Business context and reporting period
Jack in the Box Inc. operates and franchises Jack in the Box and Del Taco restaurants. This unaudited Form 10-Q covers the 12 weeks ended April 16, 2023; year-to-date figures cover 28 weeks. Comparisons are affected by the March 2022 Del Taco acquisition: the prior-year quarter included only about six weeks of Del Taco results, versus a full quarter in 2023.
At quarter-end, the company had 2,187 Jack in the Box restaurants and 595 Del Taco restaurants. The company-operated share continued to decline through refranchising.
Financial performance
| Metric | Quarter 2023 | Quarter 2022 | Year-to-date 2023 | Year-to-date 2022 |
|---|---|---|---|---|
| Revenue | $395.7 million | $322.3 million | $922.8 million | $667.0 million |
| Operating earnings | $61.6 million | $38.2 million | $162.6 million | $112.0 million |
| Net earnings | $26.5 million | $7.8 million | $79.8 million | $47.1 million |
| Diluted EPS | $1.27 | $0.37 | $3.81 | $2.21 |
| Operating margin | 15.6% | 11.9% | 17.6% | 16.8% |
| Operating cash flow | Not separately presented for quarter | $94.1 million | $67.8 million |
Quarter revenue rose about 23% year over year, with Del Taco’s partial prior-year comparison a major factor. Jack in the Box same-store sales increased 9.5% systemwide; Del Taco increased 3.2%. Jack in the Box company restaurant cost ratios improved in the quarter, including food and packaging (down 1.3 percentage points) and payroll (down 3.4 points), reflecting pricing, mix and sales leverage. Del Taco’s company restaurant cost ratios were mixed, with payroll and occupancy costs pressured by inflation.
Year-to-date Adjusted EBITDA, a non-GAAP measure, was $189.4 million versus $155.6 million. The filing reports declared dividends of $0.44 per share each quarter; the board declared another $0.44 dividend after quarter-end.
Liquidity, debt and capital allocation
At April 16, 2023, cash was $94.9 million and restricted cash was $27.9 million. Net carrying value of current and long-term debt totaled approximately $1.77 billion, down from $1.83 billion at October 2, 2022. Operating lease liabilities were about $1.36 billion and are separate from debt. The company reported approximately $172 million of available borrowing capacity across its securitized variable funding notes and Del Taco revolving facility, net of letters of credit.
Year-to-date investing cash flow was positive $9.7 million, including proceeds from restaurant and property sales; capital expenditures were $37.2 million. Financing cash flow was negative $117.0 million, including $50 million of variable-note repayments, $32.6 million of share repurchases and $18.2 million of dividends paid. The company repurchased about 0.4 million shares for $33.6 million during fiscal 2023, including amounts settled after quarter-end.
The company said operating cash flow and available facilities should be sufficient for capital, working-capital and debt-service needs for at least the next 12 months. It was in compliance with debt covenants and had no rapid-amortization event, but its securitized-debt leverage ratio remained above 5.0x, requiring scheduled principal amortization.
Outlook, unusual items and risks
- Management expected fiscal 2023 commodity-cost inflation of 7%–9% and wage inflation of 3%–6% versus fiscal 2022. The filing provides no specific revenue or EPS guidance.
- Year-to-date results included a $7.3 million franchise agreement termination payment recognized as royalty revenue. Other items included $4.5 million of gains on company restaurant sales and $8.6 million of net gains on property dispositions.
- Legal contingencies include a $50 million settlement agreement in the Torrez matter, subject to court approval, and an accrued Gessele verdict and estimated interest totaling approximately $13 million. The J&D Restaurant Group jury award was overturned by the court on May 9, 2023; the company reported reversing its $8 million accrual in the second quarter.
- After quarter-end, the company completed the sale of 17 Del Taco restaurants for $13.7 million and signed agreements to sell 39 more for $17.5 million.
- Principal disclosed risks include food and labor inflation, labor availability and disputes, weaker consumer demand, competition, franchisee financial health, integration of Del Taco, litigation, supplier and distribution constraints, and substantial debt and securitization restrictions.
Important facts for investors to verify
- Separate acquisition-driven growth from comparable or organic performance, especially for Del Taco.
- Track same-store sales, traffic, pricing, commodity costs and labor inflation against management’s stated expectations.
- Review debt amortization, leverage, covenant headroom, borrowing availability and the large lease obligation.
- Monitor court approval and payment timing for Torrez, the Gessele matter, and other legal exposures.
- Confirm execution and proceeds from the announced Del Taco refranchising transactions and assess the effect on company-operated sales and profitability.
- Assess whether share repurchases and dividends remain supportable alongside debt service and planned capital spending.