Jack in the Box Comps Soar

Jack in the Box, which slowed unit growth several years ago while it worked on a re-imaging campaign and other improvement strategies, is accelerating its franchisee development program, according to Linda Lang, president and CEO. "As we franchise company restaurants, in many cases we are also selling a development agreement, so we're building a base of franchise developers, and we would expect that franchise development would accelerate in the future," Lang commented during the conference call.

The chain plans to add 40 to 45 new company and franchise-operated restaurants infiscal 2007, following a fiscal 2006 in which it opened 36 new restaurants, seven of which were franchise locations. The chain also opened 71 new Qdoba restaurants this year, only 13 of which were company stores, and opened 11 of its Quick Stuff convenience stores.

"We continued to expand our Jack in the Box franchising activities in fiscal 2006 as a key strategic initiative to generate higher returns and margins while mitigating business-cost and investment risks," Lang said. Part of the push toward franchising included selling 82 restaurants to franchisees during the year. "At year end, more than 29% of the Jack in the Box system was franchised. We're on pace to achieve our goal of Jack in the Box becoming 35% franchise operated by 2008," Lang said.

Lang also commented on the company's re-imaging program, under which it is testing new designs for its stores in a number of markets, including Waco, TX and Seattle. Jack in the Box has "a couple of additional smaller markets" where it plans re-imaging in fiscal 2007, but "We are not disclosing yet what those markets are," Lang said.

The company reported that earnings before the cumulative effect of an accounting change increased to $34.2 million, or 95 cents per diluted share, compared with $21.5 million, or 59 cents per diluted share, in the same quarter a year ago. Earnings for the full year before the accounting change increased to $109.1 million, or $3.04 per diluted share, compared with $91.5 million, or $2.48 per diluted share, in fiscal 2005. Net earnings after the cumulative effect of this accounting change were 92 cents and $3.01 per diluted share for the fourth quarter and fiscal 2006, respectively.

Same-store sales at Jack in the Box company restaurants increased 5.9% in the fourth quarter, with an increase in both average check and transactions, compared with a year-ago increase of 1.5%. For the year, same-store sales at company restaurants increased 4.8%, again with an increase in both average check and transactions, compared with a 2.4% increase in 2005.

The full-year same-store increase was the highest in seven years, Lang noted. She said that the strong earnings and the high same-store sales resulted from "the addition of several innovative, high-quality products to our menu, as well as improvement in guest-service execution," which in turn drove the average check higher at the chain.

As of Oct. 1, Jack in the Box totaled 2,079 company and franchised restaurants, including 55 with Quick Stuff convenience stores, and 318 company and franchised Qdoba restaurants.