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Jack in the Box posts higher 1Q profit

Company sees strong sales return in key California market

Jack in the Box Inc. said Wednesday that strong sales in California, service improvements and menu upgrades drove a nearly 34-percent increase in first-quarter net income.

For the quarter ended Jan. 23, Jack in the Box reported net income of $32.4 million, or 61 cents per share, compared with $24.2 million, or 43 cents per share, for the first quarter a year ago. Analysts had estimated earnings of about 46 cents per share, according to Thomson Reuters.

Refranchising gains — including the sale of 88 corporate Jack in the Box locations to franchisees — contributed about 34 cents per share for the quarter, compared with 11 cents per share in the prior-year quarter.

Revenue slipped 2.4 percent to $664.7 million in the first quarter from $681.3 million a year ago, Jack in the Box said.

Systemwide same-store sales rose 1.1 percent at the Jack in the Box chain, reflecting a 1.5-percent increase at corporate restaurants and a 0.9-percent uptick at franchised branches. The company said the increase at corporate units was largely the result of transaction growth.

For sister brand Qdoba Mexican Grill, systemwide same-store sales were up 6.4 percent for the quarter, also driven by transaction growth as well as higher catering sales, the company said.

Though Jack in the Box’s sales have suffered in recent years because of the chain’s concentration in economically hard-hit Southern California, California is now the company’s strongest performing market, said Linda Lang, chair, chief executive and president of Jack in the Box.

Over the past year, Jack in the Box also has retooled core menu items at its flagship chain, including the fries and tacos.

“We remain focused on enhancing the entire guest experience, including the substantial completion of our restaurant reimaging program systemwide, which is targeted by the end of 2011,” Lang said. “We believe these actions will increase the customer appeal of the Jack in the Box brand and provide a catalyst for sales growth.

Eight new Jack in the Box restaurants opened during the quarter, including three franchised locations. Another 20 Qdoba locations opened, including 14 franchise locations.

Lang said the Jack in the Box system is now more than 60-percent franchised, putting the chain ahead of its plan to increase franchise ownership to between 70 percent and 80 percent by the end of fiscal 2013.

Meanwhile, the company acquired 20 franchised Qdoba locations in the Indianapolis area during the quarter for about $21 million. The company said the acquisition was part of an ongoing plan to “opportunistically” take over franchise markets for development as corporate locations.

At the end of the quarter, there were 2,213 Jack in the Box restaurants, of which 1,340 were franchised, and 542 Qdoba units, of which 348 were franchised.

The company said poor winter weather is expected to dampen same-store sales and increase commodity costs for the second quarter.

Jack in the Box officials projected same-store sales would range from flat to down 2 percent at Jack in the Box corporate locations. Same-store sales at corporate Qdoba locations are expected to increase between 3 percent and 5 percent.

For the year, the company is projecting same-store sales ranging from down 2 percent to up 2 percent at Jack in the Box corporate restaurants, and same-store sales growth between 3 percent and 5 percent at Qdoba.

The company said it projects commodity costs to increase by about 5 percent in the second quarter, driven by higher produce costs that have spiked because of harsh weather in many growing regions. Overall commodity costs for the year are projected to increase by 3 percent to 4 percent.

The company expects to add 30 to 35 new Jack in the Box locations, including 19 corporate units; and 50 to 60 new Qdoba units, including 25 corporate locations.

Earnings per share for the year will range between $1.40 and $1.65, the company estimated, depending on the timing of further refranchising transactions, same-store sale volatility and commodity inflation.

Contact Lisa Jennings at [email protected].
 

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