Jack in the Box Inc. Reports First Quarter FY 2019 Earnings; Reaffirms Fiscal 2019 Guidance; Declares Quarterly Cash Dividend

SAN DIEGO–(BUSINESS WIRE)–Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for
the first quarter ended January 20, 2019.

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 $31.1 million, or $1.19 per
diluted share, for the first quarter of fiscal 2019 compared with $12.9
million, or $0.43 per diluted share, for the first quarter of fiscal
2018.

Operating Earnings Per Share(1), a non-GAAP measure, were
$1.35 in the first quarter of fiscal 2019 compared with $1.23 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.

        16 Weeks Ended

January 20,
2019

 

January 21,
2018

Diluted earnings per share from continuing operations – GAAP

$ 1.19 $ 0.43
Gains on the sale of company-operated restaurants (0.01 ) (0.21 )
Restructuring charges 0.17 0.01
Non-cash impact of the Tax Cuts and Jobs Act 1.03
Excess tax benefits from share-based compensation arrangements   (0.03 )
Operating Earnings Per Share – non-GAAP $ 1.35   $ 1.23  

___________________________

(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 in fiscal year 2018, and the excess
tax benefits from share-based compensation arrangements which are now
recorded as a component of income tax expense versus equity prior to
fiscal year 2018. See “Reconciliation of Non-GAAP Measurements to GAAP
Results.”

Adjusted EBITDA(2), a non-GAAP measure, was $83.0 million in
the first quarter of fiscal 2019 compared with $85.4 million for the
prior year quarter.

Lenny Comma, chairman and chief executive officer, said, “Same-store
sales improved throughout the first quarter after we pivoted to a more
value-oriented approach. While our strategy around value continues to
avoid deep discounting which we believe is not in the best interests of
the long-term health of the brand, adding value with a bundled offer at
an attractive price point allowed us to compete more effectively in this
value-centric environment.

“Our long-term goals are centered around meeting evolving consumer
needs, with emphasis on improving operations consistency and targeted
investments designed to maximize our returns. We remain focused on
balancing the interests of all our stakeholders, including our
franchisees, customers, employees and shareholders.”

The company’s Board of Directors and management team, with the support
of legal and financial advisors, continue to explore a range of
strategic and financing alternatives to maximize shareholder value.
Potential alternatives could include, among other things, a sale of the
company or executing on the company’s previously announced plans to
increase its leverage. The company’s Board has not set a timetable for
the conclusion of this process nor has it made any decision related to
any strategic or financing alternative at this time. The company has had
discussions with potential buyers; however, there can be no assurance
that the exploration of strategic and financing alternatives will result
in a transaction. That said, in the absence of a strategic transaction,
the company remains committed to implementing a new capital structure as
soon as practicable. That capital structure could include, among other
things, a securitization or bond issuance. The company does not intend
to comment further regarding the review unless or until it determines
that further disclosure is appropriate or required by law.

Increase/(decrease) in same-store sales:

                      16 Weeks Ended
January 20,
2019
 

January 21,
2018

Company 0.5 % 0.2 %
Franchise (0.1 )% (0.3 )%
System (0.1 )% (0.2 )%

_____________________________

(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.”

Jack in the Box® system same-store sales decreased 0.1
percent for the quarter and lagged the QSR sandwich segment by 3.2
percentage points for the comparable period, according to The NPD
Group’s SalesTrack® Weekly for the 16-week time period ended
January 20, 2019. Included in this segment are 15 of the top QSR
sandwich and burger chains in the country. Company same-store sales
increased 0.5 percent in the first quarter driven by average check
growth of 3.8 percent, partially offset by a 3.3 percent decrease in
transactions.

Restaurant-Level EBITDA(3), a non-GAAP measure, increased by
20 basis points to 26.2 percent of company restaurant sales in the first
quarter of fiscal 2019 from 26.0 percent a year ago. The increase was
due primarily to the benefit of refranchising, partially offset by wage
inflation and higher maintenance and repairs expenses. Food and
packaging costs, as a percentage of company restaurant sales, were flat
in the quarter as favorable product mix and menu price increases were
offset by higher costs for ingredients. Commodity costs increased 0.8
percent in the quarter as compared with the prior year.

Effective fiscal 2019, the company adopted the new US GAAP revenue
standard (Topic 606) using the modified retrospective method, and
therefore no prior periods have been restated. The company expects the
new revenue standard to primarily result in an increase to franchise
revenues and a corresponding increase to franchise expenses related to
the reclassification of marketing fees received from franchisees. In
addition, certain amounts previously netted in general and
administrative expenses will be reflected as franchise revenues and
expenses. Although the prior year results have not been restated for the
impact of this accounting change, a reconciliation to a recast statement
of earnings is included within the non-GAAP reconciliations.

Effective fiscal 2019, the company adopted the new US GAAP pension
standard (Topic 715) and began presenting certain pension cost
components in Other pension and post-retirement expenses, net in
its condensed consolidated statements of earnings. The prior year
condensed consolidated statement of earnings was adjusted to conform
with this new presentation.

Franchise EBITDA(3), a non-GAAP measure,as a
percentage of total franchise revenues, was 42.9 percent in the first
quarter of fiscal 2019. This compared with 60.9 percent in the prior
year quarter, or 43.0 percent using recast 2018 figures as though Topic
606 had been applied retrospectively to the prior year.

_____________________________

(3) Restaurant-Level EBITDA 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.”

SG&A expenses for the first quarter of fiscal 2019 decreased by $10.0
million and were 8.3 percent of revenues compared with 11.6 percent in
the prior year quarter, or 9.5 percent using recast 2018 figures.
Advertising costs, which are included in SG&A, were $7.2 million in the
first quarter compared with $8.9 million in the prior year quarter. The
$1.7 million decrease in advertising costs was due to a $3.7 million
decrease resulting from refranchising, which was partially offset by an
incremental $2.0 million of spending in the quarter. The $8.3 million
decrease in G&A excluding advertising was primarily driven by:

  • $3.7 million in transition services income resulting from the sale of
    Qdoba, which was reflected as a reduction to G&A;
  • a $3.3 million decrease in bonus;
  • a $1.5 million decrease related to technology fees and costs netted in
    G&A in the prior year, which are now reflected as franchise revenues
    and expenses in the condensed consolidated statement of earnings in
    2019;
  • a $1.0 million decrease in share-based compensation; and
  • a $1.0 million decrease due primarily to workforce reductions related
    to refranchising.
  • These decreases were partially offset by mark-to-market adjustments on
    investments supporting the company’s non-qualified retirement plans
    resulting in a $1.7 million year-over-year increase in G&A; and
  • a $0.9 million increase in legal fees.

As a percentage of system-wide sales, G&A excluding advertising was 1.6
percent in the first quarter of fiscal 2019 compared with 2.4 percent in
the 2018 quarter, or 2.2 percent using recast 2018 figures.

Restructuring charges of $5.8 million, or approximately $0.17 per
diluted share, were recorded during the first quarter of fiscal 2019,
primarily related to severance costs and the company’s evaluation of
strategic alternatives, compared with $0.4 million, or $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 first quarter to $7.7 million from
$2.3 million in the year ago quarter.

Interest expense, net, increased by $4.6 million in the first quarter
due in part to a higher effective interest rate for 2019. In addition,
the increase resulted from the allocation of $3.2 million of interest
expense to Qdoba in the first quarter of 2018, which was included in
discontinued operations.

The Tax Cuts and Jobs Act (the “Tax Act”), enacted into law on December
22, 2017, reduced the statutory federal rate from 35 percent to 21
percent as of January 1, 2018. The tax rate reduction was phased in,
resulting in a blended statutory federal tax rate of 24.5 percent for
the fiscal year ended September 30, 2018. In addition, the Tax Act
resulted in a non-cash increase to the provision for income taxes of
$30.6 million, or $1.03 per diluted share, for the first quarter of
fiscal 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 were refined as
further guidance was issued. The statutory federal tax rate for fiscal
year 2019 is 21.0 percent. The effective tax rate for the first quarter
of 2019 of 23.1 percent was lower than the company’s full year
expectations due to a $1.0 million decrease related to state taxes
recorded in the quarter.

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. 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 prior
to the sale.

Capital Allocation

The company did not repurchase any shares of its common stock in the
first quarter of fiscal 2019. The company currently has approximately
$101.0 million remaining under stock-buyback programs authorized by its
Board of Directors that expire in November 2019.

The company also announced today that on February 18, 2019, its Board of
Directors declared a cash dividend of $0.40 per share on the company’s
common stock. The dividend is payable on March 19, 2019, to shareholders
of record at the close of business on March 4, 2019.

Guidance

This release includes forward-looking guidance for certain non-GAAP
financial measures, including Restaurant-Level EBITDA and Adjusted
EBITDA. The company is unable without unreasonable effort to provide
reconciliations of these forward-looking non-GAAP measures.

Fiscal Year 2019 Guidance

The following guidance and underlying assumptions reflect the company’s
current expectations for the fiscal year ending September 29, 2019.
Fiscal 2019 and fiscal 2018 are 52-week years, with 16 weeks in the
first quarter, and 12 weeks in each of the second, third and fourth
quarters.

  • System same-store sales of approximately flat to up 2.0 percent.
  • Commodity cost inflation of approximately 2.0 percent.
  • Restaurant-Level EBITDA of approximately 26.0 to 27.0 percent of
    company restaurant sales.
  • SG&A as a percentage of revenues of approximately 8.5 to 9.0 percent,
    which reflects the new revenue recognition standards.
  • G&A as a percentage of system-wide sales of approximately 1.8 to 2.0
    percent, which reflects the new revenue recognition standards.
  • Approximately 25 to 35 new 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 26.0 to 27.0 percent, subject to
    fluctuations arising from the impact of excess tax benefits from
    share-based compensation arrangements.
  • Adjusted EBITDA of approximately $260 to $270 million.

Conference Call

The company will host a conference call for financial analysts and
investors on Thursday, February 21, 2019, 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 February 21, 2019.

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. Forward-looking statements may
be identified by words such as “anticipate,” “believe,” “estimate,”
“expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,”
“may,” “will,” “would” and similar expressions. These statements are
based on management’s current expectations, estimates, forecasts and
projections about our business and the industry in which we operate.
These estimates and assumptions involve known and unknown risks,
uncertainties, and other factors that are in some cases beyond our
control. Factors that may cause our actual results to differ materially
from any forward-looking statements include, but are not limited to: the
success of new products, marketing initiatives and restaurant remodels
and drive-thru enhancements; the impact of competition, unemployment,
trends in consumer spending patterns and commodity costs; the company’s
ability to reduce G&A and operate efficiently; 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, risks relating to expansion into new
markets and successful franchisee development; litigation risks; risks
associated with disagreements with franchisees; the company’s ability to
maximize shareholder value through strategic or financial alternatives;
supply chain disruption; food-safety incidents or negative publicity
impacting the reputation of the company’s brand; the company’s ability
to obtain additional financing and increase its debt leverage; 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.

 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 
              16 Weeks Ended
January 20,
2019
  January 21,
2018
Revenues:
Company restaurant sales $ 102,832 $ 169,637
Franchise rental revenues 83,890 77,217
Franchise royalties and other 52,250 47,609
Franchise contributions for advertising and other services(1) 51,814    
290,786   294,463  
Operating costs and expenses, net:
Company restaurant costs:
Food and packaging 29,616 48,864
Payroll and employee benefits 30,274 48,940
Occupancy and other 16,013   27,750  
Total company restaurant costs 75,903 125,554
Franchise occupancy expenses 50,713 46,521
Franchise support and other costs 2,845 2,482
Franchise advertising and other services expenses(1) 54,270
Selling, general and administrative expenses(2) 24,083 34,061
Depreciation and amortization 17,169 19,157
Impairment and other charges, net 7,698 2,257
Gains on the sale of company-operated restaurants (219 ) (8,940 )
232,462   221,092  
Earnings from operations 58,324 73,371
Other pension and post-retirement expenses, net(2) 456 564
Interest expense, net 17,374   12,780  
Earnings from continuing operations and before income taxes 40,494 60,027
Income taxes 9,373   47,138  
Earnings from continuing operations 31,121 12,889
Earnings (losses) from discontinued operations, net of taxes 2,977   (699 )
Net earnings $ 34,098   $ 12,190  
 
Net earnings per share – basic:
Earnings from continuing operations $ 1.20 $ 0.44
Earnings (losses) from discontinued operations 0.11   (0.02 )
Net earnings per share (3) – basic $ 1.32   $ 0.41  
Net earnings per share – diluted:
Earnings from continuing operations $ 1.19 $ 0.43
Earnings (losses) from discontinued operations 0.11   (0.02 )
Net earnings per share (3) – diluted $ 1.31   $ 0.41  
Weighted-average shares outstanding:
Basic 25,907 29,551
Diluted 26,128 29,853
 
Dividends declared per common share $ 0.40 $ 0.40
 
___________________________

(1)

 

  In 2019, the company began presenting franchise advertising and
other services revenue and costs on separate line items in
accordance with the new Revenue Recognition standards. The prior
year condensed consolidated statement of earnings was not adjusted
as the standard was adopted on a modified retrospective basis.

(2)

 

In 2019, the company began presenting all components of defined
benefit expense, except service cost in Other pension and
post-retirement expense, net
in its condensed consolidated
statements of earnings in accordance with ASU 2017-07. The prior
year condensed consolidated statement of earnings was adjusted to
conform with this new presentation.

(3)

 

Earnings per share may not add due to rounding.
 
 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 
    January 20,
2019
  September 30,
2018
ASSETS
Current assets:
Cash $ 4,300 $ 2,705
Accounts and other receivables, net 61,541 57,422
Inventories 2,090 1,858
Prepaid expenses 10,367 14,443
Current assets held for sale 12,556 13,947
Other current assets 5,692   4,598  
Total current assets 96,546   94,973  
Property and equipment:
Property and equipment, at cost 1,191,930 1,190,031
Less accumulated depreciation and amortization (783,639 ) (770,362 )
Property and equipment, net 408,291   419,669  

Other assets:

Intangible assets, net 511 600
Goodwill 46,747 46,749
Deferred tax assets 77,295 62,140
Other assets, net 199,462   199,266  
Total other assets 324,015   308,755  
$ 828,852   $ 823,397  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt $ 42,485 $ 31,828
Accounts payable 44,742 44,970
Accrued liabilities 100,429   106,922  
Total current liabilities 187,656   183,720  
Long-term liabilities:
Long-term debt, net of current maturities 1,013,676 1,037,927
Other long-term liabilities 234,816   193,449  
Total long-term liabilities 1,248,492   1,231,376  
Stockholders’ deficit:
Preferred stock $0.01 par value, 15,000,000 shares authorized, none
issued
Common stock $0.01 par value, 175,000,000 shares authorized,
82,132,436 and 82,061,661 issued, respectively
821 821
Capital in excess of par value 472,894 470,826
Retained earnings 1,547,759 1,561,353
Accumulated other comprehensive loss (98,331 ) (94,260 )
Treasury stock, at cost, 56,325,632 shares (2,530,439 ) (2,530,439 )
Total stockholders’ deficit (607,296 ) (591,699 )
$ 828,852   $ 823,397  
 
 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
    16 Weeks Ended
January 20, 2019   January 21, 2018
Cash flows from operating activities:
Net earnings $ 34,098 $ 12,190
Earnings (losses) from discontinued operations 2,977   (699 )
Earnings from continuing operations 31,121 12,889
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 17,169 19,157
Amortization of franchise tenant improvement allowances 530 147
Deferred finance cost amortization 704 1,031
Excess tax benefits from share-based compensation arrangements (50 ) (802 )
Deferred income taxes (783 ) 33,542
Share-based compensation expense 1,909 2,937
Pension and postretirement expense 456 715
Losses (gains) on cash surrender value of company-owned life
insurance
2,863 (2,163 )
Gains on the sale of company-operated restaurants (219 ) (8,940 )
Losses on the disposition of property and equipment, net 635 183
Impairment charges and other 387 805
Changes in assets and liabilities, excluding dispositions:
Accounts and other receivables (3,154 ) 26,539
Inventories (232 ) 110
Prepaid expenses and other current assets 6,224 7,419
Accounts payable 6,365 (371 )
Accrued liabilities (16,298 ) (32,667 )
Pension and postretirement contributions (2,111 ) (1,710 )
Franchise tenant improvement allowance disbursements (3,247 ) (1,761 )
Other (4,668 ) (3,330 )
Cash flows provided by operating activities 37,601   53,730  
Cash flows from investing activities:
Purchases of property and equipment (11,183 ) (10,793 )
Purchases of assets intended for sale and leaseback (1,411 )
Proceeds from the sale and leaseback of assets 4,949
Proceeds from the sale of company-operated restaurants 133 5,591
Collections on notes receivable 6,517 9,410
Proceeds from the sale of property and equipment 270 589
Funding of intercompany operations (13,122 )
Other   2,969  
Cash flows used in investing activities (4,263 ) (1,818 )
Cash flows from financing activities:
Borrowings on revolving credit facilities 114,298 106,200
Repayments of borrowings on revolving credit facilities (117,300 ) (130,800 )
Principal repayments on debt (10,907 ) (14,208 )
Debt issuance costs (17 )
Dividends paid on common stock (10,305 ) (11,736 )
Proceeds from issuance of common stock 114
Repurchases of common stock (14,362 )
Change in book overdraft 9,234 (129 )
Payroll tax payments for equity award issuances (2,498 ) (4,244 )
Cash flows used in financing activities (31,743 ) (54,917 )
Cash flows provided by (used in) continuing operations 1,595   (3,005 )
Net cash provided by operating activities of discontinued operations 16,785
Net cash used in investing activities of discontinued operations (13,648 )
Net cash used in financing activities of discontinued operations   (43 )
Net cash provided by discontinued operations 3,094
Cash at beginning of period 2,705   4,467  
Cash at end of period $ 4,300   $ 3,789  
 

Contacts

Investor Contact:
Carol DiRaimo, (858) 571-2407

Media Contact:
Brian Luscomb, (858) 571-2291

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