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Jack in the Box: Traffic Steady But Sales Hurt By Discounting

By Paul Ziobro Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- 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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