Jack in the Box: Health care impact won't be severe

Jack in the Box Inc. officials said Tuesday that the expected costs of implementing the federal health care mandate are manageable and would not have a significant impact on the San Diego-based company.

In an earnings call with analysts following the after-market report on Monday of fourth quarter results, Jerry Rebel, Jack in the Box Inc.’s executive vice president and chief financial officer, noted that others in the restaurant industry have been talking about the negative impact of health care reform, saying it would limit their ability to hire and grow. Rebel, however, said he did not think the impact would be severe for Jack in the Box, in part because many workers would fall under the 30-hours-per-week threshold, and turnover within the industry is typically quite high.

The company already offers a “mini-med” plan to certain employees, but fewer than 20 percent opt in, he said, and that is not expected to change significantly as the health care mandate goes into effect.

Acknowledging, “there are still a lot of unknowns,” Rebel said the company is anticipating an impact in the neighborhood of 50 to 100 basis points, or, using the midpoint, roughly $10,000 per restaurant, based on the current count.

“Now I know that’s lower than what we have been hearing many talk about,” said Rebel. “While $10,000 per store is not insignificant, that’s less than a 1-percent price increase to fully mitigate that. So I guess we need to keep that in perspective.”

In the end, he said, “We feel it won’t be a huge impact and that it’s something we’ll be able to mitigate.”

Revenue drops, traffic improves

After a year of restructuring, Jack in the Box Inc. reported a 45-percent drop in net income for its fourth quarter, but said traffic trends continued to improve, giving the company momentum into 2013.

For the quarter ended Sept. 30, the company reported earnings of $12.5 million, or 28 cents per share, compared with $22.7 million, or 50 cents per share, a year ago.

Restructuring charges during the recent quarter accounted for about 4 cents per share, or $2.7 million. The company also began outsourcing its distribution business, which reduced net earnings per share by about 12 cents. However, the company also saw a gain of about 16 cents per share from refranchising, compared with about 30 cents per share the prior year.

Revenue declined 2.5 percent for the company to $357.6 million. Same-store sales rose 3.1 percent for the Jack in the Box system during the quarter, which included a 1.2-percent increase in traffic and a 1.9-percent increase in average check.

Jack in the Box will continue its efforts to improve speed of service, said Rebel.

Sister brand Qdoba Mexican Grill, however, saw same-store sales climb a modest 0.4 percent systemwide. Lang said the fast-casual chain has been hurt by macroeconomic challenges, and, she said, “We were a little aggressive with price in the past year and that has impacted our traffic.”

The Qdoba chain has been searching for a new president and chief executive following the announcement earlier this year that Gary Beisler plans to retire. The company has also hired a new advertising agency to develop a new campaign that will more clearly articulate Qdoba’s menu and brand, said Lang.

Maintaining sales momentum

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For the full fiscal year, Jack in the Box Inc. recorded net earnings of $57.7 million, or $1.31 per share, compared with $80.6 million, or $1.63 per share, the prior year. Revenue declined 7 percent to $1.5 billion.

Same-store sales, however, increased 3.4 percent for Jack in the Box and 2.4 percent for Qdoba for the year, which officials attributed to traffic gains combined with increases in average check, said Linda Lang, Jack in the Box Inc.’s chair and chief executive.

“Jack in the Box same-store sales growth for the quarter was almost double that of the QSR sandwich segment for the comparable period, according to The NPD Group’s SalesTrack Weekly for the 12-week time period ended Sept. 30,” said Lang. “We believe the same-store sales increases we’ve experienced over the last eight quarters demonstrate our ability to continue to drive sustainable sales and market share growth at the Jack in the Box brand.”

Lang said restructuring efforts will continue into next year, though not with the same vigor as this year.

During the quarter, seven new Jack in the Box restaurants opened, including two franchised locations, for a total of 2,250. In an ongoing refranchising program, the company sold 97 locations to franchisees this year. The chain was 76-percent franchised at the end of the quarter.

Qdoba opened 24 new restaurants, including 12 franchised units, for a total of 627.

In its outlook for 2013, the company is expecting same-store sales to increase 1 percent to 2 percent for Jack in the Box company-owned locations during the first quarter. For the year, the projection is a 2 percent to 3 percent increase in same-store sales.

Officials expect Qdoba’s same-store sales at company-owned units to increase between 1 percent and 2 percent in the first quarter, or between 2 percent to 3 percent for fiscal 2013.

Contact Lisa Jennings at [email protected].
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