Jack in the Box Inc. Reports Fourth Quarter FY 2019 Earnings; Issues Fiscal 2020 Guidance; Announces…

Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for the fourth quarter and fiscal year ended September 29, 2019.

Increase in same-store sales:

 

 

12 Weeks Ended

 

52 Weeks Ended

 

 

September 29,
2019

 

September 30,
2018

 

September 29,
2019

 

September 30,
2018

Company

 

3.5%

 

0.8%

 

1.7%

 

0.6%

Franchise

 

3.0%

 

0.4%

 

1.3%

 

0.1%

System

 

3.0%

 

0.5%

 

1.3%

 

0.1%

Jack in the Box system same-store sales increased 3.0 percent in the fourth quarter. Company same-store sales increased 3.5 percent, driven by average check growth of 2.8 percent and transaction growth of 0.7 percent.

Lenny Comma, chairman and chief executive officer, said, “Our 2019 operating results demonstrate the momentum in the Jack in the Box brand, with same-store sales improving to the strongest performance in four years. We have now achieved our ninth consecutive year of positive same-store sales.

“We plan to build on these results by improving the guest experience through operations consistency and reducing wait times, serving indulgent food our guests crave, and targeting investments designed to maximize our returns. With our refranchising initiative complete, we have a renewed focus on expanding unit growth. We look forward to sharing additional details about these initiatives on tomorrow morning’s earnings call.”

Earnings from continuing operations were $22.0 million, or $0.86 per diluted share, for the fourth quarter of fiscal 2019 compared with $18.3 million, or $0.68 per diluted share, for the fourth quarter of fiscal 2018. In connection with the refinancing of the company’s senior credit facility, the company terminated its existing interest rate swaps in the third quarter, resulting in a pre-tax charge of $23.6 million, and wrote off unamortized deferred financing fees related to this credit facility in the fourth quarter, resulting in a loss of approximately $2.8 million. These are reflected in interest expense, net, and collectively have an impact of $0.08 per diluted share in the fourth quarter and $0.64 for fiscal 2019 after the associated tax benefits. Fiscal 2019 earnings from continuing operations totaled $91.7 million, or $3.52 per diluted share, compared with $104.3 million, or $3.62 per diluted share in fiscal 2018.

Operating Earnings Per Share(1), a non-GAAP measure, were $0.95 in the fourth quarter of fiscal 2019 compared with $0.77 in the prior year quarter. For fiscal year 2019, operating earnings per share were $4.35 compared with $3.79 last year. A reconciliation of non-GAAP Operating Earnings Per Share to GAAP results is provided below, with additional information included in the attachment to this release. Figures may not add due to rounding.

 

 

12 Weeks Ended

 

52 Weeks Ended

 

 

September 29,

2019

 

September 30,

2018

 

September 29,

2019

 

September 30,

2018

Diluted earnings per share from continuing operations – GAAP

 

$0.86

 

$0.68

 

$3.52

 

$3.62

Loss on early termination of interest rate swaps and debt extinguishment

 

0.08

 

 

0.64

 

Gains on the sale of company-operated restaurants

 

(0.03)

 

(0.09)

 

(0.04)

 

(1.16)

Restructuring charges

 

0.05

 

0.17

 

0.24

 

0.27

Non-cash impact of the Tax Cuts and Jobs Act

 

 

0.02

 

 

1.13

Excess tax benefits from share-based compensation arrangements

 

 

 

 

(0.07)

Operating Earnings Per Share – non-GAAP

 

$0.95

 

$0.77

 

$4.35

 

$3.79

In the first quarter of fiscal 2018, the company entered into a definitive agreement to sell Qdoba Restaurant Corporation (“Qdoba”), a wholly owned subsidiary of the company, to certain funds managed by affiliates of Apollo Global Management, LLC. The transaction closed on March 21, 2018, and operating results for Qdoba are included in discontinued operations for all periods presented. However, the company did not allocate any general and administrative shared services expenses to discontinued operations prior to the sale.

Adjusted EBITDA(2), a non-GAAP measure, was $66.9 million in the fourth quarter of fiscal 2019 compared with $54.0 million for the prior year quarter. For fiscal year 2019, Adjusted EBITDA was $269.0 million, compared with $264.2 million in fiscal year 2018.

Restaurant-Level Margin(3), a non-GAAP measure, decreased 190 basis points to 24.2 percent of company restaurant sales in the fourth quarter of fiscal 2019 from 26.1 percent a year ago. The decrease was due primarily to wage and commodity inflation. Food and packaging costs, as a percentage of company restaurant sales, increased 30 basis points in the quarter driven by higher ingredient costs, which were partially offset by menu price increases. Commodity costs increased 4.4 percent in the quarter as compared with the prior year.

Effective fiscal 2019, the company adopted the new U.S. GAAP revenue recognition standard (Topic 606) using the modified retrospective method, and therefore no prior periods have been restated. The new revenue standard resulted in an increase to franchise revenues and a corresponding increase to franchise expenses primarily related to the reclassification of marketing fees received from franchisees. In addition, certain amounts previously netted in general and administrative expenses are now reflected as franchise revenues and expenses. Although the prior year results have not been restated for the impact of this accounting change, a reconciliation to a recast statement of earnings is included within the “Supplemental Information” section of this release.

Franchise-Level Margin(3), a non-GAAP measure,as a percentage of total franchise revenues, was 41.1 percent in the fourth quarter of fiscal 2019. This compared with 58.6 percent in the prior year quarter, or 41.3 percent using recast 2018 figures as though Topic 606 had been applied retrospectively to the prior year.

Also effective fiscal 2019, the company adopted the new U.S. GAAP pension standard (Topic 715) and began presenting certain pension cost components in Other pension and post-retirement expenses, net, in its consolidated statements of earnings. The prior year consolidated statement of earnings was adjusted to conform with this new presentation.

SG&A expenses for the fourth quarter of fiscal 2019 decreased by $14.2 million and were 4.7 percent of revenues compared with 13.8 percent in the prior year quarter, or 10.4 percent using recast 2018 figures. Advertising costs, which are included in SG&A, were $4.0 million in the fourth quarter compared with $6.8 million in the prior year quarter. The $2.8 million decrease in advertising costs was due to an incremental contribution funded by the company in the prior year quarter. The $11.4 million decrease in G&A, which excludes advertising, was primarily driven by:

  • a $6.5 million decrease related to the reduction of an unfavorable jury verdict in a wrongful termination lawsuit delivered in the third quarter;
  • a $2.2 million decrease related to technology fees and costs netted in G&A in the prior year, which are now reflected as franchise revenues and expenses in the consolidated statement of earnings in 2019;
  • a $1.6 million decrease in insurance related to workers’ compensation and general liability;
  • a $1.3 million decrease in incentive compensation; and
  • mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans resulting in a $0.3 million year-over-year decrease in G&A.

As a percentage of system-wide sales, G&A, which excludes advertising, was 0.8 percent in the fourth quarter of fiscal 2019 compared with 2.2 percent in the 2018 quarter, or 2.0 percent using recast 2018 figures. Full-year G&A for fiscal 2019 was 1.6 percent of system-wide sales, compared with 2.2 percent for fiscal 2018, or 2.0 percent using recast 2018 figures.

Impairment and other charges, net, decreased $1.1 million in the fourth quarter. Restructuring charges, which are included in Impairment and other charges, net, in the accompanying consolidated statements of earnings, decreased $4.1 million in the quarter. This decrease was partially offset by $3.5 million related to the write-off of development costs associated with a discontinued technology project.

Interest expense, net, increased by $6.3 million in the fourth quarter which was due in part to the $2.8 million write-off of unamortized deferred financing fees related to the refinancing of the company’s senior credit facility. The remaining increase was primarily due to higher debt balances.

The effective tax rate for the fourth quarter of fiscal 2019 was 27.4 percent, which was higher than 24.1 percent in the prior year quarter primarily due to the establishment of valuation reserves on state tax credits in the quarter. The full-year effective tax rate was 20.8 percent, or 23.8 percent excluding the impact of the termination of interest rate swaps in the third quarter and loss on debt extinguishment in the fourth quarter.

Capital Allocation

The company repurchased approximately 1.4 million shares of its common stock in the fourth quarter of fiscal 2019 at an average price of $87.33 per share for an aggregate cost of $125.3 million and has repurchased approximately 0.7 million shares of its common stock quarter-to-date in the first quarter of fiscal 2020. This leaves approximately $109 million remaining under share repurchase programs authorized by its Board of Directors that expire in November 2020. On November 15, 2019, the company’s Board of Directors authorized an additional $100 million share repurchase program that expires in November 2021.

The company also announced today that on November 15, 2019, its Board of Directors declared a cash dividend of $0.40 per share on the company’s common stock. The dividend is payable on December 20, 2019, to shareholders of record at the close of business on December 5, 2019.

Guidance

This release includes forward-looking guidance for certain non-GAAP financial measures, including Restaurant-Level Margin and Adjusted EBITDA. The company is unable without unreasonable effort to provide reconciliations of these forward-looking non-GAAP measures.

Fiscal Year 2020 Guidance

The following guidance and underlying assumptions reflect the company’s current expectations for the fiscal year ending September 27, 2020. Fiscal 2020 and fiscal 2019 are 52-week years, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.

  • System same-store sales growth of approximately 1.5 to 3.0 percent.
  • Restaurant-Level Margin of approximately 25.0 percent of company restaurant sales, which includes expected commodity cost inflation of approximately 4.0 percent, and high-single-digit wage inflation.
  • SG&A as a percentage of revenues of approximately 8.0 to 8.5 percent.
  • G&A as a percentage of system-wide sales of approximately 1.7 to 1.9 percent.
  • Approximately 25 to 35 new restaurants opening system-wide, substantially all of which will be franchise locations.
  • Capital expenditures and tenant improvement allowances of approximately $45 to $55 million, collectively, excluding purchases of assets held for sale and leaseback.
  • Tax rate of approximately 26.0 to 27.0 percent, subject to fluctuations arising from the impact of excess tax benefits from share-based compensation arrangements.
  • Adjusted EBITDA of approximately $265 to $275 million.

Other Items

In its upcoming fiscal 2019 Form 10-K, the company expects to report a material weakness in internal controls. The weakness relates to general information technology controls over certain information technology systems that support the company’s financial reporting processes. As of the date of this release, there have been no misstatements identified in the financial statements as a result of these deficiencies, and the company expects to timely file its Form 10-K. Please refer to the upcoming fiscal 2019 Form 10-K for more information.

In fiscal 2020, the company will adopt the new lease accounting standard (Topic 842). The company expects this standard will have a material impact on its consolidated balance sheet upon adoption, recognizing liabilities of approximately $950 million and corresponding assets of approximately $900 million. There is no material impact to net earnings or cash flows expected; however, franchise revenues and franchise expenses are each expected to increase by approximately $5 million in 2020.

About Jack in the Box Inc.

Jack in the Box Inc. (NASDAQ: JACK), based in San Diego, is a restaurant company that operates and franchises Jack in the Box® restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam.