Jack In The Box 2005 Annual Report Download - page 34

company-operated restaurants, an increase in the number of company-operated restaurants, additional sales from Qdoba for the
full year in 2004 versus three quarters in 2003 and additional sales from the 53rd week in 2004.
Distribution and other sales, representing distribution sales to JACK IN THE BOX and Qdoba franchisees, as well as
QUICK STUFF fuel and convenience store sales, grew to $348.5 million in 2005 from $197.8 million in 2004 and $108.7 million in
2003. Sales from our QUICK STUFF locations increased primarily due to an increase in the number of locations to 44 at the end of
the fiscal year from 29 in 2004 and 18 in 2003, as well as higher retail prices per gallon of fuel. Distribution sales grew primarily
due to an increase in the number of JACK IN THE BOX and Qdoba franchised restaurants serviced by our distribution centers.
Additional sales from the 53rd week also contributed to the overall increase in 2004.
Franchise rents and royalties increased to $80.4 million in 2005 from $66.7 million in 2004 and $54.4 million in 2003,
primarily reflecting an increase in the number of JACK IN THE BOX franchised restaurants, and to a lesser extent an increase in
same-store sales at franchised restaurants. The number of JACK IN THE BOX franchised restaurants increased to 515 at the end of
the fiscal year from 448 in 2004 and 394 in 2003, primarily reflecting the sale of company-operated restaurants to franchisees.
Other revenues include gains and fees from the sale of company-operated restaurants to franchisees, as well as interest
income from notes receivable and investments, and were $33.0 million, $24.5 million, and $31.0 million in 2005, 2004, and
2003, respectively. We continued our strategy of selectively converting JACK IN THE BOX company-operated restaurants to
franchises with the goal of improving operating margins and accelerating cash flows which enables us to develop new
restaurants, reinvest in our restaurant re-image program and repurchase the Company’ s common stock without incurring
additional debt or diluting equity. Franchise gains were $23.3 million, $17.9 million, and $26.6 million, in 2005, 2004 and 2003,
respectively, primarily from the sale of 58 JACK IN THE BOX company-operated restaurants in 2005 compared with 49 in 2004 and
36 in 2003. The increase in other revenues in 2005 compared with 2004 primarily reflects an increase in the number of
company-operated restaurants sold and an increase in interest income related to the Company’ s cash position. The decrease in
other revenues in 2004 is primarily due to lower average gains recognized from these transactions compared with 2003 reflecting
differences in the specific sales volumes and cash flows of the restaurants sold.
Costs and Expenses
Restaurant costs of sales, which include food and packaging costs, increased to $646.7 million in 2005 from $630.9
million in 2004 and $573.8 million in 2003. As a percentage of restaurant sales, costs of sales increased to 31.6% in 2005
compared with 31.0% in 2004, and 30.8% in 2003, primarily due to higher commodity costs. Beef costs were approximately
11% higher compared with a year ago and produce costs were up approximately 9% in fiscal 2005 versus last year. The cost
increases in all years were offset in part by modest selling price increases.
Restaurant operating costs decreased to $1,052.3 million in 2005 from $1,056.2 million in 2004 and $990.0 million in
2003. As a percentage of restaurant sales, operating costs were 51.4% in 2005, 51.9% in 2004, and 53.1% in 2003. The
percentage improvements in each year are primarily due to effective labor management related to continued Profit Improvement
Program initiatives, as well as to increased leverage provided by higher sales in each year. Also contributing to the favorable
trends were lower occupancy costs related to our Profit Improvement Program which was partially offset by a non-recurring
expense recorded in the second quarter of fiscal 2005 associated with an arbitration award in connection with the cancellation of
a utility contract.
Costs of distribution and other sales increased to $343.8 million in 2005 from $194.3 million in 2004 and $106.0
million in 2003, primarily reflecting an increase in the related sales. As a percentage of distribution and other sales, these costs
increased to 98.7% in 2005 from 98.2% in 2004, and 97.5% in 2003. The percentage increase is due primarily to higher
distribution delivery costs, as well as higher retail prices per gallon of fuel at our QUICK STUFF locations, which have
proportionately higher costs, but yield stable penny profits.
Franchised restaurant costs, principally rents and depreciation on properties leased to JACK IN THE BOX franchisees,
increased to $35.3 million in 2005 from $31.9 million in 2004 and $26.0 million in 2003, primarily reflecting an increase in the
number of franchised restaurants. As a percentage of franchise rents and royalties, franchise restaurant costs were 43.9% in
2005, 47.9% in 2004, and 47.8% in 2003. The percentage decrease in 2005 compared to 2004 is primarily due to the leverage
provided by higher franchise revenues. The percentage increase in 2004 compared with 2003 primarily relates to a ramp up in
franchise services to support our strategy of achieving a 35% ratio of franchised restaurants in the system by the end of fiscal
2008.
Selling, general, and administrative (“SG&A”) expenses were $273.8 million, $264.3 million, and $228.1 million in
2005, 2004, and 2003, respectively. These expenses were approximately 10.9% of revenues in 2005, 11.4% in 2004, and 11.1%
in 2003. The percentage improvement in 2005 is primarily due to increased leverage from higher revenues and lower pension
costs, which offset higher salaries and related expenses, higher costs associated with Sarbanes-Oxley compliance and a fourth
quarter charge of approximately $3.0 million to write-off assets as a result of the cancellation of the JBX Grill test. SG&A costs
increased in 2004 compared with 2003 primarily due to higher pension and incentive accruals, Qdoba overhead for the full year
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