Jack In The Box 2008 Annual Report Download - page 29

The following summarizes the most significant events occurring in fiscal 2008:
•Restaurant Sales. JACK IN THE BOX company-operated restaurants open more than one year (“same-store”)
sales increased 0.2% year-to-date, on top of an increase of 6.1% a year ago. System same-store sales at
Qdoba restaurants increased 1.6% year-to-date, on top of an increase of 4.6% a year ago. Sales and traffic at
both concepts continue to be impacted by the current economic environment, including higher unemploy-
ment rates, and for much of the fiscal year significantly higher gas prices, and consumers who have become
more conservative in their discretionary spending.
•Commodity Costs. Our business continues tobe impacted by pressuresfrom increased commodity costs. In
2008, food and packaging costs were 150 basis points higher than last year. Beef costs, which represent the
Company’s largest single commodity expense, increased by more than 5 percent and higher costs for cheese,
shortening and potato items contributed to a 5.5% increase in overall commodity costs for the year.
•New Market Expansion. We expanded into a new contiguous company market in Denver, Colorado,
opening three JACK IN THE BOX restaurants, and we opened our third restaurant in Corpus Christi, Texas, a new
market we entered at the end of last fiscal year. JACK IN THE BOX franchisees are also expanding into new
contiguous markets in Texas opening four restaurants in San Angelo, Midland, Sweetwater and Odessa.
Franchisees are expected to continue expanding JACK IN THE BOX into new contiguous markets in fiscal 2009,
with locations scheduled to open in Colorado Springs, Colorado, Albuquerque, New Mexico, and
Wichita Falls, Texas.
•Re-Image Program. We continued to re-image our JACK IN THE BOX restaurants with a comprehensive
program that includes a redesign of the dining room and common areas. In 2008, the Company and its
franchisees re-imaged 355 restaurants. Since the current program was adopted in 2006, approximately
750 company and franchised restaurants, or more than one-third of the system, have been re-imaged. We are
accelerating the pace at which we will complete the exterior enhancements of our re-image program and by
the end of fiscal 2009, the exteriors of all company and franchised restaurants are expected to be re-imaged.
Interior elements of the re-image program, including a complete redesign of dining rooms and common
areas, are on schedule to be completed system-wide by the end of fiscal 2011.
•Franchising Program. We continued to execute our strategic initiative to expand franchising through new
restaurant development and sales of company-operated restaurants to franchisees and at September 28,
2008, approximately 38% of our JACK IN THE BOX restaurants were franchised. Our long-term goal is to grow
the percentage of franchise ownership of the JACK IN THE BOX system to 70%-80%, which should create a
business model that is less capital intensive and not as susceptible to cost fluctuations and is more closely
aligned with that of the QSR industry. While the lending environment is currently much more difficult than
we have seen in the past, we plan to accelerate the pace of our refranchising efforts over the next 5 years,
which should allow us to reach our franchise ownership goals by the end of fiscal 2013.
•Treasury Highlights. Pursuant to a stock repurchase program authorized by our Board of Directors, we
repurchased 3.9 million shares of our common stock for an aggregate of $100 million during the first three
quarters of fiscal 2008. Due to uncertainty in the financial markets and the availability of credit prior to
approval of the federal bailout plan, we did not repurchase any shares of our common stock in the fourth
quarter and we chose to draw down additional funds under our revolving credit facility priorto fiscal year end.
•Discontinued Operations. In September 2008, the Board of Directors approved plans to sell our 61 Quick
Stuff convenience stores to maximize the potential of the JACK IN THE BOX and Qdoba Brands.
FINANCIAL REPORTING CHANGES
In the third quarter of fiscal 2008, we recorded adjustments to goodwill in connection with the sale of
company-operated restaurants to franchisees from the beginning of fiscal 2003 through the second quarter of fiscal
2008. Historically, we did not write-off goodwill on the sale of company-operated restaurants to franchisees, as we
did not believe it constituted the disposal of a business under the provisions of SFAS 142, Goodwill and Other
Intangible Assets. It has now been interpreted that SFAS 142 requires that a portion of the entity level goodwill be
written-off based on the relative fair values of the restaurants being sold and the remaining value of the entity, in our
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