Company (1.4)% 1.5%
Franchise (0.5)% 2.1%
System (1.0)% 1.8%

*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 column
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 increased 3.1 percent for the
quarter and exceeded the QSR sandwich segment by 1.6 percentage points
for the comparable period, according to The NPD Group's SalesTrack®
Weekly for the 16-week time period ended January 22, 2017. Included in
this segment are 16 of the top QSR sandwich and burger chains in the
country. Company same-store sales increased 0.6 percent in the first
quarter, with average check up 4.9 percent.

Qdoba same-store sales decreased 1.0 percent system-wide and 1.4 percent
for company restaurants in the first quarter. Company same-store sales
reflected a 2.5 percent decrease in transactions, partially offset by
growth in average check and catering sales.

Consolidated restaurant operating margin decreased by 90 basis points to
18.6 percent of sales in the first quarter of 2017, compared with 19.5
percent of sales in the year-ago quarter. Restaurant operating margin
for Jack in the Box company restaurants increased 70 basis points to
21.6 percent of sales. The increase was due primarily to lower costs for
food and packaging, partially offset by minimum wage increases in
California that went into effect in January 2016 and January 2017. The
decrease in food and packaging costs as a percentage of sales resulted
from the benefit of commodity deflation of approximately 5.6 percent in
the quarter, favorable product mix changes and menu price increases.
Restaurant operating margin for Qdoba company restaurants decreased 350
basis points to 13.1 percent of sales. The decrease was due primarily to
the impact of new restaurant openings over the last 12 months, sales
deleverage, labor staffing inefficiencies and wage inflation, and higher
costs for food and packaging. The increase in food and packaging costs
as a percentage of sales was impacted by increased promotional activity,
partially offset by the benefits from commodity deflation of
approximately 3.0 percent in the quarter.

Franchise margin as a percentage of total franchise revenues improved to
54.2 percent in the first quarter from 51.5 percent in the prior year
quarter. The improvement was due primarily to higher royalty revenue and
rental income from Jack in the Box franchised restaurants resulting from
increases in franchise average unit volumes, and a decrease in franchise
costs.

SG&A expense for the first quarter decreased by $10.2 million and was
11.4 percent of revenues as compared to 14.0 percent in the prior year
quarter. Key items contributing to the decrease were the impact of the
company's restructuring activities, including a $2.9 million decrease in
pension and postretirement benefits, as well as a $1.7 million decrease
in incentive compensation.

Interest expense, net, increased by $4.5 million in the first quarter
due to increased leverage and a higher effective interest rate for 2017.

The tax rate for the first quarter of 2017 was 38.7 percent versus 37.6
percent for the first quarter of 2016. The higher tax rate in the first
quarter of 2017 was due primarily to a decrease in work opportunity tax
credits.

Capital Allocation

The company repurchased approximately 992,000 shares of its common stock
in the first quarter of 2017 at an average price of $109.04 per share
for an aggregate cost of $108.1 million. This leaves approximately $300
million remaining under stock buyback programs authorized by the
company's Board of Directors.

The company also announced today that on February 21, 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 March 20, 2017, to
shareholders of record at the close of business on March 7, 2017.

Guidance

The following guidance and underlying assumptions reflect the company's
current expectations for the second quarter ending April 16, 2017, 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.

Second quarter fiscal year 2017 guidance

  • Same-store sales of flat to down 2.0 percent at Jack in the Box system
    restaurants versus flat same-store sales in the year-ago quarter.
  • Same-store sales of down 1.0 to 3.0 percent at Qdoba company
    restaurants versus a 3.1 percent increase in the year-ago quarter.

Fiscal year 2017 guidance

  • Same-store sales increase of approximately 2.0 percent at Jack in the
    Box system restaurants.
  • Same-store sales of approximately flat at Qdoba company restaurants.
  • Commodity deflation of approximately flat to down 1.0 percent for both
    Jack in the Box and Qdoba.
  • Consolidated restaurant operating margin of approximately 19.5 to 20.0
    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 to 11.5 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 50 to 60 new Qdoba restaurants, of which approximately
    30 are expected to be company locations.
  • Capital expenditures of approximately $100 million.
  • Tax rate of approximately 38.0 to 39.0 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 $4.25 to $4.45. This guidance assumes
    share repurchases of approximately $408 million during the year,
    representing the amount remaining under Board authorizations at the
    beginning of the fiscal year.

Conference call

The company will host a conference call for financial analysts and
investors on Thursday, February 23, 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 February 23, 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; 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.

JACK IN THE BOX INC. AND SUBSIDIARIES
RECONCILIATION OF
NON-GAAP MEASUREMENTS TO GAAP RESULTS

(Unaudited)

Operating earnings per share, a non-GAAP measure, is defined by the
company as diluted earnings per share from continuing operations on a
GAAP basis excluding restructuring charges and gains or losses from
refranchising. Management believes this non-GAAP financial measure
provides important supplemental information to assist investors in
analyzing the performance of the company's core business. In addition,
the company uses operating earnings per share in establishing
performance goals for purposes of executive compensation. The company
encourages investors to rely upon its GAAP numbers but includes this
non-GAAP financial measure as a supplemental metric to assist investors.
This non-GAAP financial measure should not be considered as a substitute
for, or superior to, financial measures calculated in accordance with
GAAP. In addition, this non-GAAP financial measure used by the company
may be calculated differently from, and therefore may not be comparable
to, similarly titled measures used by other companies.

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.

  Sixteen Weeks Ended

January 22,
2017

 

January 17,
2016

Diluted earnings per share from continuing operations – GAAP

$ 1.14 $ 0.94
Restructuring charges 0.04
Gains from refranchising     (0.01 )
Operating earnings per share – Non-GAAP $ 1.18 $ 0.93  

 
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
   
Sixteen Weeks Ended

January 22,
2017

   

January 17,
2016

Revenues:
Company restaurant sales $ 367,270 $ 353,221
Franchise rental revenues 71,469 69,738
Franchise royalties and other 49,194   47,864  
487,933   470,823  
Operating costs and expenses, net:
Company restaurant costs:
Food and packaging 108,936 108,911
Payroll and employee benefits 106,921 97,907
Occupancy and other 83,044   77,699  
Total company restaurant costs 298,901 284,517
Franchise occupancy expenses 51,449 52,219
Franchise support and other costs 3,838 4,862
Selling, general and administrative expenses 55,708 65,872
Impairment and other charges, net 5,057 1,657
Gains on the sale of company-operated restaurants (137 ) (818 )
414,816   408,309  
Earnings from operations 73,117 62,514
Interest expense, net 12,717   8,175  
Earnings from continuing operations and before income taxes 60,400 54,339
Income taxes 23,366   20,442  
Earnings from continuing operations 37,034 33,897
Losses from discontinued operations, net of income tax benefit (1,105 ) (676 )
Net earnings $ 35,929   $ 33,221  
 
Net earnings per share - basic:
Earnings from continuing operations $ 1.15 $ 0.96
Losses from discontinued operations (0.03 ) (0.02 )
Net earnings per share (1) $ 1.12   $ 0.94  
Net earnings per share - diluted:
Earnings from continuing operations $ 1.14 $ 0.94
Losses from discontinued operations (0.03 ) (0.02 )
Net earnings per share (1) $ 1.11   $ 0.92  
 
Weighted-average shares outstanding:
Basic 32,168 35,458
Diluted 32,442 35,946
 
Cash dividends declared per common share $ 0.40 $ 0.30

____________________________

(1)   Earnings per share may not add due to rounding.
 

 
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
       

January 22,
2017

October 2,
2016

ASSETS
Current assets:
Cash $ 6,090 $ 17,030
Accounts and other receivables, net 54,711 73,360
Inventories 8,344 8,229
Prepaid expenses 12,631 40,398
Assets held for sale 18,357 14,259
Other current assets 2,371   2,129  
Total current assets 102,504   155,405  
Property and equipment, at cost 1,596,676 1,605,576
Less accumulated depreciation and amortization (899,077 ) (886,526 )
Property and equipment, net 697,599   719,050  
Intangible assets, net 13,793 14,042
Goodwill 166,045 166,046
Other assets, net 278,616   290,469  
$ 1,258,557   $ 1,345,012  
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 55,931 $ 55,935
Accounts payable 30,052 40,736
Accrued liabilities 134,701   181,250  
Total current liabilities 220,684   277,921  
Long-term debt, net of current maturities 985,588 935,372
Other long-term liabilities 325,526 348,925
Stockholders' deficit:
Preferred stock $0.01 par value, 15,000,000 shares authorized, none
issued
Common stock $0.01 par value, 175,000,000 shares authorized,
81,824,541 and 81,598,524 issued, respectively
818 816
Capital in excess of par value 445,147 432,564
Retained earnings 1,422,614 1,399,721
Accumulated other comprehensive loss (170,388 ) (187,021 )
Treasury stock, at cost, 50,182,807 and 49,190,992 shares,
respectively
(1,971,432 ) (1,863,286 )
Total stockholders' deficit (273,241 ) (217,206 )
$ 1,258,557   $ 1,345,012  
 

 
JACK IN THE BOX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   
Sixteen Weeks Ended

January 22,
2017

   

January 17,
2016

Cash flows from operating activities:
Net earnings $ 35,929 $ 33,221
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 27,987 28,514
Deferred finance cost amortization 1,123 823
Excess tax benefits from share-based compensation arrangements (3,981 ) (2,020 )
Deferred income taxes 2,239 (2,128 )
Share-based compensation expense 3,814 4,088
Pension and postretirement expense 1,297 4,149
Losses on cash surrender value of company-owned life insurance 326 2,466
Gains on the sale of company-operated restaurants (137 ) (818 )
Losses on the disposition of property and equipment 699 651
Impairment charges and other 1,871 446
Changes in assets and liabilities:
Accounts and other receivables 19,378 (4,204 )
Inventories (115 ) (495 )
Prepaid expenses and other current assets 31,506 1,205
Accounts payable (5,487 ) 7,386
Accrued liabilities (43,328 ) (25,403 )
Pension and postretirement contributions (1,440 ) (1,883 )
Other (726 ) (1,089 )
Cash flows provided by operating activities 70,955   44,909  
Cash flows from investing activities:
Purchases of property and equipment (20,865 ) (31,543 )
Purchases of assets intended for sale and leaseback (1,770 ) (3,274 )
Proceeds from the sale and leaseback of assets 2,466 5,803
Proceeds from the sale of company-operated restaurants 138 1,021
Collections on notes receivable 298 441
Acquisition of franchise-operated restaurants 324
Other 51   (28 )
Cash flows used in investing activities (19,682 ) (27,256 )
Cash flows from financing activities:
Borrowings on revolving credit facilities 231,000 176,000
Repayments of borrowings on revolving credit facilities (167,000 ) (97,000 )
Principal repayments on debt (14,438 ) (8,479 )
Dividends paid on common stock (12,962 ) (10,592 )
Proceeds from issuance of common stock 4,756 492
Repurchases of common stock (115,354 ) (100,000 )
Excess tax benefits from share-based compensation arrangements 3,981 2,020
Change in book overdraft 7,804   9,295  
Cash flows used in financing activities (62,213 ) (28,264 )
Effect of exchange rate changes on cash   (32 )
Net decrease in cash (10,940 ) (10,643 )
Cash at beginning of period 17,030   17,743  
Cash at end of period $ 6,090   $ 7,100  
 

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.

 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA
(Unaudited)
   
Sixteen Weeks Ended

January 22,
2017

   

January 17,
2016

Revenues:
Company restaurant sales 75.3 % 75.0 %
Franchise rental revenues 14.6 % 14.8 %
Franchise royalties and other 10.1 % 10.2 %
Total revenues 100.0 % 100.0 %
Operating costs and expenses, net:
Company restaurant costs:
Food and packaging (1) 29.7 % 30.8 %
Payroll and employee benefits (1) 29.1 % 27.7 %
Occupancy and other (1) 22.6 % 22.0 %
Total company restaurant costs (1) 81.4 % 80.5 %
Franchise occupancy expenses (2) 72.0 % 74.9 %
Franchise support and other costs (3) 7.8 % 10.2 %
Selling, general and administrative expenses 11.4 % 14.0 %
Impairment and other charges, net 1.0 % 0.4 %
Gains on the sale of company-operated restaurants % (0.2 )%
Earnings from operations 15.0 % 13.3 %
Income tax rate (4) 38.7 % 37.6 %

____________________________

(1)   As a percentage of company restaurant sales.
(2) As a percentage of franchise rental revenues.
(3) As a percentage of franchise royalties and other.
(4) As a percentage of earnings from continuing operations and before
income taxes.
 

The following table presents Jack in the Box and Qdoba company
restaurant sales, costs and margin, and restaurant costs and margin as a
percentage of the related sales. Percentages may not add due to rounding.

 
SUPPLEMENTAL COMPANY RESTAURANT OPERATIONS DATA
(Dollars in thousands)
(Unaudited)
   
Sixteen Weeks Ended
January 22, 2017     January 17, 2016
Jack in the Box:            
Company restaurant sales $ 238,571 $ 236,279
Company restaurant costs:
Food and packaging 67,989 28.5 % 73,133 31.0 %
Payroll and employee benefits 70,183 29.4 % 65,689 27.8 %
Occupancy and other 48,850   20.5 % 48,171   20.4 %
Total company restaurant costs 187,022   78.4 % 186,993   79.1 %
Restaurant margin $ 51,549   21.6 % $ 49,286   20.9 %
Qdoba:
Company restaurant sales $ 128,699 $ 116,942
Company restaurant costs:
Food and packaging 40,947 31.8 % 35,778 30.6 %
Payroll and employee benefits 36,738 28.5 % 32,218 27.6 %
Occupancy and other 34,194   26.6 % 29,528   25.3 %
Total company restaurant costs 111,879   86.9 % 97,524   83.4 %
Restaurant margin $ 16,820   13.1 % $ 19,418   16.6 %
 

The following table presents franchise revenues, costs and margin in
each period:

 
SUPPLEMENTAL FRANCHISE OPERATIONS DATA
(Dollars in thousands)
(Unaudited)
   
Sixteen Weeks Ended

January 22,
2017

   

January 17,
2016

Franchise rental revenues $ 71,469 $ 69,738
 
Royalties 48,019 46,662
Franchise fees and other 1,175   1,202  
Franchise royalties and other 49,194   47,864  
Total franchise revenues 120,663   117,602  
 
Rental expense 42,223 42,172
Depreciation and amortization 9,226   10,047  
Franchise occupancy expenses 51,449 52,219
Franchise support and other costs 3,838   4,862  
Total franchise costs 55,287   57,081  
Franchise margin $ 65,376   $ 60,521  
Franchise margin as a % of franchise revenues 54.2 % 51.5 %
 

The following table provides information related to our operating
segments in each period:

 
SUPPLEMENTAL SEGMENT REPORTING INFORMATION
(In thousands)
(Unaudited)
   
Sixteen Weeks Ended

January 22,
2017

   

January 17,
2016

Revenues by segment:
Jack in the Box restaurant operations $ 353,181 $ 347,583
Qdoba restaurant operations 134,752   123,240  
Consolidated revenues $ 487,933   $ 470,823  
Earnings from operations by segment:
Jack in the Box restaurant operations $ 92,404 $ 85,690
Qdoba restaurant operations 8,732 8,737
Shared services and unallocated costs (28,156 ) (32,731 )
Gains on the sale of company-operated restaurants 137   818  
Consolidated earnings from operations 73,117 62,514
Interest expense, net 12,717   8,175  
Consolidated earnings from continuing operations and before income
taxes
$ 60,400   $ 54,339  
Total depreciation expense by segment:
Jack in the Box restaurant operations $ 19,289 $ 20,473
Qdoba restaurant operations 6,492 5,588
Shared services and unallocated costs 1,974   2,225  
Consolidated depreciation expense $ 27,755   $ 28,286  
 

The following table summarizes the year-to-date changes in the number
and mix of Jack in the Box ("JIB") and Qdoba company and franchise
restaurants:

 
SUPPLEMENTAL RESTAURANT ACTIVITY INFORMATION
(Unaudited)
       
January 22, 2017 January 17, 2016
Company     Franchise     Total Company     Franchise     Total
Jack in the Box:
Beginning of year 417 1,838 2,255 413 1,836 2,249
New 2 7 9 5 5
Refranchised (1 ) 1
Acquired from franchisees 1 (1 )
Closed   (3 ) (3 )   (1 ) (1 )
End of period 419   1,842   2,261   413   1,840   2,253  
% of JIB system 19 % 81 % 100 % 18 % 82 % 100 %
Qdoba:
Beginning of year 367 332 699 322 339 661
New 9 8 17 9 6 15
Closed   (4 ) (4 ) (1 ) (1 ) (2 )
End of period 376   336   712   330   344   674  
% of Qdoba system 53 % 47 % 100 % 49 % 51 % 100 %
Consolidated:            
Total system end of period 795   2,178   2,973   743   2,184   2,927  
% of consolidated system 27 % 73 % 100 % 25 % 75 % 100 %
 

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