QUOTE AND NEWS
DailyFinance  Aug 14  Comment 
Filed under: Company News, McDonald's, Industry News, Restaurants, Investing Stanley Marquardt/AlamyA Jack in the Box restaurant in Tyler, Texas. McDonald's (MCD) is in a funk, and things are only getting worse. The world's largest burger chain...
Motley Fool  Aug 12  Comment 
Qdoba has been chasing the success of Chipotle since its launch, and Jack in the Box is keeping the pedal down on its growing brand.
Yahoo  Aug 7  Comment 
Shares were having their strongest session since late 2008 on Thursday, with a 9.3% post-earnings gain that had them back near their best-ever level recorded in March.
Benzinga  Aug 7  Comment 
Extended Stay America (NYSE: STAY) shares moved up 2.24% to $22.35. The volume of Extended Stay America shares traded was 3119% higher than normal. Extended Stay America priced secondary offering of 21 million Paired Shares at $21.75 per share....
Benzinga  Aug 7  Comment 
Jack In The Box (NASDAQ: JACK) on Wednesday posted a beat on both the top and bottom-line for its third quarter earnings. In addition to the beat, the company also raised its fiscal-year 2014 EPS guidance from $2.25-22.35 to $2.38-2.45 and...
Wall Street Journal  Aug 6  Comment 
Jack in the Box Inc. swung to a fiscal third-quarter profit on Wednesday, while sales rose at the company's namesake burger chain and its Qdoba Mexican Grill brand.
TheStreet.com  Aug 6  Comment 
NEW YORK (TheStreet) -- Shares of Jack in the Box Inc.  are gaining 5.50% to $58.50 in after-hours trading following its strong second quarter earnings with a 2.4% increase in same-store sales for the period.The fast food company reported second...
TheStreet.com  Jul 18  Comment 
NEW YORK (TheStreet) -- Shares of Jack In The Box Inc.  are rising in early trading on Friday, up 1.62% to $56.15, after Buckingham Research initiated coverage on the fast food company with a "neutral" rating and price target of $61. Must Read:...
Benzinga  Jul 18  Comment 
Analysts at Buckingham Research initiated coverage on shares of Jack In The Box (NASDAQ: JACK) with a Neutral rating. The target price for Jack In The Box is set to $61. Jack In The Box shares have jumped 35.09% over the past 52 weeks, while...
Motley Fool  Jul 13  Comment 
For the past five years, Jack in the Box has seen its stock steadily rise. Why has Jack in the Box risen nearly 20% this year to beat the year-to-date performance of both McDonald's and fast-casual juggernaut Chipotle?




 

Jack in the Box (NASDAQ: JACK) is a fast food hamburger restaurant chain that operates and franchises 2,212 Jack in the Box locations in 19 states. In addition to it's traditional business, Jack in the Box also operates the Qdoba mexican grill concept, with 510 locations in 45 states. Jack in the Box sells fast food staples like hamburgers, french fries, soft drink, as well as an assortment of other sandwiches and fast food items. Qdoba offers fast-casual Mexican fare like burritos, tacos, quesadillas, and salads. In 2009, the company earned $2.47 billion in net sales and $131 million in net income.[1]

Jack in the Box operates in an extremely competitive market with larger restaurants like McDonalds and Burger King. The fast food hamburger industry is so competitive because each restaurant offers extremely similar food, and it is hard to differentiate one company from the competition. This leads to price wars in order to attract customers, which hurt the bottom line.

Restaurants[2]

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  • Jack in the Box - The first Jack in the Box restaurant, which offered only drive-thru service, opened in 1951. Jack in the Box is one of the nation’s largest hamburger chains, and based on the number of units, is the second or third largest QSR hamburger chain in most of its major markets. The company's 2,212 restaurants offers a variety of hamburgers, salads, specialty sandwiches, tacos, drinks, smoothies, real ice cream shakes and side items. Most of them are open 18-24 hours a day. Drive-thru sales currently account for approximately 70% of sales.
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  • Qdoba Mexican Grill - Qdoba is the largest Mexican-food chain in the fast-casual segment of the restaurant industry. The restaurants make their food in full view of the customer to allow them to customize the meal anyway they want it.


The Quick Service Restaurant Industry

Overview of the Industry

The Quick Service Industry (QSR) is one of the largest components of the over 440 billion dollar restaurant and food service industry, and is one of the most competitive industries in the world. Jack in the Box most clearly falls under the fast food hamburger category, and competes against multi-national giants McDonalds, Burger King and Wendy's. However, Jack in the Box also competes against other QSR concepts. Another huge player in this industry is Yum! Brands, parent company of KFC and Taco Bell. In addition, the Qdoba concept competes in an extremely competitive Mexican segment, with other well know restaurants Chipotle and Baja Fresh, among others.


Top Three Competitors

'1) McDonald's Corporation[3].  :-- No further explanation required, right? McDonald's is the hands down industry leader worldwide for the QSR industry. They originally owned controlling interest in Boston Market and Chipoltle, but have since divested in these companies.

How do they compete with Jack-in-the-Box? -- The real question is: how don't they compete with Jack in the Box? Everything that Jack in the Box sells has a MCD counterpart to it, with a "Mc" in front of its name. They have similar store set-ups, being that they are first and foremost a drive-thru restaurant. The only real difference in the products and services that they offer is that Jack in the Box makes curly fries as opposed to straight ones.

Image:FI414_JACK_07MS.jpg

2) Doctor's Associates, Incorporated[4] -- Doctor's Associates is the sole owner of the Subway restaurant chain and have by far the second largest market share after McDonalds.

How do they compete with Jack-in-the-Box? -- There are a number of ways that Subway restaurants are competing with Subway. Like most fast-dining restaurants, Subway has a value menu aimed at the more thrifty spender. JACK also sports this $5 trend with its Jumbo Jack combo. Subway does have the public following for a healthy lifestyle within the industry, due largely to the success of the Jared Fogle marketing campaign. Doctor's is also infringing upon Jack in the Box by creating a breakfast line up in the past year. Jack in the Box is notorious for campaigns that state, "Eat it. Anytime.", and are also the originators of the breakfast sandwich concept.


3) Yum! Brands, Incorporated[5]-- Yum! Operates or licenses Taco Bell, KFC, Pizza Hut, Wing Street, Long John Silvers, and A&W. In terms of individually operated restaurants, they are the largest in the industry at just south of 37,000. They have made several acquisitions in the past 20 years and have expanded at a relatively rapid rate in comparison to their competitors, but have recently announced their divestment of the relatively unprofitable Long John Silvers and A&W chains. Yum! is said to have saturated the domestic market; so in an attempt to drive profits further in to the black, they are looking to expand internationally (particularly to China).

How do they compete with Jack-in-the-Box? -- Although there aren't a lot of direct comparisons between Pizza Hut and KFC to Jack in the Box, JACK does have a wide array of items that could potentially be threatened by these companies. However, there is definitlely a cultural food clash between Taco Bell and and JACK's subsidiary, Qdoba. First, the "sit-down fast food" market is in direct competition with the QSR industry and recently has been taking some of the market away from QSR's. Secondly is the relatively conspicuous: they are both in the same genre of food and compete directly for public appeal in the Mexican Food Market. Further, Taco Bell has recently run an ad campaign and created a menu that is for the diet conscious, which received more advertising expenses than Jack-in-the-Box's.

An in Depth Look at Recent Financials (2007-2008)[6]

Image:FI414_JACK_5YR_CHART.png‎


Current Ratio: The current ratio is a measure of liquidity for a company. Generally, anything over 1 is considered to be a satisfactory number but as you can see from the table JACK doesn't seem to have the best track record with this ratio

Net Working Capital: Similar to the Current Ratio, it is a measure of the ability of the short term assets to cover the short term debts.

Return on Assets: This number may be one of the most important ratios of all - it accounts for the managerial effectiveness of utilizing assets available within the firm to generate a profit. The trend indicates consistency with satisfactory results.

Accounts Receivable Turnover: Accounts receivable turnover is a measure of how capital is being managed. I.e. the ratio determines how many times accounts receivable can cover current debt. In JACK's case, the accounts receivable were turned over on average (between the two years) about 48 times per year. This number is very high for any industry and shows that the money owed to Jack in the Box does not take a lot of time before it is able to be converted to cash and accordingly points out the implied increase to the Cash Conversion Cycle.

Inventory Turnover: Net sales/Total Inventory, or the amount of times inventory is bought and sold throughout the year. The higher the number here the faster inventory is being moved. The less stale the inventory is (especially in a perishable goods industry) the better the business is doing. In fact, in Jack in the Box's case, this metric is especially important. This is a very good number, but needs to be relatively high in an industry where spoilage occurs quickly.

Total Asset Turnover: That is, how efficiently assets are being used to support sales. In this case, TAT is really quite strong. A high level of return suggests that corporate resources are being well managed and that the firm is able to realize high level of sales from its asset investments.

Debt to Equity Ratio: In JACK's case, Debt to Equity might be the most important ratio to consider. Generally, a D:E of anything greater than 20 percent is considered high, but here we can see that Long Term Debt even exceeds all stockholder's equity! This number is somewhat inflated due to the re-purchasing of stock by the company (i.e. treasury stock), but nevertheless should still be taken quite seriously. A debt to equity ratio such as this indicates to creditors an inability to be able to pay them back on long term loans, and therefore affects the stock's overall exposure greatly.

Return on Invested Capital (ROIC): In reality, Return on Invested Capital presents the best indicator of how well a company is doing for an investor. The ROIC explains what return investors (i.e. debtholders and stakeholders) are receiving on average for investment in the company. In JACK's case, this ratio is relatively high; in fact, anything above about 5 or 6 percent is relatively successful.

Profit Margin: It is a ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. This ratio is the most useful when you compare it to the other company's of the industry. For example, the profit margins of JACK's top three competitors for 2008 are as follows:

  1. McDonalds -- 10.51%
  1. Doctor's Associates -- Information not available (DOI is a privately owned company and does not release their financials to the public)
  1. Yum! Brands -- 8.73%


Direct Competitor Comparison[7]

JACKPVT1MCDYUMIndustry
Market Cap:1.05BN/A80.24B25.08B570.42M
Employees:29,30038,884400,00052,9205.77K
Qtrly Rev Growth (yoy):-2.40%N/A4.00%5.90%16.30%
Revenue (ttm): 2.28B2.50B24.07B11.34B543.78M
Gross Margin (ttm):15.29%N/A40.03%27.44%34.03%
EBITDA (ttm):184.32MN/A8.58B2.43B74.55M
Operating Margin (ttm): 3.70%N/A30.34%16.27%10.19%
Net Income (ttm):78.36M186.80M4.95B1.16BN/A
EPS (ttm):1.43N/A4.582.380.39
P/E (ttm):14.45N/A16.7922.5420.98
PEG (5 yr expected):1.16N/A1.481.461.40
P/S (ttm):0.46N/A3.402.121.20

Present Financial Metrics[8]


Valuation Measures 
Market Cap (intraday):1.05B
Enterprise Value (Apr 24, 2011):1.40B
Trailing P/E (ttm, intraday):14.45
Forward P/E (fye Oct 3, 2012):11.07
PEG Ratio (5 yr expected):1.16
Price/Sales (ttm):0.46
Price/Book (mrq):2.06
Enterprise Value/Revenue (ttm):0.61
Enterprise Value/EBITDA (ttm):7.60
Financial Highlights 
Fiscal Year
Fiscal Year Ends:Oct 3
Most Recent Quarter (mrq):Jan 14, 2011
Profitability
Profit Margin (ttm):3.44%
Operating Margin (ttm):3.70%
Management Effectiveness
Return on Assets (ttm):3.81%
Return on Equity (ttm):15.25%
Income Statement
Revenue (ttm):2.28B
Revenue Per Share (ttm):42.22
Qtrly Revenue Growth (yoy):-2.40%
Gross Profit (ttm):863.71M

Porter's Five Forces

1) Rivalry in the Industry -- Very High. Although McDonald's and Doctor's Associates control a very large percentage of the market, there is still no way that this industry could be considered a two business race. What makes rivalry in the industry so high though? For starters, there are a large number of firms like Jack-in-the-Box competing for that same amount of market share (Wendys, Burger King, etc.) which creates fierce rivalry at the bottom of the QSR industry. Then there's the concept of slow market growth, and constantly battling with fast-dining sit-down restaurants for the "out to eat crowd" this creates an immense amount of pressure for firms in the industry to compete for excess profits because there just isn't that much to spread around. Another aspect to high rivalry in this industry is high fixed costs coupled with perishable items. Maintenance of each individual store and keeping inventories at a minimum will definitely create pressure on the industry's firms to perform. Aside from that though, there is also almost zero switching costs associated with the consumers. The only cost might be on gasoline when traveling in a motor vehicle, but the market is so saturated in QSR's that there are at least three even in the most remote of locations. What might be the greatest pause for concern though, is the lack of product differentiation. Most restaurants are trying to diversify their menu from just burger stands, but now most of the restaurants have achieved their new menus. What does this do now for differentiation? In psychological terms, it means a great deal. Generally, most consumers in the QSR industry eat the food not out of quality, but out of their higher priorities of speed and quantity. This creates the idea of the "satisfactory hamburger", a menu item in a QSR that passes as acceptable to the person on quality standards, while achieving the two higher priorities. This creates low possibilities even for product differentiation, because the customer isn't even focused on what could potentially differentiate the product. What does differentiate the products in the industry is brand identification, and this drives the industry's differentiation.

2) Threat of Substitute Products -- Low. Thankfully for all of the competitors in the QSR industry, past trends indicate that there is relatively no substitutes to threaten the industry. The QSR industry has suited the American (and now global) mentality of prompt food and will remain relatively inelastic for quite some time. The only potential threat is fast-dining sit-down restaurants (e.g. Chipoltle) that are beginning to take some of the general public's interest away from drive-thru food.

3) Bargaining Power of Buyers -- Medium Low. Like it states in the "Threat of Substitute Products" section, the fast food industry and its products are relatively inelastic. That being said, the general public will continue to buy from the QSR industry for the forseeable future. Furthermore, the buyers themselves are fragmented and no buyer has any particular influence on product or price. However, buyers hold a trump card in the fact that they have no switching costs in choosing their way of eating.

4) Bargaining Power of Suppliers -- Medium Low. In the same way that buyers were fragmented in regards to the industry, so to are most of the suppliers. In produce and agriculture, along with other raw materials, suppliers are relatively weak in controlling price. However, there is still a large necessity for these products from every player in the QSR industry, so in some way the suppliers may have control.

5) Threat of New Entrants -- Very Low. At this point, fast food chains are pretty well established and the market is pretty stagnant. There are incredibly high barriers to entry: with machines that need to be specially made to mass produce, etc., patents and proprietary knowledge that only serve to restrict a new business, and supplier/distribution channels and relationships which are already incredibly well defined by the current players, entry in to the industry is almost unforseeable.

Financials

Other Investor Information[9]

Image:FI414_JACK_Chart.png‎

The following graph compares the cumulative return to holders of the Company’s common stock at September 30th of each year (except 2004 when the comparison date is October 3 due to the fifty-third week in fiscal 2004) to the yearly weighted cumulative return of a Restaurant Peer Group Index and to the Standard & Poor’s (“S&P”) 500 Index for the same period. The below comparison assumes $100 was invested on September 30, 2003 in the Company’s common stock and in the comparison group, and assumes reinvestment of dividends. The Company paid no dividends during these periods.

Key Management[10]

Linda A. Lang -- CEO

Total Annual Compensation: $924,423

Ms. Lang has been Chairman and Chief Executive Officer of Jack In the Box Inc. since October 3, 2005 and has been President since February 2010. Ms. Lang served as President and Chief Operating Officer of Jack in the Box Inc., from November 7, 2003 to October 3, 2005. She served as Executive Vice President, Human Resources and Information Systems and also Marketing and Operations, of Jack in the Box Inc. from July 2002 to November 2003. Ms. Lang served as Senior Vice President, Marketing from May 2001 to July 2002, Vice President and Regional Vice President, Southern California Region from April 2000 to May 2001, Vice President, Marketing from March 1999 to April 2000 and Vice President, Products, Promotions and Consumer Research from February 1996 to March 1999. Ms. Lang joined Jack in the Box in 1985 and has held various positions of increasing responsibility in marketing, operations and finance. She has 18 years of experience with Jack in the Box Inc. in various marketing, finance and operations positions. Ms. Lang has been a Director of WD-40 Company since February 17, 2004. She has been Director of Jack in the Box Inc., since November 7, 2003. She serves as a Member of Board of Trustees at California State University. She has a Master's Degree in Business Administration from San Diego State University and a Bachelor's Degree in Finance from the University of California, Berkeley.

Jerry P. Rebel -- Executive VP and CFO

Total Annual Compensation: $477,000

Mr. Jerry P. Rebel has been Executive Vice President and Chief Financial Officer of Jack in the Box Inc. since October 2005. He was previously Senior Vice President and Chief Financial Officer from January 2005 to October 2005 and Vice President and Controller of the Company from September 2003 to January 2005. Prior to joining the Company in 2003, Mr. Rebel held senior level positions with Fleming Companies, CVS Corporation and People’s Drugs and has more than 20 years of corporate finance experience.

Gary J. Beisler -- CEO of Qdoba Restaurant Corporation Total Annual Compensation: $356,731

Mr. Gary J. Beisler has been Chief Executive Officer of Qdoba Restaurant Corporation since November 2000 and President since January 1999. He was Chief Operating Officer from April 1998 to December 1998.

Leonard A. Comma -- Senior VP and COO

Total Annual Compensation: $340,962

Mr. Leonard A. Comma has been appointed as Senior Vice President and Chief Operating Officer of Jack in the Box Inc. effective from February 1, 2010. He was Vice President Operations Division II from February 2007 to February 2010, Regional Vice President of the Company’s Southern California region from May 2006 to February 2007 and Director of Convenience-Store & Fuel Operations for the Company’s proprietary chain of Quick Stuff convenience stores from August 2001 to May 2006.

Rising Food and Commodity Prices[11]

Jack in the Box's margins are highly dependent on food prices. In particular, the company is dependent on the price of corn, beef and also oil. Recently, the price of many key inputs has risen and could affect the profitability of the firm in years to come. The price of corn, which is fed to livestock and is also a key input in many processed foods, has doubled in the last two years, due mainly in part to the ethanol boom. Because it now costs more to feed the cattle, the Beef Prices | price of beef and chicken, two extremely important inputs for a fast food restaurant, has also risen. In addition, oil prices have risen four-fold since 2001 and the price of gas is also up 40% in the last year alone. Oil is used to produce food, as well as to transport it all over the world. Finally, the price of food has risen due to higher demand in developing countries like China and India. In 2009, the company reported that its commodities costs increased by 2%.

Changes in Diet/Increased Focus on Healthfulness

Jack in the Box could be affected by a shift in consumer tastes and eating habits due to new diet, nutrition, or health trends. Jack in the Box produces a food that is high in fat and sodium, and is not particularly healthy. Exotic diets, like the Atkins diet, have grown in popularity in the last few years, and have made people more aware of what they are eating and what they should be eating to live a healthy life. If people continue to try to live and eat healthy, it could have a material impact on Jack in the Box's profitability. To read a more detailed discussion of consumer health trends and how they affect the fast-food industry, see also Healthier Food Consumption.

Health Scares[12]

Jack in the Box is vulnerable to a range of health scares that have affected other restaurants and the fast food industry in general. The two most well known scares are mad cow disease (scientifically termed bovine spongiform encephalopathy, or BSE) and outbreaks of illness from the bacteria E. coli. BSE is a fatal neurodegenerative disease found in cattle. Any scares or rumors of E. coli would severely decrease traffic in Jack in the Box restaurants. For a more detailed discussion of health scares and how they impacts the food industry, see also Health scares.

References

  1. JACK 2009 10-K "Restaurant Concepts" pg. 4-5
  2. "MCD Information"
  3. "DOI Information"
  4. "YUM Information"
  5. "JACK 10-k"
  6. "JACK Competitor Comparison"
  7. "Present Day Metrics"
  8. "JACK Weighted Return Comparison"
  9. "JACK Management"
  10. "Rising Agricultural Commodity Prices"
  11. "Health Scares"
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