Jack in the Box Inc. saw same-store sales slow in the last half of its first quarter ended Jan. 22 and turn negative in February, executives said Thursday.
Lenny Comma, CEO and chairman of the San Diego-based parent to Jack in the Box and Qdoba Mexican Eats, said sales data indicate the “the most severe declines are in areas with lower household income.”
Comma spoke with analysts after releasing the first-quarter earnings in which the Jack in the Box system reported same-store sales increased 3.1 percent and Qdoba same-store sales decreased 1 percent systemwide. Company-owned Jack in the Box units saw same-store sales increase of 0.6 percent, and company-owned Qdoba stores posted 1.4 percent decline.
The company’s stock was trading down more than 7 percent, at about $96 a share, at midday Thursday after the company reported the sales downturn.
The slowing in Jack in the Box sales began in the last half of the quarter, Comma said, and “Q2 is off to a much slower start as same-store sales have abruptly turned negative, which we believe may be due, in part, to delayed tax refunds as well as to rains and flooding in California.”
Comma said management’s No. 1 priority was to reverse the sales trajectory at both brands.
“As we look at the lower income areas, we do see a significant difference in the performance there as compared the performance elsewhere,” he said, noting that about 5 percent of discretionary income is spent eating out.
“Ultimately, if that money is not there, that spending level is simply going to be down,” Comma said. “And when you look at some of the deals in the marketplace, some of the deals are so aggressive that they actually are going to negatively impact average check and top line. So it isn’t necessarily an easy equation to solve.”
Comma added that Jack in the Box will be “extremely cautious” about single-item discounts, he said, because it impacts core equities. “Over the long term, it can be difficult to pull away from that,” he said.
“You’ll see us stick to value bundles,” he said, especially those aimed at the lunch and dinner dayparts.
“What our teams are looking at is a change in the balance of premium vs. value-oriented promotions,” Comma said. “You will see us go on air with more value-oriented messages as our primary message for the quarter.”
Comma said the company is testing third-party delivery in both of its brands and launched early phases of digital ordering at Qdoba.
Jerry Rebel, Jack in the Box chief financial officer, said the company has signed letters of intent to sell 75 restaurants as part of its refranchising program.
Refranchising and last year’s move of Qdoba’s headquarters from Denver to Jack in the Box’ hometown of San Diego has put some pressures on restaurant operations, the executives said.
“I just met with a bunch of our district managers,” Comma said, “and there is a significant amount of anxiety for those individuals and their restaurant managers.
“No one knows at this time which of those restaurants will be sold and they are not quite sure, if their geography is impacted, if they are going to be left with a job.” Comma said he expected those anxieties ease by third quarter as refranchising is completed.
For the first quarter, Jack in the Box profit rose 8.1 percent, to $35.9 million, or $1.11 a share, from $33.2 million, or 92 cents a share. Revenues rose 3.6 percent, to $487.9 million from $470.8 million.
Jack in the Box has more than 2,200 restaurants in 21 states and Guam. Fast-casual Qdoba has more than 700 restaurants in 47 states, the District of Columbia and Canada.
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