Jack in the Box: Traffic Steady But Sales Hurt By Discounting
November 19 2009 - 3:24PM
Dow Jones News
Jack in the Box Inc.'s (JACK) customer traffic is holding steady
but aggressive discounting by competitors and weak sales of drinks
and sides is hurting the check average, Linda Lang, chairman and
chief executive of the chain, said Thursday.
High unemployment, especially among its core customers of young
men and Hispanics, and a high concentration of stores in areas like
California is also contributing to weak same-store sales, which
fell 10% at company-operated Jack in the Box stores in the early
part of its fiscal first-quarter. Jack in the Box also late
Wednesday issued fiscal 2010 earnings guidance well below analyst
estimates, sending shares down $1.60, or 8%, to $18.43 in recent
trading.
Going forward, Jack in the Box, which competes with McDonald's
Corp. (MCD) and Burger King Holdings Inc. (BKC), plans to rely less
on $1 hamburgers, and more on value-priced combo meals and new
premium products to help improve sales. The burger chain has
restructured its marketing calendar so that it can hammer home
simultaneous messages on new premium products and bundled meals,
including offerings at breakfast.
Jack in the Box also hopes to see some of its top competitors
let up on aggressive discounts that are putting pressure on
profits. The company cited Burger King's latest $1 double
cheeseburger offer as cutting into its turf, but questioned whether
that and other aggressive plays by competitors would last.
"They probably have some incentive to become more rational now,"
Jack in the Box Chairman and Chief Executive Linda Lang said
Thursday on an earnings call.
Jack in the Box, with about 2,200 stores, appears willing to
give up some market share in order to protect its profit margin.
Having staked a position as premium fast-food operator, Jack in the
Box wants to be able to hold onto that perception.
The could leave more room for McDonald's, by far the largest
player in the category with close to 14,000 U.S. restaurants, to
pick up more share. McDonald's last week said it would expand its
store-remodeling program. It also plans to devote more of its
advertising spending to value messages and is considering a $1
breakfast value meal early next year.
While sales struggle, Jack in the Box is benefiting from a
program of cost cuts and lower food prices, which helped its fiscal
fourth-quarter earnings rise a bigger-than-expected 51%.
Helping the rise was a sale of company-owned stores to
franchisees. The company plans to have half of its stores owned by
franchisees in 2010, which would put it on its way toward a goal of
having at least 70% in the hands of franchisees by the end of
fiscal 2013.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
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