Jack in the Box’s turnaround efforts are taking hold, but beef and other commodity costs are expected to continue to pressure margins into fiscal year 2012, company officials said Thursday.
In a call to analysts following a mixed report of third-quarter earnings on Wednesday, Linda Lang, chair and chief executive of San Diego-based Jack in the Box Inc., said she was very pleased that same-store sales at company-owned locations for the namesake quick-service chain were up 4.7 percent, and up 2.4 percent at franchise locations, marking the fourth consecutive quarter of sequentially improving trends.
The improved performance reflected both traffic increases and a higher average check, she said, and trends were up across all dayparts and markets, including California, Arizona and Texas, which have suffered from high unemployment and home foreclosure rates through the recession.
Lang credited the gains with the company’s ongoing efforts to improve customer experience at Jack in the Box.
About 72 percent of Jack in the Box locations have undergone a re-imaging, an ongoing remodel program that is expected to reach all units before the end of the calendar year, she said.
In June, Jack in the Box began rolling out new easier-to-navigate menu boards that dropped underperforming items and highlighted average-check builders. In addition, it upgraded key menu items over the past year.
Jack in the Box has also worked to improve service, and Lang said customer satisfaction ratings are up, specifically for order accuracy and cleanliness. In March, the chain launched a new initiative to improve its speed of service.
“We recognize that these investments may pressure margins in the near term, but they will drive sales and build loyalty in the long term,” she said.
Lang also said the chain has driven traffic by offering both bundled meals as a value proposition — along with check-building sides, desserts and shakes — in addition to more premium items, like the Bourbon BBQ Steak grilled sandwich introduced in April.
The average check at Jack in the Box also benefited from a 1.4 percent menu price increase at company-owned restaurants in May, Lang noted.
Despite rising commodity costs, however, Lang said the company will remain cautious about further price increases given the fragile consumer climate.
At its Qdoba Mexican Grill brand, same-store sales were up 5.1 percent systemwide during the quarter. About 2 percent of that increase came from pricing, with the rest reflecting an increase in transactions and catering sales, Lang said.
For the year, the company has projected commodity costs for both brands to be 5 percent higher than last year, with beef, expected to be up about 13 percent, accounting for about 20 percent of the company’s spending.
Jerry Rebel, Jack in the Box Inc.’s executive vice president and chief financial officer, said there has been no indication that beef commodity prices will decline into next year.
“Things are volatile right now, and we’ll have a much better view in November,” when the company is scheduled to report fourth quarter results, he said.
Contact Lisa Jennings at [email protected].
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