SAN DIEGO Jack in the Box Inc. said this week that results for its current first quarter will fall below year-ago levels because of increased commodity costs and the volatile financial markets.
The company, which operates or franchises 2,158 namesake quick-service restaurants and 454 Qdoba fast-casual restaurants, said the cost of beef, its largest commodity expense, is expected to increase as much as 20 percent from a year ago. Overall commodity costs are expected to increase between 7 percent and 8 percent, it added.
Jack in the Box also noted that the fluctuation of the financial markets will affect its general and administrative expenses, as well as its tax rate for the first quarter. It now expects to earn between 50 cents per share and 55 cents per share, as much as 16.6 percent below year-ago earnings of 60 cents per share.
The company’s chains also are experiencing sales pressure, with same-store sales declines of 0.8 percent at Jack in the Box and 1.0 percent at Qdoba for the company’s latest quarter, which ended Sept. 28.
Company officials blamed Jack in the Box’s negatives sales on Hurricane Ike, which closed as many as 228 locations in September. Four of those stores were still closed as of Tuesday, officials noted. At Qdoba, the same-store sales decline was blamed on the challenging macro-economic environment.
Excluding the hurricane’s impact at Jack in the Box, same-store sales would have been slightly positive, officials said, and were aided by the new Breakfast Bowls and Pita Snacks. Menu price increases also helped, as Jack in the Box's corporate stores raised prices about 2.2 percent during its fiscal 2008. In November, the chain initiated a 2.5-percent increase.
“Sales and traffic continue to be negatively impacted by the current economic crisis,” said Linda Lang, Jack in the Box Inc. chairman and chief executive. “While we’ve seen some easing in fuel costs, unemployment continues to rise and consumers have become much more conservative in their discretionary spending. As a result, we remain cautious on how aggressively we take price increases in this environment.”
Apositive same-store sales trend in California was taking hold, Lang added, although she declined to offer details. California has been a notoriously tough operating market for restaurants as the region has been particularly hard hit by the real estate downturn and credit crunch.
For the company’s fiscal fourth quarter, Jack in the Box profit was nearly flat at $26.9 million, versus year-ago profit of $26.8 million. Per-share earnings rose to 47 cents per share in the latest quarter, from 43 cents per share a year ago, mainly because of a decrease in the average number of shares outstanding.
Officials said that losses and costs associated with Hurricane Ike negatively impacted results by between 4 cents per share and 5 cents per share.
Revenues for the quarter dropped to $582.7 million from $588.1 million in the prior-year period, mainly because of the sale of corporate locations to franchisees.
For the full year, Jack in the Box earnings fell 5 percent to $119.3 million, or $2.01 per share, from $125.6 million, or $1.87 per share, in fiscal 2007. Latest-year revenues increased to $2.54 billion from $2.51 billion a year earlier. Same-store sales for the year increased 0.2 percent at Jack in the Box and 1.6 percent at Qdoba, the company reported.
Continuing the company’s long-range plan to shift Jack in the Box to a system of between 70 percent and 80 percent franchised locations, the company sold 41 additional corporate units during the latest quarter for a total of $23.1 million. Franchise ownership is now at 38 percent of the system, the company said.
Jack in the Box had to provide temporary financing for the sale of two restaurants, however, because of lender delays in the tightened credit market, the company reported. Still, officials said they plan to accelerate the pace of refranchising over the next five years with the goal of reaching the 70-percent franchised threshold by 2013.
“We have the flexibility of a strong balance sheet, which will enable us to provide bridge or mezzanine financing, if necessary, to facilitate the completion of transactions,” Lang said.
