Jack In The Box 2006 Annual Report Download - page 34

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ITEM 7. MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
All comparisons under this heading among 2006, 2005 and 2004 refer to the 52-week periods ended October 1,
2006 and October 2, 2005, and the 53-week period ended October 3, 2004, respectively, unless otherwise indicated.
Overview
As of October 1, 2006, Jack in the Box Inc. (the “Company”) owned, operated, and franchised 2,079 JACK IN
THE BOX quick-service restaurants and 318 Qdoba Mexican Grill (“Qdoba”) fast-casual restaurants, primarily in the
western and southern United States.
The Company’ s primary source of revenue is from retail sales at company-operated restaurants. The Company
also derives revenue from sales of food and packaging to JACK IN THE BOX and Qdoba franchises, retail sales from
fuel and convenience stores (“QUICK STUFF”), and other revenue from franchisees including royalties, franchise fees
and leased real estate. The Company also recognizes gains from the sale of company-operated restaurants to
franchisees.
The quick-service restaurant industry has become more complex and challenging in recent years. Challenges
presently facing the sector include higher levels of consumer expectations, intense competition with respect to
market share, restaurant locations, labor, and menu and product development, the emergence of the fast-casual
restaurant segment, changes in the economy, including rising oil and gas prices, and trends for healthier eating.
To address these challenges and others, and to support our goal of becoming a national restaurant company,
management has developed a strategic plan focused on three key initiatives. The first initiative is a holistic
reinvention of the JACK IN THE BOX brand through menu innovation, upgrading guest service and re-imaging JACK
IN THE BOX restaurant facilities to to reflect the personality of Jack – the chain’ s fictional founder and popular
spokesman. The second initiative is a multifaceted growth strategy that includes opening new restaurants and
improving the unit economics of each concept. The third strategic initiative is to expand franchising – through new
restaurant development and the sales of company-operated restaurants to franchisees – to generate higher returns and
higher margins, while mitigating business-cost and investment risks.
The following summarizes the most significant events occurring in fiscal year 2006:
•Restaurant Sales. New product introductions and strong customer response to marketing messages
promoting the chain’ s premium products and value menu contributed to sales growth at JACK IN THE BOX
restaurants increasing both the average check and number of transactions. This positive sales momentum
resulted in an increase in same-store sales of 4.8% at JACK IN THE BOX company-operated restaurants and
5.9% at Qdoba system restaurants.
•Improved Service. We hosted a breakthrough three-day conference for all JACK IN THE BOX company and
franchise restaurant managers to engage them in the service vision and provide them tools for improving
guest service at their restaurants.
•New Restaurant Designs. In 2006, we completed re-imaging approximately 150 JACK IN THE BOX restaurants
including entire markets in Seattle, Washington and Waco, Texas. The re-image program is intended to
promote more in-restaurant dining by creating an inviting atmosphere that reflects the personality of Jack.
•Franchising. Pursuant to our strategic initiative to expand franchising activities, we sold 82 JACK IN THE BOX
company-operated restaurants to franchisees. In the fourth quarter, the Company sold all of its company-
operated restaurants in Hawaii to a new franchise operator generating gains and fees on sale of
approximately $15.6 million.
•Repurchase of Common Stock. Pursuant to a stock repurchase program authorized by our Board of Directors,
the Company repurchased approximately 1.4 million shares of its common stock in the first quarter of 2006
for approximately $50 million.