Jack in the Box Inc. — FY2021 Form 10-K
Business context and reporting period. Jack in the Box operates and franchises quick-service restaurants and reports as one segment. This is an annual filing for the 53 weeks ended October 3, 2021; the comparison year ended September 27, 2020 had 52 weeks. At year-end, the system had 2,218 restaurants, 93% franchised, concentrated mainly in the western and southern United States. Franchisee restaurant sales are system sales, not Company revenue.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Total revenue | $1,143.7 million | $1,021.5 million | Up 12.0%; includes about $21.3 million from the extra week |
| Systemwide sales | $4,155.3 million | $3,672.7 million | Up 13.1%; up 11.0% excluding the extra week |
| System same-store sales | Up 10.3% | Up 4.0% | Company-operated +6.1%; franchise +10.7% |
| Earnings from operations | $289.9 million | $230.6 million | Up 25.7%; operating margin 25.4% versus 22.6% |
| Net earnings | $165.8 million | $89.8 million | Up 84.7% |
| Diluted EPS | $7.37 | $3.86 | Up 90.9% |
| Adjusted EBITDA | $331.4 million | $274.2 million | Up 21%; non-GAAP measure |
| Cash from operating activities | $201.1 million | $143.5 million | Up $57.6 million |
| Capital expenditures | $41.0 million | $19.5 million | Higher primarily from purchases of assets intended for sale-leaseback |
Costs, cash and debt
- Company restaurant food and packaging costs were 29.1% of sales, down from 29.4%; payroll and benefits were 30.7%, up from 30.5%; occupancy and other costs were 15.9%, up from 15.5%.
- Cash and restricted cash totaled $73.6 million at year-end ($55.3 million unrestricted). The Company also had $110.5 million of available capacity under its Variable Funding Notes, net of letters of credit.
- Class A-2 note principal was $1,290.3 million; total debt including finance leases was $1,292.5 million. Net interest expense was $67.5 million. The Company reported compliance with debt covenants and no rapid amortization events.
- Operating lease liabilities totaled $959.8 million. Stockholders’ deficit was $817.9 million.
- Financing cash outflow was $343.5 million, including $200.0 million of share repurchases and $37.3 million of dividends paid. The Company declared $1.68 per share in dividends during FY2021.
Material changes versus FY2020
- Revenue, operating earnings and net earnings increased; the prior year included $39.2 million of non-cash pension settlement charges, compared with none in FY2021.
- Same-store sales strengthened, with higher average checks offsetting lower company-store transactions: company transactions declined 6.3% while average check increased 12.4%, including 3.5% from price increases.
- Commodity costs rose approximately 5.1% during FY2021, with pork and beverages among the drivers. Labor inflation was approximately 7.2%.
- Operating cash flow improved, while cash and restricted cash fell from $236.9 million to $73.6 million. Financing outflows increased, including repayment of $107.9 million of Variable Funding Notes borrowings taken in FY2020.
- The Company acquired 20 franchise restaurants, ending with 163 company-operated and 2,055 franchised locations. There were 14 system openings and 37 closures; total system restaurants declined from 2,241 to 2,218.
Outlook, commentary and risks
- Management expected labor and supply-chain challenges and inflation to continue into at least FY2022. It forecast FY2022 commodity inflation of 6%–7% and wage inflation of 8%–10% versus FY2021; these are cost expectations, not earnings guidance.
- Management cited drive-thru, carryout and delivery as supporting system sales during the pandemic, alongside significant digital-sales growth. Labor availability had led some restaurants to reduce hours or keep dining rooms closed; some product shortages and higher costs occurred.
- A franchisee operating 68 Midwest restaurants entered Chapter 11 in February 2021. Some locations were rejected or proposed for rejection; the Company said the remaining restaurants were current on obligations and expected transfers to other franchise partners rather than Company operation. Rejected leases could create impairment or future lease costs.
- Key risks include COVID-19 and workforce availability, wage and commodity inflation, supply and distribution interruptions, franchisee financial health, competitive and consumer-demand changes, food safety, cybersecurity, and regulatory or litigation exposure. Nearly 70% of restaurants were in California and Texas, increasing geographic concentration risk.
- The Company disclosed $7.5 million of recorded liabilities for legal matters. It stated that any ultimate liability in excess of recorded amounts was not expected to materially adversely affect its business, annual results, liquidity or financial position. It also remained contingently liable for former Qdoba leases with maximum undiscounted future payments of approximately $26.7 million; no liability was recorded because payment was considered remote.
Important facts for investors to verify
- Assess whether FY2021 sales and earnings growth persist after adjusting for the 53rd week and whether transaction trends recover.
- Track realized menu pricing against rising food, wage, delivery and occupancy costs, particularly management’s FY2022 inflation expectations.
- Review free cash generation after capital expenditures, dividends and buybacks, and the Company’s capacity to refinance or repay notes around their anticipated repayment dates, beginning in 2023.
- Monitor the Midwest franchisee bankruptcy, restaurant transfers, lease exposure and any related impairment charges.
- Confirm progress on restaurant development, digital initiatives and franchisee health, while considering the system’s geographic concentration and substantial lease obligations.