Jack In The Box 2014 Annual Report Download - page 23

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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For an understanding of the significant factors that influenced our performance during the past three fiscal years, we believe our Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and
related Notes included in this Annual Report as indexed on page F-1.
Comparisons under this heading refer to the 52-week periods ended September 28, 2014, September 29, 2013 and September 30, 2012 for fiscal years
2014, 2013 and 2012 respectively, unless otherwise indicated.
Our MD&A consists of the following sections:
•Overview — a general description of our business and fiscal 2014 highlights.
•Financial reporting — a discussion of changes in presentation, if any.
•Results of operations — an analysis of our consolidated statements of earnings for the three years presented in our consolidated financial
statements.
•Liquidity and capital resources — an analysis of cash flows including capital expenditures, aggregate contractual obligations, share repurchase
activity, dividends, known trends that may impact liquidity, and the impact of inflation.
•Discussion of critical accounting estimates — a discussion of accounting policies that require critical judgments and estimates.
•Future application of accounting principles — a discussion of new accounting pronouncements, dates of implementation and impact on our
consolidated financial position or results of operations, if any.
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As of September 28, 2014, we operated and franchised 2,250 Jack in the Box restaurants, primarily in the western and southern United States, including
one in Guam, and 638 Qdoba restaurants throughout the United States and including four in Canada.
Our primary source of revenue is from retail sales at Jack in the Box and Qdoba company-operated restaurants. We also derive revenue from Jack in the
Box and Qdoba franchise restaurants, including royalties (based upon a percent of sales), franchise fees and rents from Jack in the Box franchisees.
Historically, we also generated revenue from distribution sales of food and packaging commodities to franchisees. We completed the outsourcing of this
function in the first quarter of fiscal 2013, and franchisees who previously utilized our distribution services now purchase product directly from our
distribution service providers or other approved suppliers. In addition, we recognize gains or losses from the sale of company-operated restaurants to
franchisees, which are included as a line item within operating costs and expenses, net in the accompanying consolidated statements of earnings.
The following summarizes the most significant events occurring in fiscal 2014 and certain trends compared to prior years:
•Same-Store Sales Growth — Sales at restaurants open more than one year (“same-store sales”) grew 2.0% at company-operated Jack in the Box
restaurants driven primarily by growth in our breakfast and late-night dayparts. Qdoba’s same-store sales increase of 5.7% at company-operated
restaurants reflects growth in excess of 7% for the last three quarters of the year driven primarily by menu innovation, catering and less
discounting.
Restaurant Margin Expansion — Our consolidated company-operated restaurant margin increased 140 basis points in 2014 to 18.5%. Jack in the
Box’s company-operated restaurant margin improved 170 basis points to 18.5% due primarily to lower food and packaging costs despite
commodity inflation of 1.8%, in addition to benefits from refranchising activities and leverage from same-store sales increases. Restaurant margins
at our Qdoba company-operated restaurants improved 40 basis points to 18.3% primarily reflecting leverage from same-store sales growth,
partially offset by commodity inflation of 1.4%.
• Jack in the Box Franchising Program — During 2014, we essentially completed our refranchising initiative focused on increasing franchise
ownership in the Jack in the Box system through the sale of company-operated restaurants to new and existing franchisees. We refranchised 37
Jack in the Box restaurants in 2014, and have a signed letter of intent to sell another 20 restaurants in our remaining Southeast market.
Additionally, Jack in the Box franchisees opened a total of 11 restaurants in 2014. Our Jack in the Box system was 81% franchised at the end of
fiscal 2014, and we plan to maintain franchise ownership in the Jack in the Box system at a level between 80-85%. We expect the majority of our
new Jack in the Box unit development to be through franchised restaurants.
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