JACK

Jack In The Box Inc. (JACK)

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Exchange: NASDAQ
Industry: Consumer Services
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Jack In The Box Inc. (JACK)

2013 Consumer & Retail Conference

March 13, 2013 8:50 am ET

Executives

Leonard A. Comma - President and Chief Operating Officer

Carol A. DiRaimo - Vice President of Investor Relations & Corporate Communications

Analysts

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Presentation

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Bank of America Merrill Lynch's restaurant analyst. We're very pleased to continue the restaurant portion of our consumer conference presentations today with Jack in the Box. We welcome Carol DiRaimo, Head of Investor Relations; and Lenny Comma, the President and Chief Operating Officer.

With that, I'm going to turn it over to Lenny. Lenny, thank you for joining us.

Leonard A. Comma

Thank you, Joe. Before we begin, I want to remind you that this presentation includes plans and estimates for the future, which are subject to various risks and uncertainties that may cause actual results to differ from these plans and estimates. I encourage you to review the risk factors outlined in our recent 10-K and 10-Qs on file with the SEC and available through our website.

During today's presentation, we will refer to non-GAAP measures for which a reconciliation is posted on the Investors section of our website at www.jackinthebox.com.

All right. So here's what we'll cover today. First, I'll take you through our investment thesis then we'll talk a little bit about driving sustainable sales at Jack in the Box. We'll talk a little bit about our annuity-like cash flows from franchising and our Qdoba initiative.

All right. So for those of you who are less familiar with the company, we actually operate 2 brands; Jack in the Box and Qdoba. Jack in the Box is the nation's fifth largest QSR burger chain. We have a little more than 2,200 restaurants operating in 21 states, and we are 76% franchised. Qdoba Mexican Grill is the second-largest brand in fast-casual Mexican segment. There are more than 600 Qdoba locations operating in 44 states and the District of Columbia and Canada. At the end of fiscal 2012, Qdoba represented nearly 37% of our company store base, as compared to only 6% 5 years ago, and is now 50% company-operated.

If you take a look at our investment thesis, there's essentially 3 sources of earnings and cash flow: first, our Jack in the Box company operations; second, our Jack in the Box franchise revenues, which have 2 annuity-like cash flow streams; and third, our Qdoba operations. Let's talk a little bit about Jack in the Box and sustaining our sales growth.

Most folks look at Jack in the Box and consider us to be a relatively small player in this space. But if you look at Jack in the Box through the lens of the market where we do business, we're actually the #2 player in those markets. And so if you look at us just where we play the game, we're actually right up there with the likes of Taco Bell, Burger King and Wendy's. Taking another slice at it, if you take a look at our 10 major markets for Jack in the Box, we're actually #2 in 9 out of the 10 major markets with the exception of Dallas, and this is 70% of our overall sales for Jack in the Box.

So what's Jack in the Box been focusing on? Well, essentially, we're taking a holistic approach to growing our sales through various initiatives. If you go back to the early 2000s, essentially everyone in QSR was focusing on food. It was basically LTOs and new items that you were putting on to the menu. The clear winner from that time forward has been McDonald's. And if you look at what they have done, they have essentially focused on the entire brand experience, everything from the image, to the service, to the menu. Very few players took that holistic approach, but Jack in the Box in the mid 2000 really started to invest in the business this way.

So as you know, we have reimaged our restaurants. We're largely complete with that, with just a few restaurants that have not been reimaged, essentially because of either some type of lease issue or we're not looking at that restaurants as being a long-term player in our chain. But essentially, we're complete with our reimage. We have our logos up at all of our company stores and largely complete at our franchise locations, and we should be complete throughout the system by April. We've improved our food. We've invested in improving french fries, hamburger patties, our tacos, our coffee, our bacon, and we'll continue to invest in our food both with the improvement of existing items as well as LTOs and new items to the menu. And then back in 2010, we started a major service initiative, focusing really on all elements of service, but focusing largely on cleanliness, accuracy, speed of service and things that we knew could drive sales by improving traffic.

So we've found a fair amount of success in investing in the overall brand experience, but we do need to drive people into the restaurants so that they can experience all of these things that we've improved. And this is really where probably our #1 equity comes in, and that's with our ad campaign. We've had a successful campaign with Jack, our founder, being the voice and spokesman of Jack for about the last 17 years. We are an irreverent or edgy brand, and so we do a great job of sort of cutting through all the noise in various media spaces and having our voice heard, even on a national basis, although we're not a national player. So what I'm going to do is share with you one of our commercials, which really kind of brings to life the type of brand and personality that we have.

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