Jack in the Box Inc. Reports Fourth Quarter and Fiscal 2006 Results
Issues Guidance for First Quarter and FY2007; Announces Modified "Dutch Auction" Tender Offer to Purchase up to 5.5 Million Shares Business Editors
SAN DIEGO--(BUSINESS WIRE)--Nov. 21, 2006--Jack in the Box Inc. (NYSE: JBX) today reported that earnings before the cumulative effect of an accounting change increased to $34.2 million, or 95 cents per diluted share, in the fourth quarter ended Oct. 1, 2006, compared with $21.5 million, or 59 cents per diluted share, in the same quarter a year ago. Fiscal 2006 earnings before the cumulative effect of an accounting change increased to $109.1 million, or $3.04 per diluted share, compared with $91.5 million, or $2.48 per diluted share, in fiscal 2005. As required by SFAS No. 123R, fiscal 2006 results included the effect of expensing stock options whereas 2005 results did not.
Effective Oct. 1, 2006, the company adopted FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" (FIN 47), which reduced fourth-quarter and fiscal-year net income by approximately 3 cents per diluted share. Net earnings after the cumulative effect of this accounting change were 92 cents and $3.01 per diluted share for the fourth quarter and fiscal 2006, respectively. This change is not expected to have a material impact on company operations in the future.
The 95 cents per diluted share earned in the fourth quarter before the cumulative effect of an accounting change exceeded the high end of the range previously forecast by the company and analysts' First Call consensus estimate of 66 cents. The improvement was due primarily to the following, in approximate amounts:
-- +25 cents from the sale of 25 company Jack in the Box(R) restaurants in Hawaii to a new franchise operator. -- +5 cents from higher Jack in the Box same-store sales partially offset by higher food costs, primarily tomatoes, and utilities expense. -- +2 cents from a lower-than-expected state income tax rate. -- -3 cents to write down assets at six restaurants in the company's Southeast region.
Diluted EPS in 2005 was impacted by the following:
-- -5 cents related to canceling the test of a fast-casual concept called JBX Grill(TM) in the fourth quarter. -- Stock option expense was not included in fiscal 2005 results; the pro forma effect of expensing stock options would have been to reduce net earnings by 4 cents and 15 cents per diluted share for the fourth quarter and fiscal 2005, respectively, excluding the effect of accelerated vesting of retiree's stock options.
"Throughout fiscal 2006 Jack in the Box continued to improve in several key areas of operation, which contributed to a record year of earnings," said Linda A. Lang, chairman and chief executive officer. "The addition of several innovative, high-quality products to our menu, as well as improvement in guest-service execution, contributed to an increase in both average check and transactions, which drove the increase in same-store sales for fiscal 2006 to our highest level in seven years."
Fourth quarter and FY 2006 financial highlights
Same-store sales at Jack in the Box company restaurants increased 5.9 percent in the fourth quarter, with an increase in both average check and transactions, compared with a year-ago increase of 1.5 percent. This year's same-store sales increase was positively affected by approximately 0.7 percent due to rolling over 2005's hurricane-impacted sales. For the year, same-store sales at Jack in the Box company restaurants increased 4.8 percent, again with an increase in both average check and transactions, compared with a 2.4 percent increase in 2005. For the fourth quarter, system same-store sales at Qdoba Mexican Grill(R) increased 4.5 percent on top of a 9.0 percent increase in the fourth quarter of 2005. For the year, system same-store sales at Qdoba increased 5.9 percent on top of an 11.4 percent increase in fiscal 2005. Qdoba continued to be accretive to earnings for the fourth quarter and full year.
Restaurant operating margin was 17.8 percent of sales in the fourth quarter compared with 17.3 percent a year ago, with the benefit of higher sales in 2006, generally lower food costs, lower workers' compensation insurance and profit improvement program initiatives partially offset by higher costs for tomatoes and utilities. Beef costs for the quarter decreased approximately 6 percent from prior year. For the year, restaurant operating margin increased to 17.5 percent of sales compared with 16.9 percent in 2005, due primarily to fixed-cost leverage on same-store sales growth, lower costs for commodities and workers' compensation insurance, and profit improvement program initiatives. Beef costs for the full year decreased approximately 5 percent from fiscal 2005.
SG&A expense rate in the fourth quarter was 11.0 percent of revenues, including approximately 35 basis points from the expensing of stock options and 30 basis points from the impairment charge related to six restaurants in the Southeast. SG&A expense rate in the fourth quarter of fiscal 2005 was 11.3 percent, which included approximately 50 basis points from canceling the test of JBX Grill but did not include stock option expense. For the year, SG&A expense rate was 10.9 percent, which is the same as last year. This year's rate included approximately 25 basis points from the expensing of stock options, whereas last year did not include stock option expense.
Seventeen company and franchised Jack in the Box restaurants opened in the fourth quarter, along with 5 new Quick Stuff(R) convenience stores, compared with 16 new restaurants and 5 Quick Stuff sites opened in the same quarter a year ago. For the year, 36 company and franchised Jack in the Box restaurants opened, as well as 11 Quick Stuff stores. Qdoba opened 21 company and franchised restaurants during the fourth quarter compared with 22 locations opened in the same quarter a year ago. For the year, Qdoba opened 71 company and franchised restaurants. At Oct. 1, the company's system total included 2,079 company and franchised Jack in the Box restaurants, including 55 with Quick Stuff convenience stores, and 318 company and franchised Qdoba restaurants.
Gains on sale of company-operated restaurants and other revenues totaled $24.8 million in the fourth quarter, primarily from the sale of 35 Jack in the Box company restaurants to franchisees, including the 25 restaurants in Hawaii, which contributed $15.6 million. In the fourth quarter of fiscal 2005, gains on sale of company-operated restaurants and other revenues totaled $7.5 million, primarily from the sale of 12 Jack in the Box company restaurants to franchisees. In fiscal 2006, gains on sale of company-operated restaurants and other revenues totaled $50.4 million, primarily from the sale of 82 Jack in the Box company restaurants to franchisees, compared with $29.3 million a year ago, primarily from the sale of 58 such restaurants to franchisees. The difference in average gains related to the specific sales and cash flows of restaurants sold.
"We continued to expand our Jack in the Box franchising activities in fiscal 2006 as a key strategic initiative to generate higher returns and margins while mitigating business-cost and investment risks," Lang said. "In addition to refranchising 82 restaurants during the year, franchisees added 7 new locations. At year end, more than 29 percent of the Jack in the Box system was franchised. We're on pace to achieve our goal of Jack in the Box becoming 35 percent franchise operated by 2008."
The effective tax rate in the fourth quarter before the cumulative effect of an accounting change was 35.2 percent versus 32.2 percent a year ago, with the increase due to a lower tax rate in 2005 from tax-planning initiatives and adjustments from prior years' tax returns. The tax rate in fiscal 2006 was 35.7 percent compared with 33.8 percent in the prior year for the same reasons.
Capital expenditures, including capital lease obligations, were $152 million compared with $127 million in fiscal 2005, with the increase due primarily to investments associated with the company's restaurant re-imaging program.
Fourth quarter initiatives
During the quarter the company continued to progress on its strategy to holistically reinvent the Jack in the Box brand through major changes to its menu, restaurant environment and guest service.
By delivering innovative, high-quality products, Jack in the Box continues to differentiate its brand from competitors and attract a broader consumer audience. In the fourth quarter, Jack in the Box enhanced its menu as follows:
-- Introduced the Outlaw(TM) Burger and Outlaw(TM) Spicy Chicken sandwich, premium products featuring either a jumbo beef patty or spicy crispy chicken fillet with two fried onion rings, bacon, two slices of American cheese, lettuce and tomatoes all topped with KC Masterpiece(R) Original Barbecue Sauce and served on a toasted sesame seed bun. -- Added buttermilk biscuits to its breakfast menu and created two biscuit sandwiches - Bacon, Egg & Cheese, and Sausage, Egg & Cheese. -- Introduced a value-friendly combo called The Big Deal, which includes a chicken sandwich, two beef tacos and a 20-ounce beverage for just $2.59. -- Expanded its dessert menu with a Chocolate Chip Cookie Cheesecake featuring Nestle Toll House semisweet morsels.
In the fourth quarter, the company finished re-imaging its entire Seattle market with a comprehensive program that includes a complete redesign of the dining room and common areas. Interior finishes include ceramic tile floors; a mix of seating styles, such as booths, bars and high-top round tables; decorative pendant lighting; and graphics and wall collages. The program also includes music, uniforms, menu boards and packaging, along with new paint schemes, landscaping and other exterior enhancements. One hundred fifty-one restaurants were re-imaged in fiscal 2006, including all of the company's restaurants in Waco, Texas, as well as individual restaurants in other markets.
"We're pleased with the sales trends and positive guest feedback at these restaurants and plan to continue rolling out the re-image program," Lang said.
Modified "Dutch auction" tender offer
Jack in the Box Inc. will also announce today that it will commence a modified "Dutch auction" tender offer for up to 5.5 million shares of its outstanding common stock at a price per share not less than $55.00 and not greater than $61.00, for a maximum aggregate purchase price of $335.5 million. The tender offer is expected to commence today, Nov. 21, 2006, and to expire, unless extended by the company, at midnight, Eastern Standard Time, on Dec. 19, 2006.
"This tender offer affords us an opportunity to return cash to our shareholders while reducing the number of shares outstanding by approximately 15.5 percent, thereby increasing the proportional ownership of our non-tendering shareholders," Lang said.
The company is expecting to fund the tender offer with available cash and a new credit facility that is expected to be in place prior to the closing of the tender offer. The company has received commitments from its financing partners for a new $625 million credit facility, which is expected to be comprised of a $150 million revolving credit facility and a $475 million term loan. Proceeds from the new credit facility are also expected to be used to retire the existing term debt outstanding.
Additional details regarding the tender offer are included in a separate news release issued by the company today.
Guidance & long-term business outlook
Jack in the Box Inc. today announced its earnings guidance for fiscal 2007, as well as longer-term business goals and plans for the next 3-5 years, in approximate amounts. The guidance and long-term goals and plans that follow do not reflect the effect of the tender offer and/or the new credit facility due to uncertainty as to the number of shares that will be tendered. However, the company expects that the effect of a successfully completed tender offer will be accretive to earnings.
-- First quarter and fiscal year 2007 earnings guidance of 78-81 cents and $3.02-$3.07 per diluted share, respectively. -- Long-term earnings growth goal of 12-15 percent per year, with continued focus on improving returns on invested capital. -- Fiscal year 2007 and long-term tax rate of 37.5-38.5 percent.
Same-store sales growth
-- Jack in the Box company-operated restaurants: -- 3.5-4.5 percent in the first quarter of fiscal 2007. -- 3-4 percent for fiscal 2007. -- Long-term annual goal of 2-4 percent. -- Qdoba system restaurants: -- 3-5 percent for fiscal 2007. -- Long-term annual goal of 3-5 percent.
-- Refranchise 70-80 Jack in the Box restaurants in fiscal 2007. -- Gains on sale of company-operated restaurants and other revenues, primarily from the sale of restaurants to franchisees, of $35-37 million in fiscal 2007. -- Long-term goals to grow the percentage of franchise ownership in the Jack in the Box brand by approximately 5 percent annually and to move towards a range of franchise ownership more closely aligned with that of the QSR industry, with average gains on restaurants sold approximating historical levels. -- Continue to explore opportunities to franchise whole Jack in the Box markets.
New store growth
-- Jack in the Box: -- Add 40-45 new company and franchise-operated restaurants in fiscal 2007. -- Accelerate the pace of franchise development with a long-term goal of achieving a balance between franchised and company restaurant growth. -- Expand into new contiguous markets through company investment and franchise development. -- Qdoba: -- Add 80-90 new company and franchised locations in fiscal 2007. -- Long-term goal to add 75-100 new Qdoba restaurants per year.
-- Jack in the Box expects to re-image 150-200 restaurants in fiscal 2007; the restaurant re-image program is expected to be completed in approximately 4-5 years. -- Capital expenditures are estimated at approximately $160 million in fiscal 2007 and at approximately $150-180 million per year thereafter until the company completes the restaurant re-image program when capital expenditures are expected to return to historical levels.
First quarter initiatives
-- In October, Jack in the Box expanded its line of burgers and sandwiches served on artisan, hearth-baked ciabatta bread with the Sirloin Steak 'n' Cheddar Ciabatta sandwich. The product features tender, marinated, 100-percent sirloin steak on toasted ciabatta bread with cheddar cheese, red onions, tomatoes and green leaf lettuce topped with a creamy peppercorn mayo. -- Also in October, Jack in the Box expanded its reloadable Jack Ca$h(TM) card program to include a retail component: The cards are now available at grocery chains such as Safeway, Albertsons, Randalls and Tom Thumb stores.
About Jack in the Box Inc.
Jack in the Box Inc. (NYSE: JBX), based in San Diego, is a restaurant company that operates and franchises Jack in the Box(R) restaurants, one of the nation's largest hamburger chains, with more than 2,000 restaurants in 17 states. The company also operates a proprietary chain of convenience stores called Quick Stuff(R), with more than 50 locations, each built adjacent to a full-size Jack in the Box restaurant and including a major-brand fuel station. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Grill(R), an emerging leader in fast-casual dining, with more than 300 restaurants in 40 states. For more information, visit www.jackinthebox.com.
Safe harbor statement
Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that are subject to substantial risks and uncertainties. These statements, which include the company's guidance and related assumptions, may be identified by the use of words such as "assumption," "believes," "estimates," "expects," "goals," "guidance," "plans," "will," and other words of similar meaning.
The following are some of the factors that could cause the company's actual estimates and its goals to differ materially from those expressed in the forward-looking statements: delays in the opening of new or remodeled restaurants; loss of sales due to restaurant closures caused by adverse weather or other events in the regions in which the restaurants are located; changes in laws, regulations and accounting rules and interpretations; adverse economic and other local, national and international conditions or events that affect consumer spending; and the inability to refinance the company's existing credit facility or successfully complete the tender offer as currently contemplated. Costs may exceed projections, including the cost of food, packaging, labor, pending or future legal claims, new restaurant construction and remodels, and utilities. Additional factors that may adversely affect results include the effect of any widespread negative publicity regarding the company, the foodservice industry in general or particular foods. Further information about factors that could affect the company's financial results is included 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. The information in this press release is as of November 21, 2006. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statement whether as the result of new information or otherwise.
Tender offer statement
This press release is for informational purposes only and is neither an offer to buy nor the solicitation of an offer to sell, any shares. The full details of the tender offer, including complete instructions on how to tender shares, are included in the offer to purchase, the letter of transmittal and related materials, which are expected to be mailed to stockholders shortly. Stockholders should read carefully the offer to purchase, the letter of transmittal and other related materials when they are available because they will contain important information. Stockholders may obtain free copies of the offer to purchase and other related materials when filed with the Securities and Exchange Commission at the Commission's website at www.sec.gov. In addition, stockholders also may obtain a copy of these documents, free of charge, from D.F. King & Co., Inc., the company's information agent for the tender offer.
JACK IN THE BOX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) Twelve Weeks Ended Fifty-Two Weeks Ended ------------------- ----------------------- Oct 1, Oct 2, Oct 1, Oct 2, 2006 2005 2006 2005 --------- --------- ----------- ----------- Revenues: Restaurant sales $485,199 $471,900 $2,100,955 $2,045,400 Distribution and other sales 134,748 100,238 512,907 348,482 Franchise rents and royalties 25,954 20,887 101,356 80,390 Gains on sale of company-operated restaurants and other 24,807 7,512 50,431 29,276 --------- --------- ----------- ----------- 670,708 600,537 2,765,649 2,503,548 --------- --------- ----------- ----------- Costs of revenues: Restaurant costs of sales 149,746 148,078 654,659 647,567 Restaurant operating costs 248,865 242,268 1,078,029 1,051,400 Costs of distribution and other sales 132,481 98,899 505,991 343,836 Franchised restaurant costs 10,926 8,176 44,456 35,318 --------- --------- ----------- ----------- 542,018 497,421 2,283,135 2,078,121 --------- --------- ----------- ----------- Selling, general and administrative costs 73,945 67,950 300,819 273,821 --------- --------- ----------- ----------- Earnings from operations 54,745 35,166 181,695 151,606 Interest expense, net 1,960 3,391 12,075 13,402 --------- --------- ----------- ----------- Earnings before income taxes and cumulative effect of accounting change 52,785 31,775 169,620 138,204 Income taxes 18,561 10,231 60,545 46,667 --------- --------- ----------- ----------- Earnings before cumulative effect of accounting change 34,224 21,544 109,075 91,537 Cumulative effect of accounting change, net 1,044 - 1,044 - --------- --------- ----------- ----------- Net earnings $33,180 $21,544 $108,031 $91,537 ========= ========= =========== =========== Earnings per share - basic: Earnings before cumulative effect of accounting change $.97 $.61 $3.12 $2.57 Cumulative effect of accounting change, net .03 - .03 - --------- --------- ----------- ----------- Net earnings per share $.94 $.61 $3.09 $2.57 ========= ========= =========== =========== Earnings per share - diluted: Earnings before cumulative effect of accounting change $.95 $.59 $3.04 $2.48 Cumulative effect of accounting change, net .03 - .03 - --------- --------- ----------- ----------- Net earnings per share $.92 $.59 $3.01 $2.48 ========= ========= =========== =========== Weighted-average shares outstanding: Basic 35,230 35,264 34,944 35,625 Diluted 36,216 36,391 35,917 36,938
JACK IN THE BOX INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) Oct 1, Oct 2, 2006 2005 ---------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $233,906 $103,708 Accounts and notes receivable, net 30,874 21,227 Inventories 41,202 40,007 Other current assets 97,148 119,028 ----------- ----------- Total current assets 403,130 283,970 ----------- ----------- Property and equipment, net 914,776 877,985 Other assets, net 202,555 176,031 ----------- ----------- $1,520,461 $1,337,986 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $41,518 $7,788 Other current liabilities 301,379 267,502 ----------- ----------- Total current liabilities 342,897 275,290 ----------- ----------- Long-term debt, net of current maturities 250,252 290,213 Other long-term liabilities 216,427 207,111 Stockholders' equity 710,885 565,372 ----------- ----------- $1,520,461 $1,337,986 =========== ===========
CONTACT: Jack in the Box Inc. Brian Luscomb, 858-571-2229 Division Vice President, Corporate Communications Email: email@example.com Web site: www.jackinthebox.com SOURCE: Jack in the Box Inc.