News

No ordinary box planned for this expansion

300 JBX restaurants planned over 5 years.

September 15, 2004

JBX will play a big role in the future expansion of Jack in the Box. Encouraged by the strength of its new high-gloss, upscale JBX restaurants in San Diego, Jack in the Box said yesterday it will use the concept as a springboard for future growth. In a conference call with stock analysts yesterday, the San Diego fast-food chain said it could open as many 300 JBX restaurants over the next five years, or about 15 percent of its total outlets. JBX Quick-Service Restaurant Logo

The move represents a major push by Jack in the Box into the so-called fast-casual dining market. Fast-casual restaurants cater to consumers who are seeking healthier and more interesting food options than the burgers and fries offered at traditional fast-food establishments.

"Realizing the challenge of the market, Jack in the Box is making strides to get ahead," said Dean Haskell, senior analyst with JMP Securities in San Francisco. "This is not an insignificant commitment." The move into fast-casual dining is expected to give the company higher profit margins as it fully develops, Haskell said. The chain of nearly 2,200 fast-food and convenience store outlets also said yesterday that it expects its financial results to be better than previously forecast by analysts.

Jack in the Box new Fast-Casual Restaurant It now forecasts earnings for the first quarter of fiscal 2005 to be 69 cents a share, compared with 43 cents a share in the same quarter of this fiscal year. The estimate is considerably higher than the 64 cents a share average predicted by Wall Street analysts. Jack in the Box attributed the improvement to increasing acceptance of new products, including salads and Pannido sandwiches, that have led to same-store sales increases of up to 4.5 percent this year and an estimated 3 percent next year. At the same time, the company said its operating margin has increased because of lower food costs. Earnings for the next fiscal year were projected to be $2.43 per share, up from this year's estimated $2.03. Revenue is expected to climb to $2.5 billion next year, from this year's $2.3 billion forecast. Jack in the Box's 2004 fiscal year ends Oct. 3. Previously, the company said it expected to earn 49 cents a share in the current fiscal quarter. Jack in the Box is banking on the emergence of the fast-casual dining market as it continues to grow. In addition to JBX, it also operates Qdoba Mexican Grill, a Denver-based chain of 180 fast-casual restaurants. Over the next year, the company plans to add up to 50 Jack in the Box and JBX restaurants, and open an additional 12 Quick Stuff convenience store sites and about 75 Qdoba locations. Like McDonald's, Wendy's and other fast-food chains, the company is looking at ways of retaining and building its customer base by offering more upscale foods at close to fast-food prices.

Jack in the Box said it wants to compete better with chains such as Rubio's Fresh Mexican Grill, Baja Fresh and Chipotle. "We knew it would take more than a fresh coat of paint or a new burger to do this," said Linda Lang, the company's president and chief operating officer. Jack in the Box opened its first JBX restaurants last spring in Hillcrest and Pacific Beach. JBX features an expanded menu, with items such as Applewood Bacon Burgers, Natural Fries and Ciabatta Breakfast Sandwiches, a step up from the fare the company has used to build its namesake fast-food chain over the past five decades. The company has plans to convert seven more existing Jack in the Box locations in Bakersfield and Boise, Idaho, to the new JBX concept by the end of this year and will build two more early next year. In addition, the company said it will expand the JBX concept into Dallas by next September. "They seem committed to this re-branding," Haskell said. "But it takes time and money to move between Point A and Point B, and they're still between Point A and Point B." The company said its growth would likely be accelerated as it increases the number of franchises it sells. The company said that over the next five years it expects to increase the percentage of franchise-controlled restaurants to 35 percent of its chain, compared with 22 percent today.

Lang said the company plans to "re-image" about 200 Jack in the Box sites annually at a cost of $100,000 per restaurant. She said most of that work would be physical improvements to the properties. The company also said it would spend about $35 million from cash reserves to buy back shares of its stock on the open market in fiscal 2005. Shares of the company closed yesterday at $29.06, up 36 cents.

More JBX

Jack in the Box new Fast-Casual Restaurant Menu Graphic

In the last year, the fast-food chain has been implementing a "reinvent the brand" campaign to do battle with the rapidly expanding fast-casual segment, which includes such relatively upscale chains as Baja Fresh and San Diego-based Rubio's. Jack in the Box's stylish menu for its two JBX stores features the company's clown mascot in subdued colors, along with a lineup of upscale products. "We are taking our cues from fast-casual" on food trends and styles, said Terri Graham, Jack in the Box's vice president of marketing. Indeed, Jack in the Box recently opened a 70,000-square-foot innovation center near its headquarters on Balboa Avenue to foster the development of new products and to help it quickly respond to dietary fads. The company also unveiled two prototype restaurants in San Diego in April 2004 known as JBX, with edgy architecture, muted pastel facades and interiors, silver metallic trim, fireplaces and seemingly less emphasis on the clown mascot. The idea is to go beyond fast-food's traditional core audience, men between 15 and 35, and to attract more women and older consumers. Never mind that some customers have complained that they couldn't find the JBX store in Hillcrest because it didn't have the circus look of an old-school Jack in the Box outlet.