Jack In The Box 2014 Annual Report Download - page 27

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Food and packaging costs as a percentage of company restaurant sales decreased 70 basis points to 31.9% in 2014 and 30 basis points to 32.6% in 2013 in
comparison to the respective prior year. In 2014, the decrease primarily relates to an 80 basis point reduction in food and packaging costs as a percentage of
sales at our Jack in the Box restaurants attributable to the benefit of selling price increases and favorable product mix changes, partially offset by an increase
in commodity costs. At our Qdoba restaurants, food and packaging costs increased slightly to 30.3% from 30.2% in 2013 as the benefits of retail price
increases and lower discounting were more than offset by higher commodity costs. In 2013, the benefit of selling price increases and favorable product mix at
our Jack in the Box restaurants were partially offset by higher commodity costs and greater promotional activity at our Qdoba restaurants compared with
fiscal 2012.
Commodity costs increased as follows compared with the prior year:


Jack in the Box 1.8%
2.2%
Qdoba 1.4%
1.5%
In 2014, commodity costs increased at our Jack in the Box restaurants primarily due to higher costs for beef, pork, and potatoes, and at our Qdoba
restaurants due to higher costs for produce and pork. In 2013, costs were higher for most commodities other than bakery and dairy, with the largest increases
in pork, beef and produce. 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 2015, we currently expect beef costs to increase approximately 15-20%, and overall commodities
to be up approximately 3% compared with fiscal 2014.
Payroll and employee benefit costs as a percentage of company restaurant sales decreased 50 basis points to 27.5% in 2014 and 60 basis points to 28.0%
in 2013 in comparison to the respective prior year. The decrease in 2014 reflects a decline in payroll and employee benefit costs at our Jack in the Box
restaurants of 50 basis points due to leverage from AUV sales increases and the benefits of refranchising lower performing Jack in the Box restaurants, which
were partially offset by higher levels of incentive compensation. A decline in labor costs as a percent of sales at our Qdoba restaurants of 30 basis points also
contributed to the favorable labor leverage in 2014 and primarily relates to leverage from same-store sales increases and changes to our staffing mix that
utilizes a more variable labor model, partially offset by higher levels of incentive compensation. In 2013, the decrease versus 2012 was primarily attributable
to an 80 basis point decrease in payroll and employee benefits as a percentage of the related sales at our Jack in the Box restaurants due to leverage from
same-store sales increases, benefits of refranchising restaurants and lower levels of incentive compensation. These decreases were partially offset by a 90 basis
point increase at our Qdoba restaurants due primarily to higher staffing levels.
As a percentage of company restaurant sales, occupancy and other costs decreased slightly to 22.1% of company restaurant sales in 2014, from 22.3% in
2013 and 22.5% in 2012. On a consolidated basis, occupancy and other costs were impacted by the mix of Jack in the Box and Qdoba company-operated
restaurants as our Qdoba locations generally have higher occupancy and other costs than our Jack in the Box restaurants. At our Jack in the Box restaurants,
the occupancy and other costs decreased 50 basis points to 21.0% in 2014 due to sales leverage and the benefits of refranchising, partially offset by the
impact of higher utility costs and higher depreciation expense related to Jack in the Box remodel programs. At our Qdoba restaurants, occupancy and other
costs as a percent of the related sales decreased 30 basis points to 24.6% in 2014 due to sales leverage which more than offset higher maintenance and repair
expenses and costs for utilities, as well as an increase in equipment rental costs related to Coca-Cola Freestyle® beverage equipment. In 2013, the lower
percentage was due primarily to leverage from same-store sales increases, the benefits of refranchising Jack in the Box restaurants and the favorable impact of
acquisitions of Qdoba franchise restaurants, partially offset by higher depreciation expense related to Jack in the Box remodel programs.
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