Jack in the Box (JACK)

Q4 2011 Earnings Call

November 22, 2011 11:30 am ET


Jerry P. Rebel - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

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

Leonard A. Comma - Chief Operating Officer and Executive Vice President

Carol A. DiRaimo - Vice President of Investor Relations & Corporate Communications


Peter Saleh - Telsey Advisory Group LLC

Keith Siegner - Crédit Suisse AG, Research Division

Jake R. Bartlett - Susquehanna Financial Group, LLLP, Research Division

Bart Glenn - D.A. Davidson & Co., Research Division

Jeffrey F. Omohundro - Wells Fargo Securities, LLC, Research Division

John S. Glass - Morgan Stanley, Research Division

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Conrad Lyon - B. Riley & Co., LLC, Research Division

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division



[Audio Gap]

which we expect to be largely completed by the end of the calendar year.

Compare to:
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On our refranchising strategy with the sale of 332 restaurants during 2011, the Jack in the Box system was 72% franchised at the end of the year, and we've achieved our original goal of increasing the percentage of franchise ownership to 70% to 80% 2 years ahead of the plan.

Over the last 6 years, we've refranchised more than 1,000 restaurants and expect to refranchise 150 to 200 restaurants over the next couple of years, which will bring our Jack in the Box franchise ownership to approximately 80% of the system.

Turning to our Q4 results. We're very pleased to see the sales momentum that's been building for more than a year continue during the fourth quarter. Same-store sales at company Jack in the Box restaurants increased 5.8%, driven by an 8.5% increase in traffic. This was our fifth consecutive quarter of sequentially improving 2-year sales trend and represented a 650 basis point sequential improvement and a 2-year cumulative same-store sales.

Systemwide Jack in the Box same-store sales growth for the quarter exceeded that of the QSR Sandwich segment for the comparable period according to the NPD Group's sales track weekly for the 12 weeks time period ended October 2, 2011. Included in this segment are the top 11 sandwich and QSR burger chain competitors.

Our major markets each posted strong same-store sales growth for the fourth quarter. Year-over-year, sales were positive across all dayparts during the quarter, which we attribute to the progress we've made in enhancing the entire guest experience.

Breakfast was, again, our strongest daypart driven by a compelling new product we introduced in August, the $2.99 jumbo breakfast platter. Although we're still early into fiscal 2012, we're continuing to see strong same-store sales growth through the first 7 weeks of the first quarter despite more difficult comparison.

We believe part of the improvement in our results this year has been due to the quality improvements we've made to our core products and these actions are clearly resonating with our core customers who crave these products. Our latest initiative in this area focuses on several improvements to our classic burgers which are being introduced later this month across the entire system. The introduction will be supported with advertising, merchandising material and social media initiatives later this quarter.

Moving on to Qdoba. Fourth quarter same-store sales increased 3.1% systemwide, representing the third consecutive quarter of that 2-year cumulative same-store sales that have been greater than 9%.

We continue to increase the percentage of company ownership of Qdoba restaurants. At the end of the fourth quarter, 42% of the system was corporate-owned compared to 36% at the end of last year and 31% at the end of fiscal 2010. For the year, 67 new Qdoba restaurants opened systemwide, including 25 company locations. We also made opportunistic acquisitions of 32 franchise locations in several markets.

In fiscal 2012, we will further accelerate company Qdoba growth, and forecast company locations will comprise approximately half of the 70 to 90 new restaurants we plan to open systemwide.

We plan to more aggressively build out the number of Qdoba -- company Qdoba locations over the next several years through new units growth and opportunistic acquisitions of franchise locations. Accelerating the growth of our Qdoba brand by increasing market penetration should generate heightened brand awareness.

Looking ahead at the coming years, we're focused on building upon the sales momentum generated in fiscal 2011 and further expanding restaurant margin through continued execution of the following actions: delivering a more consistent dining experience, including improving speed of service to increase throughput at our restaurants; enhancing our top-selling core products, along with innovative new menu items; increasing franchise ownership to approximately 80% of the Jack in the Box system over the next couple of years; and accelerating the expansion of Qdoba through new unit growth and opportunistic acquisition of franchise locations.

I'm looking forward to talking with you more about these and other initiatives. We're planning an Investors Day in late February in San Diego, where we will outline our major strategies and initiatives and provide long-term guidance on key metrics.

In closing, I'd like to thank our hardworking employees for a great year. Because of them, we met or exceeded several major goals of the 4Q of 2011, including sales and transaction growth, refranchising and restaurant reimaging.

I'd also like to thank our franchise community for their ongoing support and unwavering commitment to our Jack in the Box and Qdoba brands.

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