Jack in the Box Inc. Reports Second Quarter FY 2018 Earnings
SAN DIEGO--(BUSINESS WIRE)--May 16, 2018--Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for the second quarter ended April 15, 2018.
The company completed the sale of Qdoba Restaurant Corporation (“Qdoba”) on March 21, 2018. Qdoba ® results are included in discontinued operations for all periods presented.
Earnings from continuing operations were $25.0 million, or $0.85 per diluted share, for the second quarter of fiscal 2018 compared with $31.4 million, or $1.01 per diluted share, for the second quarter of fiscal 2017.
Operating Earnings Per Share (1), a non-GAAP measure, were $0.80 in the second quarter of fiscal 2018 compared with $0.86 in the prior year quarter. A reconciliation of non-GAAP Operating Earnings Per Share to GAAP results is provided below, with additional information included in the attachment to this release. Figures may not add due to rounding.
(1) Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains on the sale of company-operated restaurants, restructuring charges, the non-cash impact of the Tax Cuts and Jobs Act, and the excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity previously. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”
Adjusted EBITDA (2), a non-GAAP measure, was $60.3 million in the second quarter of fiscal 2018 compared with $69.5 million for the prior year quarter.
Lenny Comma, chairman and chief executive officer, said, “Our second quarter operating results were in line with our expectations. We were pleased that a greater emphasis on value resulted in a sequential improvement in traffic during the quarter. And by balancing our value promotions with innovative premium products, we were able to protect restaurant margins.
“With the refranchising of 63 Jack in the Box ® restaurants in the second quarter and 29 thus far in the third quarter, our franchise mix now stands at 93 percent. We currently have signed non-binding letters of intent with franchisees to sell 17 additional restaurants, which would bring the Jack in the Box franchise mix to approximately 94 percent. In addition, we completed the sale of Qdoba during the quarter, which marks an important milestone in the actions we’re taking to enhance shareholder value.
“We resumed share repurchases during the quarter, with the purchase of $100 million of stock, and last week our Board of Directors authorized an additional $200 million stock buyback program. We also completed an amendment and extension of our existing credit facility which is an interim step that provides an immediate increase in our borrowing capacity to 4.5 times EBITDA while we work with our advisors to evaluate longer-term financing alternatives. We remain comfortable with ultimately increasing our leverage up to 5.0 times EBITDA.”
Increase/(decrease) in Jack in the Box same-store sales:
*Note: Due to the transition from a 53-week year in fiscal 2016 to a 52-week year in fiscal 2017, 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 from fiscal 2016 and to provide a clearer year-over-year comparison.
Jack in the Box system same-store sales decreased 0.1 percent for the quarter and lagged the QSR sandwich segment by 1.0 percentage points for the comparable period, according to The NPD Group’s SalesTrack ® Weekly for the 12-week time period ended April 15, 2018. Included in this segment are 16 of the top QSR sandwich and burger chains in the country. Company same-store sales increased 0.9 percent in the second quarter driven by average check growth of 2.6 percent, partially offset by a 1.7 percent decrease in transactions.
(2) Adjusted EBITDA represents net earnings on a GAAP basis excluding earnings from discontinued operations, income taxes, interest expense, net, gains on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, and the amortization of franchise tenant improvement allowances. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”
Restaurant-Level EBITDA (3), a non-GAAP measure, increased by 250 basis points to 26.4 percent of company restaurant sales in the second quarter of 2018 from 23.9 percent a year ago. The increase was due primarily to the benefit of refranchising, which was partially offset by wage and commodity inflation, and higher maintenance and repairs expenses. The decrease in food and packaging costs as a percentage of sales resulted from menu price increases and favorable product mix, partially offset by commodity inflation of approximately 3.6 percent in the quarter. Restaurant Operating Margin (3), a non-GAAP measure, increased to 22.7 percent of company restaurant sales in the second quarter of fiscal 2018 from 19.7 percent in the prior year quarter.
Franchise EBITDA (3), a non-GAAP measure, as a percentage of total franchise revenues decreased to 59.8 percent in the second quarter from 61.2 percent in the prior year quarter. The decrease was due primarily to a decrease in franchise-operated restaurant same-store sales of 0.2 percent in the current quarter, and incremental costs incurred in 2018 related to the implementation of a mystery guest program. Franchise Margin (3), a non-GAAP measure, decreased to 51.5 percent of total franchise revenues in the second quarter of fiscal 2018 compared with 53.1 percent in the second quarter of fiscal 2017.
SG&A expenses for the second quarter increased by $1.2 million and were 12.9 percent of revenues compared with 9.7 percent in the prior year quarter. Advertising costs, which are included in SG&A, were $7.3 million in the second quarter compared with $9.1 million in the prior year quarter. The $1.8 million decrease in advertising costs was due to a $3.3 million decrease resulting from refranchising, which was partially offset by an incremental $1.5 million of spending in the quarter. The $3.0 million increase in G&A excluding advertising was attributable to mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans resulting in a $1.8 million year-over-year increase in SG&A, and a $1.6 million increase in incentive compensation. These increases were partially offset by reductions related to refranchising. As a percentage of system-wide sales, G&A excluding advertising was 2.5 percent in the second quarter of 2018 compared with 2.1 percent in the 2017 quarter.
(3) Restaurant Operating Margin, Restaurant-Level EBITDA, Franchise Margin, and Franchise EBITDA are non-GAAP measures. These non-GAAP measures are reconciled to earnings from operations, the most comparable GAAP measure, in the attachment to this release. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”
In fiscal 2018, the company began presenting depreciation and amortization as a separate line item in its condensed consolidated statements of earnings to better align with similar presentation made by many of its peers and to provide additional disclosure that is meaningful for investors. The prior year condensed consolidated statement of earnings was adjusted to conform with this new presentation. Depreciation and amortization was previously presented within company restaurant costs, franchise occupancy expenses, selling, general and administrative expenses, and impairment and other charges, net, in the company’s condensed consolidated statements of earnings.
Restructuring charges of $2.6 million, or approximately $0.06 per diluted share, were recorded during the second quarter of fiscal 2018 compared with $0.2 million, or less than $0.01 per diluted share, in the prior year quarter. Restructuring charges are included in “Impairment and other charges, net” in the accompanying condensed consolidated statements of earnings. Including these charges, impairment and other charges, net, increased in the second quarter to $4.9 million from $1.4 million in the year ago quarter.
Interest expense, net, increased by $1.4 million in the second quarter primarily due to a higher effective interest rate for 2018. The company allocated $1.6 million and $2.0 million of interest expense to Qdoba in the second quarters of 2018 and 2017, respectively.
The Tax Cuts and Jobs Act (the “Tax Act”), enacted into law on December 22, 2017, reduced the federal statutory rate from 35 percent to 21 percent as of January 1, 2018. As a company with a fiscal year-end of September 30, the tax rate reduction will be phased in, resulting in a blended statutory federal tax rate of 24.5 percent for the fiscal year ending September 30, 2018. In addition, the Tax Act resulted in a non-cash increase to the provision for income taxes of $0.6 million, or $0.02 per diluted share, for the second quarter of fiscal 2018, and $31.2 million, or $1.05 per diluted share, for the 28 weeks ended April 15, 2018, related primarily to the revaluation of deferred tax assets and liabilities at the new lower rates. This revaluation was based upon estimates and interpretations of the Tax Act which may be refined as further guidance is issued.
Qdoba Discontinued Operations
In the first quarter of fiscal 2018, the company entered into a definitive agreement to sell Qdoba, a wholly owned subsidiary of the company, to certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”). The transaction closed on March 21, 2018, and operating results for Qdoba are included in discontinued operations for all periods presented. However, the company did not allocate any general and administrative shared services expenses to discontinued operations.
Qdoba generated net earnings of $22.7 million for the second quarter, including an after-tax gain on the sale of $20.0 million compared with net earnings of $1.8 million in the prior year quarter.
The company repurchased approximately 1,111,000 shares of its common stock in the second quarter of 2018 at an average price of $89.98 per share for an aggregate cost of $100.0 million. The company currently has approximately $281.0 million remaining under stock-buyback programs authorized by its Board of Directors, including approximately $81.0 million that expires in November 2018 and an additional $200 million authorized by the Board last week that expires in November 2019.
The company also announced today that on May 11, 2018, its Board of Directors declared a cash dividend of $0.40 per share on the company’s common stock. The dividend is payable on June 11, 2018, to shareholders of record at the close of business on May 29, 2018.
The following guidance and underlying assumptions reflect the company’s current expectations for the third quarter ending July 8, 2018, and fiscal year ending September 30, 2018. Fiscal 2018 and fiscal 2017 are 52-week years, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.
Third quarter fiscal year 2018 guidanceSame-store sales of approximately flat to up 1.0 percent at Jack in the Box system restaurants versus a 0.2 percent decrease in the year-ago quarter.
Fiscal year 2018 guidanceSame-store sales increase of approximately flat to up 1.0 percent at Jack in the Box system restaurants. Commodity cost inflation of approximately 3.0 percent. Restaurant-Level EBITDA of approximately 26.0 to 27.0 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 12.0 to 12.5 percent, which includes incremental advertising spending on behalf of the system. G&A as a percentage of system-wide sales of approximately 2.3 to 2.5 percent. Approximately 25 new Jack in the Box restaurants opening system-wide, the majority of which will be franchise locations. Capital expenditures of approximately $30 to $35 million. Tenant improvement allowances of approximately $25 million. Tax rate of approximately 29.0 percent, excluding the non-cash impact of the Tax Act and the tax impact of excess tax benefits from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity previously. Adjusted EBITDA of approximately $260 to $270 million.
The company will host a conference call for financial analysts and investors on Thursday, May 17, 2018, 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 May 17, 2018.
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. For more information on Jack in the Box, including franchising opportunities, visit www.jackinthebox.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, marketing initiatives and facility remodels; 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; the company’s ability to enhance shareholder value; food-safety incidents or negative publicity impacting the reputation of the company’s brand; 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.
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