Jack in the Box Inc. reported a steep drop in fourth-quarter net income as a result of heavy impairment charges related to the closure of 40 underperforming restaurants.
Company officials said Jack in the Box continued to battle falling sales in its core West Coast market, while sister brand Qdoba saw sales rise in the quarter.
For the Oct. 3-ended quarter, Jack in the Box's net income totaled $4.0 million, or 7 cents per share, compared with year-ago profit of $40.6 million, or 70 cents per share. The latest quarter included impairment and other charges of $35.6 million, compared with only $5.3 million in such charges in the same period a year ago.
In addition, the most recent 13-week fourth quarter saw a benefit of about 3 cents per share for the extra week, the company said.
Revenues increased 4.2 percent to $563.2 million, Jack in the Box said.
Same-store sales dropped 3.3 percent for the Jack in the Box chain — a decrease of 4 percent at corporate units and a drop of 2.8 percent at franchise locations. Those declines indicate improvement from the 6.5-percent drop for the chain during the fourth quarter last year.
Sister brand Qdoba Mexican Grill saw same-store sales climb 5.6 percent, driven by the Craft 2 menu that allows guests to pick two items for one price, as well as higher catering sales and increased spending in the fast-casual segment overall, the company said.
Linda Lang, Jack in the Box chairman, president and chief executive, blamed Jack in the Box’s sales decline on the high unemployment in California, one of the chain’s core markets.
“Jack in the Box company same-store sales declined 4.0 percent in the fourth quarter and continued to be impacted by high unemployment in our major markets for our key customer demographics,” she said.
Lang, however, said the company’s investment in service consistency, improving signature menu products and an ongoing reimaging program will “provide a catalyst for sales growth when unemployment and consumer spending begin to improve.”
The company said commodity costs were about 3 percent higher in the fourth quarter, driven primarily by higher costs for beef, cheese and pork. In fiscal 2011, commodity costs are expected to increase by 1 to 2 percent, with higher inflation toward the second half of the year, the company said.
As part of an ongoing refranchising plan, the company sold 108 restaurants to franchisees for a gain of $18.9 million for the quarter. For the year, the company refranchised 219 locations, resulting in proceeds of $92 million.
For the full fiscal year, Jack in the Box reported net income of $70.2 million, or $1.26 per share, compared with year-ago profit of $131 million, or $2.27 per share, in 2009.
The company said pre-tax charges of $28 million related to the closure of 40 restaurants reduced earnings by about 33 cents per share in fiscal 2010.
For the first quarter of 2011, company officials said they expect same-store sales to range between down 1 percent to up 1 percent at Jack in the Box company restaurants. Same-store sales for the Qdoba system are expected to increase 4 percent to 6 percent for the first quarter.
For fiscal 2011, Jack in the Box officials project same-store sales will range between down 2 percent to up 2 percent at Jack in the Box company units, and are expected to rise between 2 percent to 4 percent at Qdoba. Earnings for fiscal 2011 are projected to range between $1.41 and $1.68 per share.
San Diego-based Jack in the Box Inc. operates 956 locations of its namesake brand and franchises another 1,250 units. The 525-unit Qdoba chain includes 337 franchised locations.
Contact Lisa Jennings at [email protected].