JACK

Jack In The Box Inc. (JACK)

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Exchange: NASDAQ
Industry: Consumer Services
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Jack in the Box (JACK)

Q2 2011 Earnings Call

May 19, 2011 11:30 am ET

Executives

Jerry Rebel - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Linda Lang - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Carol DiRaimo - Vice President of Investor Relations & Corporate Communications

Leonard Comma - Chief Operating Officer and Executive Vice President

Analysts

Robert Derrington - Morgan Keegan & Company, Inc.

Jason Belcher - Wells Fargo Securities, LLC

Larry Miller - RBC Capital Markets, LLC

John Glass - Morgan Stanley

Jake Bartlett - Susquehanna Financial Group, LLLP

Conrad Lyon - B. Riley & Co., LLC

David Tarantino - Robert W. Baird & Co. Incorporated

Jake Bartlett - Oppenheimer

Jeffrey Bernstein - Barclays Capital

Joseph Buckley - BofA Merrill Lynch

Karen Holthouse - Crédit Suisse AG

Peter Saleh - Telsey Advisory Group

Presentation

Operator

Good day, everyone, and welcome to the Jack in the Box Inc. Second Quarter Fiscal 2011 Earnings Conference Call. Today's call is being broadcast live over the Internet. A replay of the call will be available on the Jack in the Box corporate website starting today. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Carol DiRaimo, Vice President of Investor Relations and Corporate Communications for Jack in the Box. Please go ahead.

Carol DiRaimo

Thank you, Kathy, and good morning, everyone. Joining me on the call today are our Chairman, CEO and President, Linda Lang; Executive Vice President and CFO, Jerry Rebel; and Executive Vice President and Chief Operating Officer, Lenny Comma. During this morning's session, we'll review the company's operating results for the second quarter of fiscal 2011 and update our guidance for the year. Following today's presentation, we'll take questions from the financial community.

Please be advised that during the course of our presentation and our question-and-answer session today, we may make forward-looking statements that reflect management's expectations for the future, which are based on current information. Actual results may differ materially from these expectations based on risks to the business.

The Safe Harbor statement in yesterday's news release and the cautionary statement in the company's most recent Form 10-K are considered a part of this conference call. Material risk factors, as well as information relating to company operations, are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC. These documents are available on the Investors section of our website at www.jackinthebox.com.

A few calendar items to note, Jack in the Box management will be participating in the Wells Fargo Consumer Gaming and Lodging Conference in Las Vegas on May 24 and the Jefferies 2011 Global Consumer Conference on June 22 in Nantucket. Our third quarter ends on July 10, and we tentatively expect to announce results the week of August 8. With that, I'll turn the call over to Linda.

Linda Lang

Thank you, Carol, and good morning. As you saw in yesterday's news release, same-store sales for Jack in the Box company restaurants increased 0.8% in the second quarter. Sales exceeded our guidance despite severe weather that impacted many of our major markets in the first 4 weeks of the quarter. As the weather improved, so did traffic and sales. And on a 2-year basis, we've seen a sequential improvement in same-store sales for 3 consecutive quarters, and that trend has continued in the first 4 weeks of the third quarter.

Restaurant margins in the quarter were impacted by rapidly rising commodity costs, which Jerry will discuss in a minute. To offset some of these inflationary pressures, last week we implemented an approximate 1.5% price increase in company Jack in the Box restaurants. We continue to be cautious on taking price in this environment and consider both the competitive landscape, as well as grocery store inflation in our pricing decision. California and Texas both continue to have positive same-store sales, and California was our best performing market on a 2-year basis. It's also worth noting that same-store sales in Arizona remain positive for the second consecutive quarter.

As we've said previously, our #1 priority this year is to drive sales and traffic in Jack in the Box. As we did with the February launch of a new mid-tier product, the All-American Jack burger, which we featured as a $4.99 combo meal. This promotion was extremely popular and represented a significant mix of our sales. Even at a higher price point than our typical bundled value meal, our guests saw this as a good value.

In addition to new products and promotional events, we've been making noticeable quality improvements to several of our core products over the past year to reengage lapsed customers and create an even broader appeal for these guest favorites. We've talked about the improvements we've made over the last several months to our coffee, French fries, bacon and tacos, and order incidents have increased on all of these core items since the improvements were made.

We'll continue to invest in improving other core products, as well as developing compelling new menu items for our guests, such as the recently introduced Bourbon BBQ Steak Grilled Sandwich. We're also investing in new menu boards, which will be installed throughout the system in June. The new menu boards will enable guests to more easily navigate our menu while showcasing our variety, highlighting average check builders and encouraging trial sales of higher-margin products. Concurrent with the new menu boards will be the deletion of several less popular menu items.

We believe the investments we've made to improve the overall guest experience at our restaurants are resonating with our guests. The improvement we've seen in our results coincides with the systemwide program we launched in the fourth quarter of last year to deliver a more consistent guest experience. Since we began this program, we've seen improvement in our Voice of Guest and brand loyalty surveys, especially in the areas of order accuracy and cleanliness. We recognize that we have opportunities for improvement in other areas, especially speed of service, reducing variability and more consistently delivering faster service will build trust with our guests, foster loyalty and lead to additional guest visits. We continue to make substantial progress on reimaging the Jack in the Box system. We remain on pace to substantially complete our restaurant re-image program systemwide by the end of the calendar year. At quarter-end, 82% of company restaurants and more than 68% of the Jack in the Box system featured all interior and exterior elements of the re-image program.

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