Jack In The Box 2012 Annual Report Download - page 24

Franchise revenues increased $43.7 million and $51.0 million in 2012 and 2011, respectively, as compared with the respective prior year. The increase in
franchise revenues in both years primarily reflects an increase in the average number of Jack in the Box franchise restaurants, which contributed additional
royalties and rents of approximately $48.2 million in 2012 and $53.5 million in 2011. In 2012, higher AUVs at Jack in the Box franchised restaurants also
contributed to the increase and were more than offset by lower revenues from initial franchise fees of $10.4 million related to a decrease in the number of
restaurants sold to and developed by franchisees. In 2011, the change in franchise revenues as compared with 2010 was also impacted by higher franchise
fees from increases in the number of restaurants sold to and developed by franchises, an increase in re-image contributions to franchisees, which are recorded
as a reduction of franchise revenues, and additional revenues in 2010 of $4.6 million from a 53rd week. The following table reflects the detail of our franchise
revenues in each year and other information we believe is useful in analyzing the change in franchise revenues ( dollars in thousands):
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Royalties
$127,887
$109,422
$91,216
Rents
195,746
161,279
128,143
Re-image contributions to franchisees
(7,124)
(8,208)
(1,455)
Franchise fees and other
9,303
19,573
13,123
Franchise revenues
$325,812
$282,066
$231,027
% increase
15.5%
22.1%
Average number of franchise restaurants
1,952
1,707
1,424
% increase
14.4%
19.9%
Increase in franchise-operated same-store sales:
Jack in the Box
3.0%
1.3%
Qdoba
1.9%
5.4%
Royalties as a percentage of estimated franchise restaurant sales:
Jack in the Box
5.3%
5.3%
5.3%
Qdoba
5.0%
5.0%
5.0%
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Food and packaging costs were 32.8% of company restaurant sales in 2012, 33.4% in 2011 and 31.8% in 2010. In 2012, higher commodity costs were
more than offset by the benefit of price increases and a greater proportion of Qdoba company restaurants which generally have lower food and packaging costs
than our Jack in the Box company restaurants. The increase in 2011 primarily relates to higher commodity costs and the unfavorable impact of product mix
and promotions, partially offset by the benefit of selling price increases. Commodity costs increased as follows compared with the prior year:
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Jack in the Box 2.7%
4.7%
Qdoba 4.3%
7.0%
In 2012, commodity cost increases were driven by higher costs for most commodities other than produce and pork. In 2011, higher costs for beef, cheese,
pork, dairy, eggs and shortening were partially offset by lower costs for poultry and bakery. Beef represents the largest portion, or approximately 20%, of the
Company’s overall commodity spend, and we typically do not enter into fixed price contracts for our beef needs. For fiscal 2013, we currently expect beef
costs to increase approximately 4%-5%, and overall commodities to be 2%-3% higher compared with fiscal 2012.
Payroll and employee benefit costs were 29.0% of company restaurant sales in 2012, 30.0% in 2011 and 30.3% in 2010. The decrease in 2012 reflects
leverage from same-store sales increases, the benefits of refranchising and the favorable impact of recent Qdoba restaurant acquisitions. In 2011, the decrease
relates to same-store sales increases and lower insurance costs, offset by increases in unemployment taxes and higher levels of staffing designed to improve the
guest experience at our Jack in the Box restaurants.
Occupancy and other costs were 23.1% of company restaurant sales in 2012 and 23.9% in 2011 and 2010. The lower percent in 2012 and in 2011 are due
primarily to leverage from same-store sales increases, the benefits of refranchising Jack in the Box restaurants and the favorable impact of recent acquisitions
of Qdoba franchised restaurants. These benefits were partially offset in both years by higher depreciation expense related to the Jack in the Box re-image
program. In 2012, the percentages were impacted by higher debit card fees and costs associated with the new menu board and uniform program at Jack in the
Box restaurants.
Franchise costs, principally rents and depreciation on properties leased to Jack in the Box franchisees, increased $29.9 million in 2012 and $31.3 million
in 2011, due primarily to our refranchising strategy. Franchise costs increased to 51.0% of the related
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