Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 13, 2003, and the twenty-eight weeks ended on that date for JACK IN THE BOX INC. The Company operates quick-service restaurants and recently expanded into the fast-casual segment through the acquisition of Qdoba Restaurant Corporation on January 21, 2003. The Company reports results quarterly, with the first quarter comprising 16 weeks.
Key Financial Metrics
| Metric | 12 Weeks Ended Apr 13, 2003 |
28 Weeks Ended Apr 13, 2003 |
12 Weeks Ended Apr 14, 2002 |
28 Weeks Ended Apr 14, 2002 |
|---|---|---|---|---|
| Total Revenues | $463.3 million | $1,076.7 million | $447.6 million | $1,041.8 million |
| Net Earnings | $16.3 million | $37.5 million | $18.2 million | $44.9 million |
| Diluted EPS | $0.44 | $1.00 | $0.45 | $1.12 |
| Operating Cash Flow | N/A | $63.3 million | N/A | $77.3 million |
| Total Debt | $301.5 million | $301.5 million | N/A | $249.6 million (Sep 29, 2002) |
| Cash & Equivalents | $8.2 million | $8.2 million | N/A | $5.6 million (Sep 29, 2002) |
| Working Capital | ($109.1 million) | ($109.1 million) | N/A | ($220.9 million) |
Note: Working capital is presented as a deficit. Debt figures reflect the balance at April 13, 2003.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 3.5% in the quarter and 3.4% year-to-date compared to the prior year. This growth was driven by the inclusion of Qdoba operations, increased distribution sales (fuel/convenience), and higher franchise royalties.
- Profitability Decline: Net earnings decreased 10.3% in the quarter and 16.5% year-to-date. The decline is attributed to higher operating costs (insurance, occupancy, new POS systems), increased pension costs due to lower discount rates, and higher interest expense from new debt financing.
- Comparable Sales: Sales at Company-operated restaurants open more than one year declined 4.3% in the quarter and 3.3% year-to-date, citing economic weakness, competitor discounting, and poor weather.
- Debt Restructuring: The Company retired high-interest financing lease obligations and secured a new $350 million credit facility ($200 million revolving, $150 million term loan) to fund the Qdoba acquisition and operations.
Guidance, Outlook, and Risks
- Capital Expenditures: Management plans to spend approximately $155 million on capital expenditures for fiscal year 2003, a reduction from the previously disclosed $182 million, reflecting a shift toward leasing rather than purchasing new restaurant properties.
- Stock Repurchases: The Company completed its $90 million stock repurchase authorization and has no remaining availability.
- Legal Contingencies: A class action lawsuit regarding California wage and hour laws was settled for approximately $9.3 million; $7.9 million had been paid as of the reporting date.
- Pension Liability: Due to declining equity markets and lower interest rates, the Company anticipates recognizing an additional minimum pension liability adjustment in the fourth quarter of fiscal 2003, which will impact other comprehensive income.
- Market Risks: The Company faces exposure to interest rate fluctuations (LIBOR-based debt) and commodity price changes. A 100 basis point increase in interest rates would reduce annual pretax earnings by approximately $1.6 million.
Investor Verification Checklist
- Verify the integration progress and financial performance of the Qdoba acquisition, which contributed to revenue but added to operating costs and debt.
- Monitor the impact of the anticipated minimum pension liability adjustment on the fourth quarter's financial statements.
- Assess the sustainability of the 4.3% decline in same-store sales at Company-operated locations amidst economic weakness.
- Review the Company's ability to maintain compliance with debt covenants under the new $350 million credit facility.
- Confirm the status of the remaining $1.4 million settlement payment related to the California wage and hour class action.