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Jack in the Box's 2Q profit falls

Jack in the Box’s core market of California showed improvement in the second quarter in terms of check averages and transactions, but high unemployment in the region remains a key obstacle in turning around declining sales, its parent company said.

Sister brand Qdoba Mexican Grill, however, saw same-store sales turn positive in the quarter, despite the adverse effect of bad winter weather. The company credited the brand’s new Craft 2 menu, allowing guests to combine options, as well as improved consumer spending in the fast-casual segment.

For the quarter ended April 11, Jack in the Box Inc. reported net income of $17.7 million, or 32 cents per share, compared with earnings of $29.9 million, or 52 cents per share, for the same quarter a year ago. The company blamed much of the 40-percent dive in profit on decreased gains from its refranchising efforts, which negatively impacted earnings by 15 cents a share.

Revenue in the second quarter declined 8.4 percent to $529.7 million, Jack in the Box said. Same-store sales at company-operated Jack in the Box stores fell 8.6 percent in the second quarter, compared with an increase of 0.4 percent a year ago. Qdoba's systemwide same-store sales rose 3.1 percent, compared with a decrease of 2.3 percent in last year's second quarter.

“California experienced continued stabilization and was our best-performing market for the second quarter on both a one- and two-year basis," Linda Lang, Jack in the Box's chairman and chief executive, said in a statement. "Although both transactions and average check improved from the first quarter, we don’t expect significant improvement in underlying fundamentals until high unemployment rates in our major markets for our key customer demographic begin to improve."

As part of its ongoing refranchising plan, the company sold 30 Jack in the Box restaurants to franchisees during the second quarter, though gains were less than expected in part because another transaction involving 21 units was delayed and closed early in the third quarter. The company booked $3.0 million in gains from refranchising in the second quarter, compared with $17.2 million in gains in the year-ago period.

For the year, the company expects to see between $60 million and $70 million in gains on the sale of about 200 Jack in the Box units to franchisees, with proceeds from the sales resulting in $85 million to $95 million.

“More than 48 percent of the Jack in the Box system is now franchised, and we expect to cross the 50 percent mark later this quarter,” Lang said. “We remain on track to achieve our long-term goal to increase the percentage of franchise ownership to 70 to 80 percent by the end of fiscal year 2013.”

For the current third quarter, the company expects Jack in the Box’s same-store sales to drop between 7 percent and 9 percent at company restaurants, compared with a 1-percent decline a year ago. Qdoba is expected to see same-store sales rise between 2 percent and 4 percent, compared with a 2.8-percent decrease last year.

To improve sales, the Jack in the Box chain plans to market new premium products, such as its grilled sandwich line and Kona Classic coffee, alongside its value-priced offerings, the company said.

For the year, Jack in the Box projected that same-store sales would fall between 6.5 percent and 8.5 percent at its namesake brand and rise between 1 percent and 3 percent at Qdoba.

San Diego-based Jack in the Box Inc. operates or franchises 2,233 Jack in the Box locations, of which 1,080 are franchised, as well as 505 Qdoba units, of which 345 are franchised.

Contact Lisa Jennings at [email protected].


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