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Daniel Lynch

JACK AT A GLANCE

P/E ► 11.2 AVG EV/EBITDA ► 5.56 AVG ROA ► 9.8% AVG ROE ► 23.9% AVG Debt to Equity ► 1.85 AVG Current Ratio ► 1.07 AVG Interest Coverage Ratio ► 8.25 AVG

 

 

 

 

 

 

Revenue, Net Income, and Net MarginRevenue, Gross Profit, and Gross MarginOperating IncomeEbitIncome Before TaxesNet Income from Continuing OpsInterest vs Continuing IncomeInterest CoverageOperating ExpensesSG&AAmortization & Depreciation

Jack in the Box is a fast food hamburger restaurant chain that operates and franchises 2,132 Jack in the Box locations in 17 states.^[1] In addition to it's traditional business, Jack in the Box also operates the Qdoba mexican grill concept, with 395 locations in 39 states, and the Quick Stuff convenience store.^[2] 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. Jack in the Box generated $2.9 billion in revenue in 2007.^[3]

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. Even though it is a competitive business, Jack in the Box still feels that its flagship brand has plenty of room to grow. Their goal is to expand nationwide, and as of now, the majority of their restaurants are located on the west coast, and in the southwest.^[4] In order to supplement the growth of Jack in the Box, as well as to hedge the risk of only operating in the hamburger segment of the fast food industry, Jack in the Box acquired the Qdoba Restaurant Corporation in 2003. Qdoba is in the growing “fast-casual” segment of the market, and has seen tremendous growth the last few years. Sales grew 34% in 2006, on top of 50% growth in 2005.^[5]

[edit] Business Financials

In 2007, sales for Jack in the Box totaled $2.88 billion and the company generated $220 million in income, which translates to year over year growth of 5.6% and 21% respectively.^[6] Jack in the Box breaks down its revenue into three categories: restaurant sales, distribution and other sales , and franchised restaurant revenues. Restaurant sales, which is revenue from company-owned restaurants, represent 74.8% of total revenue, but grew by only 2.4% in 2007.^[7] Same-store sales grew 6.1%, which helped offset a decrease in the number of company owned locations.^[8] Distribution and other sales, distribution sales to franchisees and Quick Stuff convenience stores, counts for 20.3% of total revenue.^[9] This segment grew 14.1% in 2007.^[10] Finally, franchised restaurant revenues, which include rents and fees from restaurants operated by franchisees, grew the fastest at 27.5%.^[11] However, it only represents 4.9% of total sales.^[12]

^[13]

Franchising is an extremely important part of the Jack in the Box business model. At the moment, the majority of Jack in the Box restaurants are company owned, but the company wants to own fewer restaurants and franchise more. At the end of 2007, Jack in the Box had 1,436 company owned and operated restaurants and 696 franchised locations, for a total of 2,132.^[14] This translates to about 67% company owned and 33% franchised. Compare that to five years ago, when, company owned stores made up 80% of the total locations.^[15] The number of franchised locations has grown more that 15% in the last year, and 77% in the last 5 years.^[16] Jack in the Box has stated that it would like to get its franchise ownership to the 70-80% range, and is open to selling company-owned stores to franchisers to generate cash flow.^[17]

^[18]

[edit] Trends and Forces

• Rising Food and Commodity Prices: 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.^[19] Because it now costs more to feed the cattle, the 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.^[20] 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.^[21]

• 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: 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. Reports of BSE transmission to humans via consumption of beef began to appear in 2003, prompting many consumers to avoid beef. In the fall of 2006 an outbreak of E. coli was traced to Taco Bell chains in New Jersey, leading to millions of dollars in losses at that chain.

For a more detailed discussion of health scares and how they impacts the food industry, see also Health scares.

[edit] Competition

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.^[22] 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.

[edit] References

1. ↑ JBX 2007 Annual Report pg. 2 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
2. ↑ JBX 2007 Annual Report pg. 2 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
3. ↑ JBX Annual Report pg. 2 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
4. ↑ Locations http://www.jackinthebox.com/locations/
5. ↑ QSR Report 2006 http://www.qsrmagazine.com/reports/qsr50/2007/decent-4.phtml
6. ↑ JBX 2007 Annual Report pg. F-4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
7. ↑ JBX 2007 Annual Report pg. 22 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
8. ↑ JBX 2007 Annual Report pg. 23 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
9. ↑ JBX 2007 Annual Report pg. 23 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
10. ↑ JBX 2007 Annual Report pg. F-4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
11. ↑ JBX 2007 Annual Report pg. F-4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
12. ↑ JBX 2007 Annual Report pg. 23 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
13. ↑ JBX Annual Report pg. 2 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm
14. ↑ JBX 2007 Annual Report pg. 4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm#110
15. ↑ JBX 2007 Annual Report pg. 4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm#110
16. ↑ JBX 2007 Annual Report pg. 4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm#110
17. ↑ JBX 2007 Annual Report pg. 5-6 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm#110
18. ↑ JBX 2007 Annual Report pg. 4 http://edgar.sec.gov/Archives/edgar/data/807882/000095013407024313/a35805e10vk.htm#110
19. ↑ CBOT Corn Futures http://www.cbot.com/cbot/pub/page/0,3181,1213,00.html
20. ↑ 'Most Worrisome Consumer Trends' http://www.bloggingstocks.com/2007/11/30/best-and-worst-of-2007-most-worrisome-consumer-trends/
21. ↑ http://www.marketwatch.com/news/story/why-rising-food-prices-eating/story.aspx?guid=%7BE2C47792-2693-48BF-8967-26B070F10EBF%7D
22. ↑ National Restaurant Association http://www.nationalrestaurantassociation.com/pressroom/print/index.cfm?ID=900