Jack in the Box Inc. — Q1 FY2024 10-Q
Reporting period: Sixteen weeks ended January 21, 2024; comparative period was sixteen weeks ended January 22, 2023. Jack in the Box operates and franchises Jack in the Box and Del Taco. At quarter-end, the company had 2,192 Jack in the Box restaurants and 592 Del Taco restaurants. Del Taco’s fiscal calendar was aligned with Jack in the Box beginning in FY2024, resulting in two fewer Del Taco operating days in FY2024.
Financial performance
| Metric | Q1 FY2024 | Prior-year period | Change |
|---|---|---|---|
| Revenue | $487.5 million | $527.1 million | Down 7.5% |
| Earnings from operations | $79.5 million | $100.9 million | Down 21.3% |
| Net earnings | $38.7 million | $53.3 million | Down 27.4% |
| Diluted EPS | $1.93 | $2.54 | Down 24.0% |
| Operating margin | 16.3% | 19.1% | Down 2.8 percentage points |
| Net margin | 7.9% | 10.1% | Down 2.2 percentage points |
| Operating cash flow | $(22.7) million | $62.5 million | Down $85.1 million |
| Capital expenditures | $38.8 million | $24.0 million | Up $14.8 million |
Revenue included $224.0 million of company restaurant sales, $113.2 million of franchise rental revenue, $73.3 million of franchise royalties and other revenue, and $76.9 million of franchise advertising and other contributions. Interest expense, net, was $24.5 million, down from $26.1 million. The effective tax rate was 26.9%, compared with 26.7% in FY2023.
Same-store sales increased 0.8% for Jack in the Box system restaurants and 2.2% for Del Taco system restaurants. Jack in the Box company restaurant sales rose 4.7%, while Del Taco company restaurant sales fell 36.1%, primarily reflecting the refranchising of 95 Del Taco company-operated restaurants since the prior-year quarter. Systemwide sales were $1.36 billion for Jack in the Box and $290.5 million for Del Taco.
Jack in the Box segment profit was $116.0 million, versus $128.8 million; Del Taco segment profit was $10.7 million, versus $16.2 million. These are company-defined segment measures and exclude specified costs and items.
Balance sheet, debt and liquidity
- Cash was $54.0 million and restricted cash was $28.6 million at January 21, 2024, compared with cash of $157.7 million and restricted cash of $28.3 million at October 1, 2023.
- Total debt was approximately $1.75 billion, including $29.9 million of current maturities; long-term debt was $1.72 billion. Operating lease liabilities totaled approximately $1.44 billion and are separate from debt.
- Current assets were $188.9 million and current liabilities were $426.9 million. Stockholders’ deficit was $708.2 million.
- The company reported $175.5 million of available borrowing capacity: $100.5 million under the variable funding notes and $75.0 million under the revolving facility. It had no borrowings outstanding under either facility and stated it was in compliance with debt covenants and had no rapid amortization events.
- Management expects operating cash flow, together with the securitized financing and revolving facilities, to meet capital expenditure, working capital and debt-service needs for at least the next twelve months and the foreseeable future.
Material changes, unusual items and outlook
- Operating cash flow turned negative, largely due to working-capital outflows: $50.3 million of deferred FY2023 income tax payments, the final $25.5 million Torrez settlement payment, and $15.3 million of higher bonus payments. Higher advertising accruals partially offset these outflows.
- Del Taco refranchising materially shifted results from company restaurant sales and costs toward franchise sales-related royalties, rent and advertising revenue and expenses. The 95 restaurants refranchised since the prior-year quarter explain much of the sharp decline in Del Taco company sales.
- Reported results included $5.6 million of acquisition, integration and strategic-initiative costs; a $2.2 million impairment related to a Del Taco refranchising transaction expected to close in Q2; and a $2.4 million gain from acquiring nine Del Taco franchise restaurants. The prior-year quarter included a $7.3 million franchise termination fee and gains on property dispositions, making comparisons less favorable in FY2024.
- The company spent $25.2 million, including excise tax, to repurchase 0.3 million shares and declared a $0.44-per-share dividend. The board declared another $0.44-per-share dividend after quarter-end. No specific financial earnings or sales guidance is provided in the filing.
- After quarter-end, the company signed an agreement to refranchise 13 Atlanta restaurants. Assets held for sale were $23.7 million at quarter-end.
- Legal accruals totaled $15.4 million. The company continues to dispute the Gessele verdict and had accrued the verdict plus estimated interest and legal fees. The $50.0 million Torrez settlement was paid in full, with no further amount accrued. A plaintiff appealed the ruling that overturned the J&D Restaurant Group verdict; no accrual was recorded for that case.
- The company remains contingently liable for certain former Qdoba leases with maximum potential undiscounted payments of $21.8 million; it recorded no liability, citing indemnification and a remote likelihood of payment.
Investor facts to verify
- Whether same-store sales, traffic and average-check trends persist, particularly given positive sales growth alongside lower transactions at both brands.
- How continued Del Taco refranchising affects company sales, franchise economics, occupancy costs and cash proceeds.
- Whether operating cash flow normalizes after the identified tax, settlement and bonus payments, and how capital spending and repurchases affect liquidity.
- Debt balances, covenant status, refinancing plans and the maturity of Del Taco’s $75 million revolving facility, which the filing says matures March 1, 2024.
- Developments in the Gessele and J&D litigation, other legal contingencies, and the expected completion and proceeds of planned refranchisings and property transactions.