Jack In The Box Inc. Reports Operating Results (10-Q)
Jack In The Box Inc. has a market cap of $1.29 billion; its shares were traded at around $23.33 with a P/E ratio of 10.5 and P/S ratio of 0.5. Jack In The Box Inc. had an annual average earning growth of 9% over the past 10 years. GuruFocus rated Jack In The Box Inc. the business predictability rank of 2.5-star.JACK is in the portfolios of John Buckingham of Al Frank Asset Management, Inc., Kenneth Fisher of Fisher Asset Management, LLC, Robert Olstein of Olstein Financial Alert Fund, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: As we execute our franchising strategy, which includes the sale of restaurants to franchisees, we expect the number of company-operated restaurants and the related sales to continually decrease while revenues from franchised restaurants increase. Restaurant sales decreased $80.0 million, or 17.1%, in the quarter and $196.6 million, or 17.9%, year-to-date. These decreases are due to a decline in the number of Jack in the Box company-operated restaurants, partially offset by an increase in the number of Qdoba company-operated restaurants, and a decline in same-store sales at Jack in the Box restaurants. Same-store sales at Jack in the Box company-operated restaurants decreased 8.6% in the quarter and 10.1% year-to-date compared with a year ago.
Distribution sales to Jack in the Box and Qdoba franchisees grew $23.3 million and $36.4 million, respectively, from a year ago, primarily reflecting an increase in the number of franchised restaurants serviced by our distribution centers, partially offset by lower per-store-average (PSA) unit volumes and lower commodity prices.
Distribution costs of sales increased $23.9 million and $38.7 million, respectively, from last year primarily reflecting an increase in the related sales. As a percentage of distribution sales, these costs increased to 100.2% in the quarter and 100.5% year-to-date compared with 99.4% and 99.1%, respectively, a year ago due primarily to deleverage from lower PSA sales at Jack in the Box franchised restaurants.
Advertising costs, primarily contributions to our marketing fund which are determined as a percentage of restaurant sales, decreased reflecting our refranchising strategy and lower same-store sales at Jack in the Box company-operated restaurants. Facility charges, which include impairment charges, accelerated depreciation and other costs related to the disposition of property and equipment, decreased primarily due to the impairment of fewer underperforming restaurants and the substantial completion of our Jack in the Box exterior re-image enhancements at the end of last fiscal year. In the quarter, the decrease was partially offset by impairment and other costs related to the closure of two franchised restaurants. Changes in the cash surrender value of our COLI policies, net of changes in our non-qualified deferred compensation obligation supported by these policies are subject to market fluctuations. The year-to-date market adjustments of the investments were a $2.8 million benefit in 2010 and a $3.9 million reduction in 2009. The increase in pension and postretirement benefits expense principally relates to a decrease in our discount rate.
Gains on the sale of company-operated restaurants to franchisees, net were $3.0 million in the quarter from the sale of 30 Jack in the Box restaurants compared with $17.2 million from the sale of 46 restaurants a year ago. The restaurants sold in the quarter had lower-than-average sales volumes and cash flows; however, we expect these transactions to be accretive to future earnings. Year-to-date, gains were $12.4 million compared with $35.6 million last year from the sale of 53 and 75 restaurants, respectively. The changes in gains relates to the number of restaurants sold and the specific sales and cash flows of those restaurants.
Cash and cash equivalents decreased $40.5 million to $12.5 million at the end of the quarter from $53.0 million at the beginning of the fiscal year. This decrease is primarily due to repurchases of common stock, property and equipment expenditures and net repayments under our credit facility. These uses of cash were offset in part by cash flows provided by operating activities, and proceeds and collections of notes receivable from the sale of restaurants to franchisees. We generally reinvest available cash flows from operations to develop new restaurants or enhance existing restaurants, to reduce debt and to repurchase shares of our common stock.
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