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.
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.
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.
'1) McDonald's Corporation. :-- 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.
2) Doctor's Associates, Incorporated -- 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-- 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.
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: