Jack in the Box Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended October 1, 2023 (52 weeks). This is an annual filing, not a standalone fourth-quarter report. Jack in the Box operated and franchised 2,186 restaurants; Del Taco, acquired in March 2022, had 592.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $1,692.3 million | $1,468.1 million | +15.3% |
| Earnings from operations | $278.8 million | $248.3 million | +12.3% |
| Net earnings | $130.8 million | $115.8 million | +13.0% |
| Diluted EPS | $6.30 | $5.45 | +15.6% |
| Cash from operating activities | $215.0 million | $162.9 million | +$52.1 million |
| Capital expenditures | $75.0 million | $46.5 million | +$28.5 million |
Operating margin was approximately 16.5%, compared with 16.9%; net margin was approximately 7.7%, compared with 7.9%. Operating cash flow less capital expenditures was approximately $140.1 million, versus $116.4 million.
- Sales trends: Jack in the Box system same-store sales increased 7.3%; Del Taco system same-store sales increased 1.7%. Jack in the Box franchised restaurant sales were $4.006 billion; Del Taco franchised sales were $541.9 million. These franchise sales are not Company revenue.
- Liquidity: Cash was $157.7 million, plus $28.3 million restricted cash. The Company reported $175.5 million of available borrowing capacity across its variable funding notes and revolving facility. Management expected operating cash flow and available facilities to cover requirements for at least the next 12 months.
- Debt: Total debt was $1.776 billion, down from $1.855 billion. Net interest expense was $82.4 million, compared with $86.1 million. The Company reported compliance with debt covenants and no rapid amortization events at year-end.
- Shareholder returns: The Company repurchased 1.1 million shares for $90.7 million and declared dividends totaling $1.76 per share during the year.
Material changes versus the prior year
- Revenue and earnings increased, but the comparison is affected by Del Taco contributing 52 weeks of operations in FY2023 versus approximately 30 weeks in FY2022.
- Jack in the Box same-store sales rose 7.3%, compared with 0.9% in FY2022. Del Taco same-store sales rose 1.7%, slowing from 3.9% in FY2022. Jack in the Box company-operated same-store sales growth included 8.5% price increases; Del Taco’s included approximately 9.6% price increases, while transactions fell 4.0%.
- Del Taco refranchised 111 company-operated restaurants, increasing its franchised share from 51% to 71%. The effort generated 109 new development commitments across both brands. Refranchising contributed $18.0 million of gains on sales of company-operated restaurants.
- Operating cash flow increased, primarily due to working-capital timing, including a $50.3 million deferral of FY2023 income taxes and lower incentive compensation payments. The deferred taxes and a $25.5 million remaining Torrez settlement payment were expected cash uses in FY2024’s first quarter.
Outlook, commentary, risks and unusual items
- Management expects FY2024 annual wage inflation of approximately 10%–12% for both brands versus FY2023. California AB 1228, effective April 2024, is expected to add labor costs.
- Management said it would adjust the pace and sequence of Del Taco refranchising to balance earnings impacts while pursuing development commitments and expected reductions in general and administrative costs.
- Food commodity costs increased approximately 8.4% for Jack in the Box and 5.9% for Del Taco in FY2023. Management cited continued exposure to labor, commodity and utility inflation, limited ability to pass through costs, competition, and consumer spending conditions.
- Other notable items included $8.3 million of Gessele litigation charges, a $1.6 million reversal related to J&D Restaurant Group, and $4.6 million of restaurant impairment charges, primarily for underperforming Del Taco locations. Net COLI results and gains on property dispositions also affected year-over-year expenses.
- The Company accrued $40.9 million for legal matters. The $50.0 million Torrez settlement was approved in August 2023; half was paid before year-end and the remaining $25.5 million was due November 27, 2023. A $21.7 million maximum potential exposure under guarantees of former Qdoba leases was not accrued because management considered payment remote.
- Del Taco goodwill fair value exceeded carrying value by approximately 9% at the impairment test date; the Del Taco trademark headroom was approximately 13%. KPMG identified Del Taco goodwill valuation, particularly revenue growth assumptions, as a critical audit matter, while issuing an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether the Del Taco refranchising program converts development commitments into openings at a pace that offsets near-term earnings effects.
- Actual FY2024 wage and commodity cost trends, including the impact of California AB 1228 and the Company’s ability to recover higher costs through pricing.
- Cash flow after the FY2023 tax deferral and Torrez settlement payments, and the Company’s debt service and liquidity under its securitized financing structure.
- Del Taco’s sales performance, transaction trends, and goodwill and trademark valuation headroom, given the sensitivity of impairment estimates to revenue growth assumptions.
- Updates on legal matters, including the Gessele appeal, the J&D appeal, and the final payment and resolution of the Torrez settlement.