Jack In The Box Management Discusses Q3 2012 Results - Earnings Call Transcript

Jack in the Box (JACK)

Q3 2012 Earnings Call

August 09, 2012 11:30 am ET


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

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

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

Leonard A. Comma - President and Chief Operating Officer


Jeffrey Andrew Bernstein - Barclays Capital, Research Division

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

Keith Siegner - Crédit Suisse AG, Research Division

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division

John S. Glass - Morgan Stanley, Research Division

Howard W. Penney - Hedgeye Risk Management LLC

Larry Miller - RBC Capital Markets, LLC, Research Division

Alexander Slagle - Jefferies & Company, Inc., Research Division

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

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



Good day, everyone, and welcome to the Jack in the Box Inc. Third Quarter Fiscal 2012 Earnings Conference Call. Today's call is being broadcast live over the Internet. A replay of the call will be available on the Jack in the Box corporate website starting today. [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 A. DiRaimo

Thank you, Stacy, and good morning, everyone. Joining me on the call today are Chairman and CEO, Linda Lang; Executive Vice President and CFO, Jerry Rebel; and 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 2012 and update our 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 most recent Form 10-K are considered a part of this conference call. Material risk factors, as well as information relating to company operations, are detailed on 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.

As a reminder, our fourth quarter ends on September 30, and we plan to announce results on Monday, November 19, after the market close. Our conference call is currently scheduled to be held at 8:30 a.m. Pacific Time on Tuesday, November 20.

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

Linda A. Lang

Thank you, Carol, and good morning. Jack in the Box reported another quarter of strong operating results yesterday, with continued sales growth at our Jack in the Box and Qdoba locations, and substantial improvement in restaurant operating margins and operating earnings.

At our Jack in the Box company operated restaurants, same-store sales remain strong, with a 3.4% increase, driven by traffic growth of 1.2% and a 2.2% increase in average check. Once again, all of our major company markets saw an increase in sales, transactions and average checks on both a 1-year and 2-year basis.

In fact, our 2-year cum for same-store sales at Jack in the Box improved 170 basis points from the second quarter. Four weeks into the fourth quarter, our same-store sales are tracking above our Q3 results, although we'll be rolling over high single-digit comparisons for the balance of the quarter, which is reflected in our guidance.

Breakfast was again our strongest day part. Our compelling new Waffle Breakfast Sandwich, which we introduced last month, is expected to continue to drive growth in this important day part.

We also saw sales growth in our other day parts, which we attribute in part to continued improvement in speed of service. For the third quarter, we improved speed of service by 30 seconds versus a year ago. We've now seen 6 quarters of sequential improvement in speed of service across all day parts. We believe this improvement is building trust with our guests and driving additional visits.

We've talked for the last 2 years about our investments in improving the entire guest experience and focusing on key elements of service, along with upgrading our menu and modernizing our restaurant facilities. We believe our seventh consecutive quarter of same-store sales increases and continued improvement in overall guest satisfaction scores are due to this comprehensive approach, and we expect these efforts to continue to drive sustainable sales growth.

Turning to Qdoba. Same-store sales for the third quarter increased 3.3% at our company locations, within the range guided, and were up 2.1% systemwide with franchised same-store sales lagging the company. We attribute part of the variance between company and franchise restaurants to more promotional activity in company markets, as well as the continued strong performance of restaurants in markets that we recently acquired from franchisees. Importantly, the promotions at company Qdoba restaurants did not negatively impact restaurant operating margins as we saw significant margin expansion versus last year.

The Qdoba system was approximately 50% company operated at quarter-end versus 41% at the end of the year ago quarter, reflecting the acquisition of 53 restaurants over the past 12 months, as part of our continued brand expansion through organic unit growth and strategic franchise acquisitions.

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