Jack in the Box Inc. Reports First Quarter FY 2020 Earnings; Reaffirms Fiscal 2020 Guidance; Declares Quarterly Cash Dividend


SAN DIEGO–()–Jack in the Box Inc. (NASDAQ: JACK) today reported financial results for the first quarter ended January 19, 2020.

Increase/(Decrease) in same-store sales:

 

 

 

16 Weeks Ended

 

 

 

January 19, 2020

 

January 20, 2019

 

Company

 

2.9

%

 

0.5

%

 

Franchise

 

1.6

%

 

(0.1

)%

 

System

 

1.7

%

 

(0.1

)%

Jack in the Box® system same-store sales increased 1.7 percent for the quarter. Company same-store sales increased 2.9 percent in the first quarter driven by average check growth of 2.6 percent and transaction growth of 0.3 percent.

Lenny Comma, chairman and chief executive officer, said, “Our same-store sales growth in the first quarter resulted from guests continuing to respond favorably to our breadth of promotions, including compelling bundles at competitive price points and innovation on products guests crave. Looking to the remainder of 2020, we reiterate our annual targets as we leverage this strategy and continue making progress on our strategic initiatives and long-term goals. We remain committed to improving the guest experience through operations consistency and reducing wait times, targeting investments designed to maximize our returns, and serving indulgent food our guests crave.”

Earnings from continuing operations were $7.9 million, or $0.33 per diluted share, for the first quarter of fiscal 2020 compared with $31.1 million, or $1.19 per diluted share, for the first quarter of fiscal 2019.

Operating Earnings Per Share(1), a non-GAAP measure, were $1.17 in the first quarter of fiscal 2020 compared with $1.35 in the prior year quarter. A reconciliation of non-GAAP Operating Earnings Per Share to GAAP results is provided below, with additional information included in the attachment to this release.

 

 

16 Weeks Ended

 

 

January 19, 2020

 

January 20, 2019

Diluted earnings per share from continuing operations – GAAP

 

$

0.33

 

 

$

1.19

 

Restructuring charges

 

 

0.03

 

 

 

0.17

 

Gains on the sale of company-operated restaurants

 

 

(0.05

)

 

 

(0.01

)

Gain on sale of corporate office building

 

 

(0.33

)

 

 

Pension settlement charge

 

 

1.18

 

 

 

Tax deficiency from share-based compensation arrangements

 

 

0.01

 

 

 

Operating Earnings Per Share – non-GAAP

 

$

1.17

 

 

$

1.35

 

Adjusted EBITDA(2), a non-GAAP measure, was $76.6 million in the first quarter of fiscal 2020 compared with $83.0 million for the prior year quarter. Excluded from Operating Earnings per Share(1) and Adjusted EBITDA(2) were two non-recurring items: a one-time non-cash pension settlement charge of approximately $38.6 million related to the partial settlement of the company’s pension plan, which reduces the company’s benefit obligation and subsequently the risk associated with the company’s pension plan, and the sale of one of the company’s corporate office buildings, which resulted in a gain of approximately $10.8 million.

Restaurant-Level Margin(3), a non-GAAP measure, decreased by 140 basis points to 24.8 percent of company restaurant sales in the first quarter of fiscal 2020 from 26.2 percent a year ago. The decrease was due primarily to commodity and wage inflation, partially offset by the benefit of lower maintenance and repairs expenses. Food and packaging costs, as a percentage of company restaurant sales, increased 100 basis points in the quarter driven by higher ingredient costs, which were partially offset by menu price increases. Commodity costs increased 4.9 percent in the quarter as compared with the prior year.

Franchise-Level Margin(3), a non-GAAP measure, as a percentage of total franchise revenues, was 38.5 percent in the first quarter of fiscal 2020. This is the first quarter reflecting adoption of ASC 842, the new lease accounting standard, which resulted in grossing up franchise rental revenues by approximately $12.8 million and franchise occupancy expenses by approximately $13.3 million in the first quarter. Without these adjustments, Franchise-Level Margin(3) would have been 41.4 percent. This compares with 42.6 percent in the prior year quarter. Franchise-Level Margin(3) decreased by $2.2 million in the quarter, primarily driven by an increase in franchisee bad debt expense, which increased franchise support and other costs.

Consistent with prior guidance, SG&A for the full year is expected to be 8.0 percent to 8.5 percent of revenues, and G&A, which excludes advertising, is expected to be 1.7 percent to 1.9 percent of system-wide sales. In the first quarter of fiscal 2020, however, both SG&A and G&A expenses were elevated outside this guidance range, driven by G&A increases. As a percentage of system-wide sales, G&A was 2.1 percent in the first quarter of fiscal 2020 compared with 1.6 percent in the 2019 quarter. The $6.0 million increase in G&A, which excludes advertising, was primarily driven by:

  • $3.8 million related to litigation settlements;
  • a $3.0 million increase in incentive compensation; and
  • a $2.8 million increase in other G&A primarily driven by a decrease in transition services income resulting from the sale of Qdoba(4).

These increases were partially offset by:

  • mark-to-market adjustments on investments supporting the company’s non-qualified retirement plans resulting in a $3.5 million year-over-year decrease in G&A.

Advertising costs, which are included in SG&A, decreased $1.9 million in the first quarter due to incremental spending in the prior year quarter. In the first quarter of fiscal 2020, SG&A expenses increased by $4.2 million and were 9.2 percent of revenues compared with 8.3 percent in the prior year quarter.

Impairment and other charges, net, decreased $17.0 million in the first quarter. The decrease was due primarily to a $10.8 million gain related to the sale of one of the company’s corporate office buildings. In addition, restructuring charges, which are included in Impairment and other charges, net, in the accompanying condensed consolidated statements of earnings, decreased $4.8 million in the quarter.

Interest expense, net, increased by $2.6 million in the first quarter driven by higher amortization of deferred financing fees related to the refinancing of the company’s senior credit facility and higher debt balances.

The effective tax rate for the first quarter of fiscal 2020 was 28.4 percent. Excluding non-recurring impacts of restructuring, gains on the sale of company-owned restaurants and one of the company’s corporate office buildings, share-based compensation, and pension settlements, the effective tax rate in the first quarter was 26.7 percent.

Capital Allocation

The company repurchased approximately 1.9 million shares of its common stock in the first quarter of fiscal 2020 at an average price of $81.41 per share for an aggregate cost of $153.5 million. This leaves approximately $122 million remaining under share repurchase programs authorized by its Board of Directors, consisting of $22 million remaining that expire in November 2020 and approximately $100 million remaining that expire in November 2021.

The company also announced today that on February 18, 2020, its Board of Directors declared a cash dividend of $0.40 per share on the company’s common stock. The dividend is payable on March 17, 2020, to shareholders of record at the close of business on March 3, 2020.

Guidance

This release includes forward-looking guidance for certain non-GAAP financial measures, including Restaurant-Level Margin and Adjusted EBITDA. The company is unable without unreasonable effort to provide reconciliations of these forward-looking non-GAAP measures.

Reaffirming Fiscal Year 2020 Guidance

The following guidance and underlying assumptions reflect the company’s current expectations for the fiscal year ending September 27, 2020, and is consistent with prior guidance. Fiscal 2020 and fiscal 2019 are 52-week years, with 16 weeks in the first quarter, and 12 weeks in each of the second, third and fourth quarters.

  • System same-store sales growth of approximately 1.5 to 3.0 percent.
  • Restaurant-Level Margin of approximately 25.0 percent of company restaurant sales, which includes expected commodity cost inflation of approximately 4.0 percent, and high-single-digit wage inflation.
  • SG&A as a percentage of revenues of approximately 8.0 to 8.5 percent.
  • G&A as a percentage of system-wide sales of approximately 1.7 to 1.9 percent.
  • Approximately 25 to 35 new restaurants opening system-wide, substantially all of which will be franchise locations.
  • Capital expenditures and tenant improvement allowances of approximately $45 to $55 million, collectively, excluding purchases of assets held for sale and leaseback.
  • Tax rate of approximately 26.0 to 27.0 percent, subject to fluctuations arising from the impact of excess tax benefits from share-based compensation arrangements.
  • Adjusted EBITDA of approximately $265 to $275 million.

Conference Call

The company will host a conference call for financial analysts and investors on Thursday, February 20, 2020, beginning at 8:30 a.m. PT (11:30 a.m. ET). The conference call will be broadcast live over the Internet via the Jack in the Box Inc. corporate website. To access the live call through the Internet, log onto the Investors section of the Jack in the Box Inc. website at http://investors.jackinthebox.com at least 15 minutes prior to the event in order to download and install any necessary audio software. A replay of the call will be available through the Jack in the Box Inc. corporate website for 21 days, beginning at approximately 11:30 a.m. PT on February 20, 2020.

About Jack in the Box Inc.

Jack in the Box Inc. (NASDAQ: JACK), based in San Diego, is a restaurant company that operates and franchises Jack in the Box® restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. For more information on Jack in the Box, including franchising opportunities, visit www.jackinthebox.com.

(1) Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains or losses on the sale of company-operated restaurants, restructuring charges, gain on sale of corporate office building, pension settlement charge, and the tax deficiencies/excess tax benefits from share-based compensation arrangements. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”

(2) Adjusted EBITDA represents net earnings on a GAAP basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization, the amortization of franchise tenant improvement allowances and settlement charges. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”

(3) Restaurant-Level Margin and Franchise-Level Margin are non-GAAP measures. These non-GAAP measures are reconciled to earnings from operations, the most comparable GAAP measure, in the attachment to this release. See “Reconciliation of Non-GAAP Measurements to GAAP Results.”

(4) In the first quarter of fiscal 2018, the company entered into a definitive agreement to sell Qdoba Restaurant Corporation (“Qdoba”), a wholly owned subsidiary of the company, to certain funds managed by affiliates of Apollo Global Management, LLC. The transaction closed on March 21, 2018. After entering a Transition Services Agreement, services were provided to Qdoba at cost for a period of up to 12 months, with two 3-month extensions available for certain services. As of September 21, 2019, the company is no longer providing transition services to Qdoba.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goals,” “guidance,” “intend,” “plan,” “project,” “may,” “will,” “would” and similar expressions. These statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate. These estimates and assumptions involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause our actual results to differ materially from any forward-looking statements include, but are not limited to: the success of new products, marketing initiatives and restaurant remodels and drive-thru enhancements; the impact of competition, unemployment, trends in consumer spending patterns and commodity costs; the company’s ability to reduce G&A and operate efficiently; the company’s ability to achieve and manage its planned growth, which is affected by the availability of a sufficient number of suitable new restaurant sites, the performance of new restaurants, risks relating to expansion into new markets and successful franchisee development; litigation risks; risks associated with disagreements with franchisees; supply chain disruption; food-safety incidents or negative publicity impacting the reputation of the company’s brand; risks associated with the amount and terms of the securitized debt issued by certain of our wholly owned subsidiaries; and stock market volatility. These and other factors are discussed in the company’s annual report on Form 10-K and its periodic reports on Form 10-Q filed with the Securities and Exchange Commission, which are available online at or in hard copy upon request. The company undertakes no obligation to update or revise any forward-looking statement, whether as the result of new information or otherwise.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

16 Weeks Ended

 

 

January 19,

2020

 

January 20,

2019

Revenues:

 

 

 

 

Company restaurant sales

 

$

105,364

 

 

$

102,832

 

Franchise rental revenues

 

 

96,084

 

 

 

83,890

 

Franchise royalties and other

 

 

52,466

 

 

 

52,250

 

Franchise contributions for advertising and other services

 

 

53,759

 

 

 

51,814

 

 

 

 

307,673

 

 

 

290,786

 

Operating costs and expenses, net:

 

 

 

 

Company restaurant costs (excluding depreciation and amortization):

 

 

 

 

Food and packaging

 

 

31,348

 

 

 

29,616

 

Payroll and employee benefits

 

 

31,890

 

 

 

30,274

 

Occupancy and other

 

 

15,958

 

 

 

16,013

 

Total company restaurant costs

 

 

79,196

 

 

 

75,903

 

Franchise occupancy expenses

 

 

64,517

 

 

 

50,713

 

Franchise support and other costs

 

 

4,676

 

 

 

2,845

 

Franchise advertising and other services expenses

 

 

55,224

 

 

 

54,270

 

Selling, general and administrative expenses

 

 

28,248

 

 

 

24,083

 

Depreciation and amortization

 

 

16,728

 

 

 

17,169

 

Impairment and other charges, net

 

 

(9,291

)

 

 

7,698

 

Gains on the sale of company-operated restaurants

 

 

(1,575

)

 

 

(219

)

 

 

 

237,723

 

 

 

232,462

 

Earnings from operations

 

 

69,950

 

 

 

58,324

 

Other pension and post-retirement expenses, net

 

 

38,978

 

 

 

456

 

Interest expense, net

 

 

19,942

 

 

 

17,374

 

Earnings from continuing operations and before income taxes

 

 

11,030

 

 

 

40,494

 

Income taxes

 

 

3,133

 

 

 

9,373

 

Earnings from continuing operations

 

 

7,897

 

 

 

31,121

 

Earnings from discontinued operations, net of taxes

 

 

 

 

2,977

 

Net earnings

 

$

7,897

 

 

$

34,098

 

 

 

 

 

 

Net earnings per share – basic:

 

 

 

 

Earnings from continuing operations

 

$

0.33

 

 

$

1.20

 

Earnings from discontinued operations

 

 

 

 

0.11

 

Net earnings per share (1)

 

$

0.33

 

 

$

1.32

 

Net earnings per share – diluted:

 

 

 

 

Earnings from continuing operations

 

$

0.33

 

 

$

1.19

 

Earnings from discontinued operations

 

 

 

 

0.11

 

Net earnings per share (1)

 

$

0.33

 

 

$

1.31

 

Weighted-average shares outstanding:

 

 

 

 

Basic

 

 

23,741

 

 

 

25,907

 

Diluted

 

 

23,936

 

 

 

26,128

 

 

 

 

 

 

Dividends declared per common share

 

$

0.40

 

 

$

0.40

 

___________________________

(1) Earnings per share may not add due to rounding.

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

January 19,

2020

 

September 29,

2019

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$

19,914

 

 

$

125,536

 

Restricted cash

 

 

18,372

 

 

 

26,025

 

Accounts and other receivables, net

 

 

53,576

 

 

 

45,235

 

Inventories

 

 

2,029

 

 

 

1,776

 

Prepaid expenses

 

 

13,665

 

 

 

9,015

 

Current assets held for sale

 

 

7,760

 

 

 

16,823

 

Other current assets

 

 

3,037

 

 

 

2,718

 

Total current assets

 

 

118,353

 

 

 

227,128

 

Property and equipment:

 

 

 

 

Property and equipment, at cost

 

 

1,155,356

 

 

 

1,176,241

 

Less accumulated depreciation and amortization

 

 

(793,851

)

 

 

(784,307

)

Property and equipment, net

 

 

361,505

 

 

 

391,934

 

Other assets:

 

 

 

 

Operating lease right-of-use asset

 

 

884,213

 

 

Intangible assets, net

 

 

37

 

 

 

425

 

Goodwill

 

 

46,747

 

 

 

46,747

 

Deferred tax assets

 

 

66,675

 

 

 

85,564

 

Other assets, net

 

 

212,783

 

 

 

206,685

 

Total other assets

 

 

1,210,455

 

 

 

339,421

 

 

 

$

1,690,313

 

 

$

958,483

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

Current liabilities:

 

 

 

 

Current maturities of long-term debt

 

$

13,786

 

 

$

774

 

Current operating lease liabilities

 

 

158,779

 

 

Accounts payable

 

 

23,467

 

 

 

37,066

 

Accrued liabilities

 

 

118,289

 

 

 

120,083

 

Total current liabilities

 

 

314,321

 

 

 

157,923

 

Long-term liabilities:

 

 

 

 

Long-term debt, net of current maturities

 

 

1,262,737

 

 

 

1,274,374

 

Long-term operating lease liabilities, net of current portion

 

 

767,819

 

 

Other long-term liabilities

 

 

186,589

 

 

 

263,770

 

Total long-term liabilities

 

 

2,217,145

 

 

 

1,538,144

 

Stockholders’ deficit:

 

 

 

 

Preferred stock $0.01 par value, 15,000,000 shares authorized, none issued

 

 

Common stock $0.01 par value, 175,000,000 shares authorized, 82,255,912 and 82,159,002 issued, respectively

 

 

823

 

 

 

822

 

Capital in excess of par value

 

 

483,739

 

 

 

480,322

 

Retained earnings

 

 

1,572,586

 

 

 

1,577,034

 

Accumulated other comprehensive loss

 

 

(88,995

)

 

 

(140,006

)

Treasury stock, at cost, 59,646,773 and 57,760,573 shares, respectively

 

 

(2,809,306

)

 

 

(2,655,756

)

Total stockholders’ deficit

 

 

(841,153

)

 

 

(737,584

)

 

 

$

1,690,313

 

 

$

958,483

 

JACK IN THE BOX INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

16 Weeks Ended

 

 

January 19, 2020

 

January 20, 2019

Cash flows from operating activities:

 

 

 

 

Net earnings

 

$

7,897

 

 

$

34,098

 

Earnings from discontinued operations

 

 

 

 

2,977

 

Earnings from continuing operations

 

 

7,897

 

 

 

31,121

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

16,728

 

 

 

17,169

 

Amortization of franchise tenant improvement allowances and other

 

 

1,151

 

 

 

530

 

Deferred finance cost amortization

 

 

1,755

 

 

 

704

 

Tax deficiency (excess tax benefit) from share-based compensation arrangements

 

 

196

 

 

 

(50

)

Deferred income taxes

 

 

2,010

 

 

 

(783

)

Share-based compensation expense

 

 

3,184

 

 

 

1,909

 

Pension and postretirement expense

 

 

38,978

 

 

 

456

 

(Gains) losses on cash surrender value of company-owned life insurance

 

 

(3,374

)

 

 

2,863

 

Gains on the sale of company-operated restaurants

 

 

(1,575

)

 

 

(219

)

(Gains) losses on the disposition of property and equipment, net

 

 

(10,437

)

 

 

635

 

Non-cash operating lease costs

 

 

(7,668

)

 

 

Impairment charges and other

 

 

 

 

387

 

Changes in assets and liabilities, excluding dispositions:

 

 

 

 

Accounts and other receivables

 

 

(5,619

)

 

 

(3,154

)

Inventories

 

 

(253

)

 

 

(232

)

Prepaid expenses and other current assets

 

 

(4,957

)

 

 

6,224

 

Accounts payable

 

 

(7,984

)

 

 

6,365

 

Accrued liabilities

 

 

(1,558

)

 

 

(16,298

)

Pension and postretirement contributions

 

 

(2,025

)

 

 

(2,111

)

Franchise tenant improvement allowance distributions

 

 

(3,682

)

 

 

(3,247

)

Other

 

 

(80

)

 

 

(4,668

)

Cash flows provided by operating activities

 

 

22,687

 

 

 

37,601

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(7,202

)

 

 

(11,183

)

Proceeds from the sale of property and equipment

 

 

20,618

 

 

 

270

 

Proceeds from the sale and leaseback of assets

 

 

17,373

 

 

 

Proceeds from the sale of company-operated restaurants

 

 

1,575

 

 

 

133

 

Collections on notes receivable

 

 

 

 

6,517

 

Cash flows provided by (used in) investing activities

 

 

32,364

 

 

 

(4,263

)

Cash flows from financing activities:

 

 

 

 

Borrowings on revolving credit facilities

 

 

 

 

114,298

 

Repayments of borrowings on revolving credit facilities

 

 

 

 

(117,300

)

Principal repayments on debt

 

 

(198

)

 

 

(10,907

)

Debt issuance costs

 

 

(216

)

 

 

(17

)

Dividends paid on common stock

 

 

(9,412

)

 

 

(10,305

)

Proceeds from issuance of common stock

 

 

184

 

 

 

114

 

Repurchases of common stock

 

 

(155,576

)

 

 

(14,362

)

Change in book overdraft

 

 

 

 

9,234

 

Payroll tax payments for equity award issuances

 

 

(3,108

)

 

 

(2,498

)

Cash flows used in financing activities

 

 

(168,326

)

 

 

(31,743

)

Net (decrease) increase in cash and restricted cash

 

 

(113,275

)

 

 

1,595

 

Cash and restricted cash at beginning of period

 

 

151,561

 

 

 

2,705

 

Cash and restricted cash at end of period

 

$

38,286

 

 

$

4,300

 

JACK IN THE BOX INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

The following table presents certain income and expense items included in our condensed consolidated statements of earnings as a percentage of total revenues, unless otherwise indicated. Percentages may not add due to rounding.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS DATA

(Unaudited)

 

 

16 Weeks Ended

 

 

January 19,

2020

 

January 20,

2019

Revenues:

 

 

 

 

Company restaurant sales

 

34.2

%

 

35.4

%

Franchise rental revenues

 

31.2

%

 

28.8

%

Franchise royalties and other

 

17.1

%

 

18.0

%

Franchise contributions for advertising and other services

 

17.5

%

 

17.8

%

Total revenues

 

100.0

%

 

100.0

%

Operating costs and expenses, net:

 

 

 

 

Company restaurant costs:

 

 

 

 

Food and packaging (1)

 

29.8

%

 

28.8

%

Payroll and employee benefits (1)

 

30.3

%

 

29.4

%

Occupancy and other (1)

 

15.1

%

 

15.6

%

Total company restaurant costs (1)

 

75.2

%

 

73.8

%

Franchise occupancy expenses (2)

 

67.1

%

 

60.5

%

Franchise support and other costs (3)

 

8.9

%

 

5.4

%

Franchise advertising and other services expenses (4)

 

102.7

%

 

104.7

%

Selling, general and administrative expenses

 

9.2

%

 

8.3

%

Depreciation and amortization

 

5.4

%

 

5.9

%

Impairment and other charges, net

 

(3.0

)%

 

2.6

%

Gains on the sale of company-operated restaurants

 

(0.5

)%

 

(0.1

)%

Earnings from operations

 

22.7

%

 

20.1

%

Income tax rate (5)

 

28.4

%

 

23.1

%

____________________________

 (1)

 

As a percentage of company restaurant sales.

 (2)

 

As a percentage of franchise rental revenues.

 (3)

 

As a percentage of franchise royalties and other.

 (4)

 

As a percentage of franchise contributions for advertising and other services.

 (5)

 

As a percentage of earnings from continuing operations and before income taxes.

Jack in the Box system sales (dollars in thousands):
 

 

 

16 Weeks Ended

 

 

January 19, 2020

 

January 20, 2019

Company-owned restaurant sales

 

$

105,364

 

 

$

102,832

 

Franchised restaurant sales (1)

 

979,345

 

 

959,960

 

System sales (1)

 

$

1,084,709

 

 

$

1,062,792

 

____________________________

 (1)

 

Franchised restaurant sales represent sales at franchised restaurants and are revenues of our franchisees. System sales include company and franchised restaurant sales. We do not record franchised sales as revenues; however, our royalty revenues, marketing fees and percentage rent revenues are calculated based on a percentage of franchised sales.  We believe franchised and system restaurant sales information is useful to investors as they have a direct effect on the company’s profitability.

The following table summarizes the year-to-date changes in the number and mix of Jack in the Box company and franchise restaurants:

SUPPLEMENTAL RESTAURANT ACTIVITY INFORMATION

(Unaudited)

 

 

2020

 

2019

 

 

Company

 

Franchise

 

Total

 

Company

 

Franchise

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

137

 

 

2,106

 

 

2,243

 

 

137

 

 

2,100

 

 

2,237

 

New

 

 

 

11

 

 

11

 

 

 

 

9

 

 

9

 

Refranchised

 

 

 

 

 

 

 

 

 

 

 

 

Closed

 

 

 

(10

)

 

(10

)

 

 

 

(5

)

 

(5

)

End of period

 

137

 

 

2,107

 

 

2,244

 

 

137

 

 

2,104

 

 

2,241

 

% of system

 

6

%

 

94

%

 

100

%

 

6

%

 

94

%

 

100

%

JACK IN THE BOX INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS

(Unaudited)

To supplement the consolidated financial statements, which are presented in accordance with GAAP, the company uses the following non-GAAP measures: Operating Earnings Per Share, Adjusted EBITDA, Restaurant-Level Margin and Franchise-Level Margin. Management believes that these measurements, when viewed with the company’s results of operations in accordance with GAAP and the accompanying reconciliations in the tables below, provide useful information about operating performance and period-over-period changes, and provide additional information that is useful for evaluating the operating performance of the company’s core business without regard to potential distortions.

Operating Earnings Per Share

Operating Earnings Per Share represents diluted earnings per share from continuing operations on a GAAP basis excluding gains or losses on the sale of company-operated restaurants, restructuring charges, the gain on sale of corporate office building, the pension settlement charge, and the tax deficiency/excess tax benefit from share-based compensation arrangements which are now recorded as a component of income tax expense versus equity prior to fiscal year 2019. Operating Earnings Per Share should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Operating Earnings Per Share provides investors with a meaningful supplement of the company’s operating performance and period-over-period changes without regard to potential distortions.

Below is a reconciliation of non-GAAP Operating Earnings Per Share to the most directly comparable GAAP measure, diluted earnings per share from continuing operations. Figures may not add due to rounding.

 

 

16 Weeks Ended

 

 

January 19, 2020

 

January 20, 2019

Diluted earnings per share from continuing operations – GAAP

 

$

0.33

 

 

$

1.19

 

Restructuring charges

 

 

0.03

 

 

 

0.17

 

Gains on the sale of company-operated restaurants

 

 

(0.05

)

 

 

(0.01

)

Gain on sale of corporate office building

 

 

(0.33

)

 

 

Pension settlement charge

 

 

1.18

 

 

 

Tax deficiency from share-based compensation arrangements

 

 

0.01

 

 

 

Operating earnings per share – non-GAAP

 

$

1.17

 

 

$

1.35

 

Adjusted EBITDA

Adjusted EBITDA represents net earnings on a GAAP basis excluding earnings or losses from discontinued operations, income taxes, interest expense, net, pension settlement charge, gains or losses on the sale of company-operated restaurants, impairment and other charges, net, depreciation and amortization and the amortization of franchise tenant improvement allowances. Adjusted EBITDA should be considered as a supplement to, not as a substitute for, analysis of results as reported under U.S. GAAP or other similarly titled measures of other companies. Management believes Adjusted EBITDA is useful to investors to gain an understanding of the factors and trends affecting the company’s ongoing cash earnings, from which capital investments are made and debt is serviced.

Below is a reconciliation of non-GAAP Adjusted EBITDA to the most directly comparable GAAP measure, net earnings (in thousands).

 

 

16 Weeks Ended

 

 

January 19, 2020

 

 

January 20, 2019

Net earnings – GAAP

 

$

7,897

 

 

 

$

34,098

 

Earnings from discontinued operations, net of taxes

 

 

 

 

 

(2,977

)

Income taxes

 

 

3,133

 

 

 

 

9,373

 

Interest expense, net

 

 

19,942

 

 

 

 

17,374

 

Pension settlement charge

 

 

38,606

 

 

 

 

Gains on the sale of company-operated restaurants

 

 

(1,575

)

 

 

 

(219

)

Impairment and other charges, net

 

 

(9,291

)

 

 

 

7,698

 

Depreciation and amortization

 

 

16,728

 

 

 

 

17,169

 

Amortization of franchise tenant improvement allowances and other

 

 

1,151

 

 

 

 

530

 

Adjusted EBITDA – non-GAAP

 

$

76,591

 

 

 

$

83,046

 

Restaurant-Level Margin

Restaurant-Level Margin is defined as company restaurant sales less restaurant operating costs (food and packaging, labor, and occupancy costs) and is neither required by, nor presented in accordance with GAAP. Restaurant-Level Margin excludes revenues and expenses of our franchise operations and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, impairment and other charges, net, gains or losses on the sale of company-operated restaurants, and other costs that are considered normal operating costs. As such, Restaurant-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Restaurant-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Restaurant-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company’s core business operating results, as well as a comparison to those of other similar companies. Management utilizes Restaurant-Level Margin as a key performance indicator to evaluate the profitability of company-owned restaurants.

Below is a reconciliation of non-GAAP Restaurant-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):

 

 

16 Weeks Ended

 

 

January 19, 2020

 

 

January 20, 2019

Earnings from operations – GAAP

 

$

69,950

 

 

 

$

58,324

 

Franchise rental revenues

 

 

(96,084

)

 

 

 

(83,890

)

Franchise royalties and other

 

 

(52,466

)

 

 

 

(52,250

)

Franchise contributions for advertising and other services

 

 

(53,759

)

 

 

 

(51,814

)

Franchise occupancy expenses

 

 

64,517

 

 

 

 

50,713

 

Franchise support and other costs

 

 

4,676

 

 

 

 

2,845

 

Franchise advertising and other services expenses

 

 

55,224

 

 

 

 

54,270

 

Selling, general and administrative expenses

 

 

28,248

 

 

 

 

24,083

 

Impairment and other charges, net

 

 

(9,291

)

 

 

 

7,698

 

Gains on the sale of company-operated restaurants

 

 

(1,575

)

 

 

 

(219

)

Depreciation and amortization

 

 

16,728

 

 

 

 

17,169

 

Restaurant-Level Margin- Non-GAAP

 

$

26,168

 

 

 

$

26,929

 

 

 

 

 

 

 

Company restaurant sales

 

$

105,364

 

 

 

$

102,832

 

 

 

 

 

 

 

Restaurant-Level Margin % – Non-GAAP

 

 

24.8

%

 

 

 

26.2

%

Franchise-Level Margin

Franchise-Level Margin is defined as franchise revenues less franchise operating costs (occupancy expenses, advertising contributions, and franchise support and other costs) and is neither required by, nor presented in accordance with GAAP. Franchise-Level Margin excludes revenue and expenses of our company-operated restaurants and certain costs, such as selling, general, and administrative expenses, depreciation and amortization, impairment and other charges, net, and other costs that are considered normal operating costs. As such, Franchise-Level Margin is not indicative of the overall results of the company and does not accrue directly to the benefit of shareholders because of the exclusion of corporate-level expenses. Franchise-Level Margin should be considered as a supplement to, not as a substitute for, analysis of results as reported under GAAP or other similarly titled measures of other companies. The company is presenting Franchise-Level Margin because it believes that it provides a meaningful supplement to net earnings of the company’s core business operating results, as well as a comparison to those of other similar companies. Management utilizes Franchise-Level Margin as a key performance indicator to evaluate the profitability of our franchise operations.

Below is a reconciliation of non-GAAP Franchise-Level Margin to the most directly comparable GAAP measure, earnings from operations (in thousands):

 

 

16 Weeks Ended

 

 

January 19, 2020

 

January 20, 2019 (1)

Earnings from operations – GAAP

 

$

69,950

 

 

$

58,324

 

Company restaurant sales

 

 

(105,364

)

 

 

(102,832

)

Food and packaging

 

 

31,348

 

 

 

29,616

 

Payroll and employee benefits

 

 

31,890

 

 

 

30,274

 

Occupancy and other

 

 

15,958

 

 

 

16,013

 

Selling, general and administrative expenses

 

 

28,248

 

 

 

24,083

 

Impairment and other charges, net

 

 

(9,291

)

 

 

7,698

 

Gains on the sale of company-operated restaurants

 

 

(1,575

)

 

 

(219

)

Depreciation and amortization

 

 

16,728

 

 

 

17,169

 

Franchise-Level Margin – Non-GAAP

 

$

77,892

 

 

$

80,126

 

 

 

 

 

 

Franchise rental revenues

 

$

96,084

 

 

$

83,890

 

Franchise royalties and other

 

 

52,466

 

 

 

52,250

 

Franchise contributions for advertising and other services

 

 

53,759

 

 

 

51,814

 

Total franchise revenues

 

$

202,309

 

 

$

187,954

 

 

 

 

 

 

Franchise-Level Margin % – Non-GAAP

 

 

38.5

%

 

 

42.6

%

 (1)

 

During the first quarter of 2020, the Company changed its presentation of Non-GAAP Franchise-Level Margin to include “amortization of franchise tenant improvement allowances and other” in its definition thereof. The prior period has been recast to conform to current year presentation.

 



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