Jack in the Box Inc. — Q2 FY2024 Form 10-Q
Reporting period: 12 weeks ended April 14, 2024; year-to-date (YTD) is 28 weeks. Comparisons are with the periods ended April 16, 2023. Amounts below are in millions unless stated otherwise.
Business context
The company operates and franchises Jack in the Box and Del Taco. At quarter-end it had 2,195 Jack in the Box restaurants and 595 Del Taco restaurants. Del Taco’s shift to the company’s fiscal calendar resulted in two fewer days in FY2024. The company continued refranchising Del Taco locations, materially changing the mix of company-operated and franchise revenue.
Key financial metrics
| Metric | Q2 FY2024 | Q2 FY2023 | YTD FY2024 | YTD FY2023 |
|---|---|---|---|---|
| Revenue | $365.3 | $395.7 | $852.8 | $922.8 |
| Earnings from operations | $54.2 | $61.6 | $133.7 | $162.6 |
| Net earnings | $25.0 | $26.5 | $63.7 | $79.8 |
| Diluted EPS | $1.26 | $1.27 | $3.19 | $3.81 |
| Operating margin | 14.8% | 15.6% | 15.7% | 17.6% |
| Net margin | 6.8% | 6.7% | 7.5% | 8.6% |
| Operating cash flow | — | $(6.0) | $94.1 | |
| Capital expenditures | — | $61.1 | $37.2 |
Q2 food and packaging costs were $45.9 million, payroll and benefits $54.1 million, and interest expense, net $18.6 million. The effective tax rate was 26.5% for Q2 and 26.7% YTD, down from 34.8% and 29.6%, respectively.
At April 14, cash was $20.2 million and restricted cash $28.8 million, versus combined cash and restricted cash of $185.9 million at the prior fiscal year-end. Long-term debt, including current maturities, was approximately $1.742 billion; operating lease liabilities totaled approximately $1.438 billion. The company reported $175.5 million of available borrowing capacity and was in compliance with debt covenants. Stockholders’ deficit was $702.6 million.
Material changes and management commentary
- Revenue fell 7.7% in Q2 and 7.6% YTD. Company restaurant sales declined $35.5 million in Q2, chiefly reflecting Del Taco refranchising; Del Taco company-operated sales fell 36.4% Q2 and 36.2% YTD. Del Taco franchise revenue grew as refranchised restaurants moved to the franchise model.
- Jack in the Box system same-store sales declined 2.5% in Q2 and 0.7% YTD; Del Taco system same-store sales declined 1.4% in Q2 and increased 0.7% YTD. Lower transactions offset positive average-check changes.
- Operating earnings declined 12.1% in Q2 and 17.8% YTD. YTD results included $9.9 million of acquisition, integration and strategic initiative costs, compared with $2.9 million a year earlier; prior-year property-disposition gains also affected the comparison.
- YTD operating cash flow turned negative, primarily due to working-capital outflows, including payment of deferred taxes, the final Torrez litigation settlement payment, and advertising accrual timing. Investing cash flow was $(55.9) million, while financing cash flow was $(75.1) million.
- The company repurchased 0.5 million shares for $40.3 million YTD and paid $17.2 million in dividends. The board declared a further $0.44-per-share dividend on May 10, 2024.
Outlook, risks and contingencies
No specific earnings or sales guidance is provided in the supplied filing text. Management expects operating cash flow, together with its securitized financing and revolving credit facilities, to cover capital expenditures, working capital and debt service for at least the next 12 months and the foreseeable future. It expects to pursue property sales and primarily Del Taco refranchising as potential sources of capital.
Key disclosed risks include labor and commodity cost inflation, consumer demand and competition, franchisee financial health, food safety and supply-chain disruptions, regulatory and litigation exposure, integration and development risks, cybersecurity and technology dependence, and substantial debt and securitization restrictions. Legal accruals were $15.9 million; the Gessele matter remains under appeal, with continued accrual of post-judgment interest. The company disclosed up to $21.0 million of potential undiscounted lease-guarantee payments related to its former Qdoba business, but recorded no liability, citing remote likelihood of payment.
Important facts for investors to verify
- Whether refranchising proceeds and related franchise revenue can offset lower company-operated sales and changes in restaurant mix.
- The drivers and sustainability of negative YTD operating cash flow, including working-capital timing and elevated capital expenditures.
- Debt service, borrowing availability and compliance with securitized-debt requirements, especially given total debt of about $1.742 billion.
- Progress and costs of Del Taco strategic initiatives, and developments in the Gessele appeal and other legal matters.
- Future sales and transaction trends: same-store sales were negative for both brands in Q2, and Del Taco company-operated transactions fell 5.0%.