020930 Jack in the Box Announces New Strategic PlanSeptember 20, 2002
San Diego, CA - Citing new growth opportunities and capitalizing on consumer trends, Jack in the Box Inc., operator and franchiser of Jack in the Box restaurants, announced a new strategic plan centered on product innovation and multiple growth strategies to develop the regional chain into a national restaurant company.
"In the last few years, we have focused on building our brand, enhancing food quality, and promoting a core group of products while growing the chain primarily with company-operated restaurants," said Chairman and CEO Robert J. Nugent. "As a result, since 1998, we have increased our market share by 25%.
"But today's environment presents new challenges and opportunities that require a fresh approach to satisfying consumer demands and expanding our company's size and value. We expect this plan to build on our strengths and renew our momentum and help us grow more profitably over the long-term," he explained. Following are highlights of the plan, which was recently approved by the company's Board of Directors:
Sales and Profitability
* A focus on new product innovation to further differentiate the company from QSR competitors, with a more relevant menu that includes lighter fare and additional quality enhancements to current product lines. Supporting this effort will be a new, 70,000 sq. ft. Innovation Center, scheduled to open in 2004, that will house a R&D kitchen, quality assurance lab, consumer research facility and marketing organization.
* Enhancement of the guest experience through continued speed-of-service improvements, and additional investments in interior design and exterior remodels.
* Multiple restaurant prototypes that reduce development costs, improve unit economics and can be used in a greater variety of sites.
* Continuation of the Profit Improvement Program to increase margins and returns.
* Targeted annual earnings per share growth of 10-15%.
* Continuing its core growth strategy, the company plans to increase the number of company restaurants by approximately 5-7% a year. Over the next five years, about 20-25% will be the Jack in the Box C-Stores, which co-brand a Jack in the Box restaurant with a convenience store and gas station. This expanding concept offers several benefits, such as additional sites, additional sources of profits and cash flows, and operating similarities with the core business.
* Continue to build new units in the Southeast while strengthening the brand there, and prepare the company for further new-market expansion.
* Convert about 25% of existing company restaurants to franchises, and add approximately 200 new franchise restaurants through the sale of development agreements. The franchising plan will reduce the ratio of company-to-franchised units from 80/20 today to approximately 65/35 in five years. At this rate, the company expects to be able to maximize the gains from franchise conversions.
* Actively evaluate for acquisition other restaurant concepts to supplement the company's core growth and balance the risk associated with growing solely in the highly competitive quick-serve segment of the restaurant industry.
Nugent commented that, "By strengthening the Jack in the Box brand and pursuing growth with more flexible options, the company can better position itself as an increasingly profitable restaurant company. Many of the fundamentals of our business will remain, but we believe that our new strategic plan will make us more competitive in a changing and more challenging environment."
As another element of its plan, the company will continue to re-purchase shares of Jack in the Box stock, following recent approval by the Board of Directors of an additional $50 million for the company's stock re-purchase program. The program, contingent upon bank authorization, reflects management's confidence in the strategic plan and is intended to offset ongoing dilution from the exercise of vested stock options.
In addition to announcing its new strategic plan, the company also provided its initial earnings guidance for fiscal 2003, stating that it expects to earn, on an as-reported basis, approximately $2.46 per diluted share versus $2.06 per share estimated in fiscal 2002.
The company expects to earn approximately $2.46 per diluted share versus $2.24 per share in fiscal 2002, after adjusting fiscal 2002 for: the adoption of FAS 142 in the first quarter of 2003, conforming the company's income tax rate to the 2003 estimated rate of 38%, and excluding fourth quarter 2002 estimated one-time charges for a litigation settlement and store closures.
The major assumptions on which this earnings guidance is based are as follows:
* The opening of approximately 90 company restaurants compared with 100 last year, representing a growth rate of 6%. This total includes approximately 15 new restaurants in the Southeast and approximately eight new Jack in the Box C-Stores. By the end of 2003, the company will have approximately 20 C-Stores systemwide. The company expects to end the year with 1,946 restaurants system-wide, including the closure of eight units as reported previously, versus 1,862 at the end of 2002.
* Company restaurant sales of approximately $1.95 billion compared with an estimated $1.82 billion in FY 2002, an increase of 7%.
* System-wide sales of approximately $2.42 billion compared with an estimated $2.24 billion in FY 2002, an increase of 8%.
* Same-store sales increase of approximately 3% compared with an estimated 0.9% decrease in FY 2002, due to a greater degree of menu innovation and quality initiatives, as well as continued improvements in the guest experience. The company expects sales increases to be more moderate early in the fiscal year, with anticipated sales growth building from new product introductions and comparisons to softer sales in the prior year. The company is actively engaged in new product development and is currently testing several new products. A new program is also underway to speed products to market.
* Other revenues of approximately $28 million versus approximately $20 million in the prior year, resulting from the conversion of 20 restaurants to franchises, compared with 22 conversions in FY 2002. This increase in other revenue is related to a planned and disciplined approach to franchising. The company expects to add shareholder value long term through the incrementally profitable sale of existing restaurants and the development of new restaurants by the franchise community.
* Total revenues of approximately $2.13 billion, 8.7% higher than the prior year's estimated $1.96 billion.
* Gross profit rate of approximately 19.9% of revenue compared with 19.4% of revenue in FY 2002, as a result of additional gains from restaurant conversions, lower operating expenses from continued internal Profit Improvement Program initiatives, and discontinuation of intangibles amortization associated with the adoption of FAS 142. Adjusted for FAS 142, FY 2002 gross profit rate would be approximately 19.6% of revenue, resulting in an adjusted year-to-year improvement of 0.3% of revenue.
* Restaurant Operating Margin of approximately 18.7% of revenues versus an estimated 18.4% of revenue in FY 2002. When adjusted for the adoption of FAS 142, the prior year's Restaurant Operating Margin is expected to be approximately 18.6% of revenue, for a year-to-year improvement of 0.1% of revenue.
* SG&A expense rate of approximately 11.4% of revenue versus approximately 11.9% in the prior year, due to one-time charges in FY 2002 for a litigation settlement and write-offs associated with closing restaurants, as previously reported. The SG&A rate is expected to be 0.3% of revenue higher than the FY 2002 rate of 11.1%, after adjusting for the one-time charges, due to higher insurance and pension costs, and G&A investment spending associated with implementation of the strategic plan.
* Earnings before interest and taxes (EBIT) of approximately $180.1 million compared with an estimated $147.8 million in FY 2002. Excluding one-time charges and adjusting for the adoption of FAS 142, EBIT in FY 2002 would be approximately $167.6 million, resulting in a year-to-year increase of 7.5%.
* Interest expense as a percent of revenue of approximately 1% versus 1.2% in the prior year, due primarily to termination of prior lease financing arrangements in January 2003.
* Earnings before taxes (EBT) of approximately $159 million compared with an estimated $125 million in FY 2002. Excluding the one-time charges and adjusting for the adoption of FAS 142, EBT in FY 2002 would be approximately $144.9 million, resulting in a year-to-year increase of 9.7%.
* Estimated income tax rate of 38% versus 33.9% in the prior year, due to the one-time favorable resolution of two long-standing tax matters in the prior year.
* Net earnings of approximately $98.6 million compared with approximately $82.7 million in the prior year. Excluding the one-time charges and adjusting for the adoption of FAS 142, net earnings in the prior year would be approximately $89.8 million, for a year-to-year increase of 9.8%.
* Weighted-average shares outstanding of approximately 40.1 million, the same as prior year, reflecting the continued repurchase of outstanding shares to offset dilution from future stock option exercises.
* EBITDA of approximately $252 million versus approximately $218 million in FY 2002. Excluding one-time charges and adjusting for adoption of FAS 142, EBITDA in the prior year would be approximately $233 million for a year-to-year increase of 8%.
* Capital expenditures of approximately $182 million compared with approximately $162 million in the prior year, due to the company's decision to increase investment in remodeling restaurant facilities, additional interior and exterior enhancements, and the company's continued program to purchase more of its new restaurant properties instead of leasing them.
Founded in 1951, Jack in the Box is among the nation's leading fast-food hamburger chains. The company operates or franchises more than 1,850 quick-serve restaurants in 17 states.