Jack In The Box Q3 2010 Earnings Call Transcript

Jack in the Box Q3 2010 Earnings Call Transcript
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Jack in the Box (JACK)

Q3 2010 Earnings Call

August 05, 2010 11:30 am ET

Executives

Linda Lang - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Carol DiRaimo - Vice President of Investor Relations & Corporate Communications

Jerry Rebel - Chief Financial Officer and Executive Vice President

Analysts

Robert Derrington - Morgan Keegan & Company, Inc.

Keith Siegner - Crédit Suisse AG

Jeffrey Omohundro - Wells Fargo Securities, LLC

Matthew DiFrisco - Oppenheimer & Co. Inc.

Larry Miller - RBC Capital Markets Corporation

Thomas Forte - Telsey Advisory

Jake Bartlett - Oppenheimer

Jeffrey Bernstein - Barclays Capital

Christopher O'Cull - SunTrust Robinson Humphrey Capital Markets

Joseph Buckley - BofA Merrill Lynch

Bart Glenn - D.A. Davidson & Co.

Presentation

Operator

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Good day, everyone, and welcome to the Jack in the Box Inc. Third Quarter Fiscal 2010 Earnings Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Carol DiRaimo, Vice President of Investor Relations and Corporate Communications for Jack in the Box. Please go ahead.

Carol DiRaimo

Thank you, Stacy, and good morning, everyone. Joining me on the call today are our Chairman, CEO and President, Linda Lang; Executive Vice President and CFO, Jerry Rebel; and Senior Vice President and Chief Operating Officer, Lenny Comma.

During this morning’s session, we'll review the company’s operating results for the third quarter of fiscal 2010 and update guidance for the remainder of the year. Following today’s presentation, we'll take questions from the financial community.

Please be advised that during the course of our presentation and our question-and-answer session today, we may make forward-looking statements that reflect management’s expectations for the future, which are based on current information. Actual results may differ materially from these expectations based on risks to the business. The Safe Harbor statement in yesterday’s news release and the cautionary statement in the company’s Form 10-Q that will be filed later this week are considered a part of this conference call. Material risk factors, as well as information relating to company operations, are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC. These documents are available on the Investors section of our website at www.jackinthebox.com.

A few calendar items to note. Jack in the Box management will be presenting at the Bank of America Merrill Lynch Investment Conference in San Francisco on September 14; and the Wells Fargo Consumer Conference in New York on September 29. Our fourth quarter ends on October 3, and we tentatively expect to announce results the week of November 22.

With that, I'll turn the call over to Linda.

Linda Lang

Thank you, Carol, and good morning. For the third quarter, the 9.4% decrease in same-store sales at Jack in the Box fell below our guidance range, and our margins suffered from the sales deleverage. Our Jack in the Box restaurants continue to be negatively impacted by high unemployment and other economic issues, especially in California and Texas where we have our largest concentration of restaurants. Unemployment among our key customer demographics also remained high. For example, 34.5% of California teenagers were unemployed in June. This was up from 28.6% a year ago and compares to a national rate of 25.7%. And while discretionary spending among affluent segments of the population appears to be benefiting higher-end retailers, declining consumer confidence, especially among lower-wage earners, negatively impacted our sales.

Although our sales outlook remains cautious and largely reliant upon improvement in the economy, we believe we can capitalize on opportunities to differentiate our core brand and further enhance the guest experience at our restaurants through immediate improvements to our menu, service and restaurant environment. In this environment, consumers are very selective about where they spend their dining dollars, so we really need to deliver the best possible experience to every guest every time. To this end, we have intensified our focus throughout the entire system on delivering a more consistent guest experience. Along with our Voice of Guest surveys, we are committing additional resources to more closely measure how we're delivering on the key drivers of guest satisfaction.

In addition to this increased focus on service, we're investing in making noticeable quality improvements to some of our signature products. You'll recall we launched new French fries in March and introduced our new Kona Classic coffee blend early in the third quarter. We are further expanding this initiative to other top-selling guest favorites.

And lastly, we know that completing restaurant reimages will enhance the overall perception of our brand. Accordingly, we're accelerating our plans and now expect completion at all company locations by the end of fiscal year 2011. Concurrent with these actions to improve sales, we're continuing to execute a marketing strategy that focuses on both premium products and value promotion.

During the quarter, we successfully launched our Grilled Breakfast Sandwich, which extended our Grilled Sandwich platform to include three varieties of sandwiches. Breakfast continued to be our strongest daypart in the third quarter, even though we did not have an explicit value message.

In addition to enhancing our coffee platform with a new premium blend of coffee made with real Kona beans, we also expanded other beverage platforms during the quarter with a raspberry-flavored Real Fruit Smoothie and a Raspberry Shake. Balancing our new premium products with value promotions, Jack in the Box launched two limited time offers in the third quarter. The first event provided guests a unique way to create their own value meals by combining three of eight popular menu items for just $3. The second event launched late in the quarter and features a new margin-friendly product, the Really Big Chicken Sandwich. For $3.99, guests can order a combo meal featuring the new sandwich, a small drink and a small order of seasoned curly fries.

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