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company photo forwarded 3-2016 by Jeff Zwally; [email protected]

Jack in the Box weighs premium and value items

With refranchising, brand watches margins closely, CEO says

As Jack in the Box Inc. works toward refranchising more of its restaurants, executives said Thursday that they remain increasingly conscious about maintaining franchisee operating margins by balancing premium products with value-oriented menu items.

“I just don’t think businesses are being responsible if they put a strategy in place that essentially in the short term makes the corporation look strong but in the long term is not sustainable for the franchisees,” said Lenny Comma, CEO of the San Diego-based quick-service operator, in a second-quarter earnings call.

“At the end of the day, the consumer is choosing us for more than just value,” Comma told analysts. “I don’t want to train them to believe that the only way to use us is for value. It’s a balancing act. We can turn on the juice, but I just don’t think that at the end of the day it’s worth the squeeze.”

Toward the end of the second quarter, on March 21, the company completed the sale of its 700-unit Qdoba Mexican Eats brand to New York-based Apollo Global Management in a $305 million deal and turned to working on creating more asset-light franchised model for Jack in the Box.

The company refranchised 63 Jack in the Box restaurants in the second quarter and has sold back 29 units so far in the third quarter, executives said, increasing the ratio of franchised units to company-owned locations from 90 percent to 93 percent. With letters of intent to sell another 17 units, the franchise mix would rise to 94 percent, they said.

Jack in the Box now targets eventually owning just 138 of its more than 2,200 branded restaurants and franchising the remainder.

Same-store sales for the second quarter ended April 15 fell 0.1 percent for the Jack in the Box system, slipping 0.2 percent for franchised units and increasing 0.9 percent at company-owned locations.

For the second quarter, which included closing on the sale of Qdoba and benefits from tax rate changes, Jack in the Box reported a net earnings increase of 43.8 percent, to $47.6 million, or $1.62 per share, compared with $33.1 million, or $1.06 per share, the previous year. With the sale of Qdoba restaurants, revenue fell 21.1 percent, to $209.8 million, from $265.9 million the previous year.

In the quarter, delivery continued to generate an incremental lift in sales, Comma said.

The company added Postmates as a third-party delivery partner, joining the existing platforms of DoorDash and Grubhub, he said. One or more delivery companies are now serving two-thirds of the Jack in the Box system, Comma said.

Jack in the Box Inc. has more than 2,200 restaurants in 21 states and Guam.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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