Jack in the Box Inc. — Q1 FY2023 Form 10-Q
Reporting period: Sixteen weeks ended January 22, 2023; comparison period ended January 23, 2022. Jack in the Box operates and franchises Jack in the Box and Del Taco restaurants. Del Taco was acquired on March 8, 2022, so it is included in current-period results but not in the prior-year reported results. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 FY2023 | Prior-year period |
|---|---|---|
| Revenue | $527.1 | $344.7 |
| Operating earnings / margin | $100.9 / 19.1% | $73.7 / 21.4% |
| Net earnings / diluted EPS | $53.3 / $2.54 | $39.3 / $1.85 |
| Operating cash flow | $62.5 | $34.1 |
| Capital expenditures | $24.0 | $9.4 |
| Adjusted EBITDA (non-GAAP) | $110.6 | $91.2 |
Reported revenue increased 52.9%, primarily reflecting Del Taco’s inclusion; this is not a like-for-like comparison. Pro forma results, treating Del Taco as combined in both periods, show revenue of $527.1 versus $503.0 and net earnings of $53.3 versus $28.9. Current-period net earnings include Del Taco’s $5.2 million contribution.
Cash and restricted cash totaled $181.6 at quarter-end. Total debt was approximately $1.824 billion, including $30.1 million of current maturities; operating lease liabilities were a further $1.346 billion. Current assets of $264.4 million were below current liabilities of $461.3 million. Available borrowing capacity was approximately $122 million across the securitized variable funding notes and revolving credit facility. The company reported compliance with debt covenants and no rapid amortization events.
Operating cash flow was higher year over year, with management attributing much of the increase to favorable working-capital timing. Investing cash flow was $15.7 million, including proceeds from property and restaurant sales; financing cash outflow was $32.6 million, including $15.0 million of share repurchases and $9.2 million of dividends. The quarterly dividend was $0.44 per share.
Material changes and operating trends
- Jack in the Box system same-store sales rose 7.8% (company-operated 12.6%; franchised 7.4%). Company-operated sales growth reflected higher check and transaction growth; pricing was approximately 10.3% above the prior year.
- Jack in the Box franchised restaurant sales increased to $1.209 billion from $1.118 billion. The royalty rate metric was 5.6%, or 5.0% excluding a $7.3 million franchise termination payment recognized as royalty revenue.
- Del Taco reported system same-store sales growth of 3.0%, revenue of $160.2 million, and segment operating profit of $12.1 million.
- Jack in the Box company restaurant food and packaging costs rose to 32.8% of sales from 31.3%, reflecting commodity inflation and mix, partly offset by pricing. Payroll and occupancy costs declined as a share of sales.
- Company-wide operating margin was lower than the reported prior-year margin. The comparison is affected by the acquisition, restaurant refranchising and non-recurring gains and costs.
Outlook, risks and unusual items
- Management expected FY2023 commodity cost inflation of 9%–11% and wage inflation of 3%–6% versus FY2022. It stated that operating cash flow and available facilities were expected to cover capital, working-capital and debt-service needs for at least the next twelve months. No full-year revenue or earnings guidance is provided in this filing.
- Unusual items included the $7.3 million franchise termination payment, $3.8 million gain on sales of company-operated restaurants, and $10.0 million gain on property dispositions. Acquisition, integration and restructuring costs were $1.7 million.
- Legal matters include a $50.0 million accrued settlement memorandum in the Torrez wage-and-hour case, subject to court approval; a jury award of approximately $6.4 million plus interest and attorney fees in Gessele, which the company is contesting; and an $8.0 million J&D verdict reported after quarter-end, which the filing says was accrued at quarter-end and is being challenged.
- Accrued legal liabilities totaled $65.1 million. The company also disclosed up to $23.0 million of potential undiscounted exposure under Qdoba lease guarantees, for which it recorded no liability, citing indemnification and a remote likelihood of payment.
- Key risks include food and labor inflation, consumer demand, competition, franchisee health, Del Taco integration, litigation, significant debt and securitization restrictions. The company said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported growth and profitability reflects Del Taco versus underlying comparable performance; compare reported results with the filing’s pro forma figures.
- Whether commodity and wage inflation assumptions, menu pricing and traffic trends support margins through the rest of FY2023.
- The status and eventual cash costs of the Torrez, Gessele and J&D matters, including approvals, appeals and the treatment of the J&D award.
- The refinancing or repayment status of Del Taco’s revolving credit facility, whose disclosed maturity was March 7, 2023, and the company’s continuing debt-service capacity.
- Use of proceeds from refranchising and property sales, and the balance between debt reduction, dividends and share repurchases.