Jack in the Box Inc. (JACK) Q1 2012 Earnings Report, Transcript and Summary

Carol A. DiRaimo - Vice President of Investor Relations & Corporate Communications Linda A. Lang - Chairman, Chief Executive Officer, President and Chairman of Executive Committee Jerry P. Rebel - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Leonard A. Comma - Chief Operating Officer and Executive Vice President

Jeffrey Andrew Bernstein - Barclays Capital, Research Division Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division John S. Glass - Morgan Stanley, Research Division Joseph T. Buckley - BofA Merrill Lynch, Research Division Keith Siegner - Crédit Suisse AG, Research Division Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division Conrad Lyon - B. Riley & Co., LLC, Research Division Bart Glenn - D.A. Davidson & Co., Research Division Larry Miller - RBC Capital Markets, LLC, Research Division Howard Penney Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division Brian J. Bittner - Oppenheimer & Co. Inc., Research Division Jake R. Bartlett - Susquehanna Financial Group, LLLP, Research Division Peter Saleh - Telsey Advisory Group LLC Nick Setyan - Wedbush Securities Inc., Research Division Jason Belcher - Wells Fargo Securities, LLC, Research Division

Good day, everyone, and welcome to the Jack in the Box Inc. First Quarter Fiscal 2012 Earnings Conference Call. Today's call is being broadcast live over the Internet. A replay of the call will be available on the Jack in the Box corporate website starting today. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Carol DiRaimo, Vice President of Investor Relations and Corporate Communications for Jack in the Box. Please go ahead.

Thank you, Stacy, and good morning, everyone. Joining me on the call today are our Chairman, CEO and President, Linda Lang; Executive Vice President and CFO, Jerry Rebel; and Executive Vice President and COO, Lenny Comma. During this morning session, we'll review the company's operating results for the first quarter of fiscal 2012 and update our guidance for the remainder of the year. Following today's presentation, we'll take questions from the financial community. Please be advised that during the course of our presentation and our question-and-answer session today, we may make forward-looking statements that reflect management's expectations for the future, which are based on current information. Actual results may differ materially from these expectations based on risks to the business. The Safe Harbor statement in yesterday's news release and the cautionary statement in the company's most recent Form 10-K are considered a part of this conference call. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC. These documents are available on the Investors section of our website at www.jackinthebox.com. A few calendar items to note. Next week, on February 28, Jack in the Box's management is hosting an Investor Meeting in San Diego, which will be webcast live beginning at 9 a.m. Pacific Time. Jack in the Box's management will also be participating in RBC Capital Markets Restaurant and Leisure Conference in Deer Valley, Utah on March 1, the Bank of America Merrill Lynch Consumer & Retail Conference in New York on March 8 and the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas on March 28. Our second quarter fiscal 2012 ends on April 15, and we plan to announce results on May 16 after the market closed with our conference call to be held at 8:30 a.m. Pacific Time on May 17. And with that, I'll turn the call over to Linda.

Thank you, Carol, and good morning, everyone. We believe our results for the first quarter reflects the success of our strategic initiatives and the related investments we've made over the last few years. The strong sales trends that we experienced during fiscal 2011 continued in the first quarter of 2012, with same-store sales at company Jack in the Box restaurants increasing 5.3%. The increase was driven by traffic growth of 2.8% combined with a 2.5% increase in average check. On a 2-year cumulative basis, first quarter sales were 500 basis points higher than the fourth quarter of 2011 and represented our sixth consecutive quarter of sequentially improving company same-store sales. The strength was broad-based with each of our major markets posting increases in sales, traffic and average check, and sales were positive across all day parts with breakfast remaining the strongest. Four weeks into the second quarter, we're continuing to see strong same-store sales growth. Quality improvements we're making to our core products continue to resonate with our guests. Our latest initiative in this area, which we introduced during the first quarter focuses on several enhancements to our classic burgers, which were supported with advertising, merchandising and social media. We believe the sustained improvements in our results have largely -- have been largely driven by investments to the company and our franchisees have made to the entire guest experience at Jack in the Box. This includes our restaurant reimaging program, which was substantially completed system-wide during the first quarter. Our continued focus on delivering a more consistent experience has resulted in improved speed of service. We believe reducing the variability and delivering faster service will build trust with our guests and drive additional business. This holistic approach has contributed to meaningful improvements in our overall satisfaction ratings, as measured by our Voice of the Guest surveys and brand loyalty study. The same-store sales increase in the first quarter, along with the benefits of our refranchising strategy, helps drive a 90 basis point increase in consolidated restaurant operating margin versus the year-ago quarter despite significant headwinds from commodity. Jerry will provide further comments on our margin expansion and other operating highlights during his remarks. Moving on to Qdoba. Same-store sales increased 3.8% system-wide during the first quarter, representing the fourth consecutive quarter that 2-year cumulative same-store sales have been greater than 9%. Since Qdoba competes in the fastest-growing segment of the restaurant industry and has on average higher cash on cash returns than a typical QSR restaurant, we've been increasing our company store base through unit growth and acquisitions. In addition to opening 6 company restaurants during the quarter, we acquired 11 franchise locations in 2 markets. At quarter end, 44% of Qdoba system was company-owned compared to 36% at the end of the year-ago quarter. And subsequent to the end of the first quarter, we acquired 25 additional franchise restaurants in 2 other markets. The acquisitions we have made to date in fiscal 2012 are expected to be accretive to our full year margins and earnings. As we said last quarter, we plan to more aggressively build out the number of company Qdoba locations over the next several years through new unit growth and additional acquisitions of franchise locations, accelerating the growth of our Qdoba brand by increasing market penetration to generate hightened brand awareness and higher AUV. We look forward to discussing Qdoba's growth plan, as well as our key strategies and initiatives next week at our Investor Meeting in San Diego. And now I'll turn the call over to Jerry. Jerry?

Thank you, Linda, and good morning. I'll cover our financial highlights for the quarter before reviewing our updated fiscal year 2012 outlook. All of my comments this morning regarding per share amounts refer to diluted earnings per share. First quarter earnings were $0.27 per share compared to $0.61 last year. Operating earnings per share, which we define as EPS on a GAAP basis less gain from refranchising, were $0.25 in the quarter versus $0.27 last year. Our franchisees completed a significant number of reimages during the quarter, and are now about 95% complete with their reimaging efforts. As a result, reimage incentives of approximately $0.08 per share were $0.06 higher than last year. Refranchising gains were approximately $0.02 per share in the quarter, which represented additional proceeds received as a result of the extension of the underlying franchise and lease agreements for a previously sold restaurant. This compared to gains of approximately $0.34 per share in last year's first quarter. Average weekly sales for Jack in the Box company restaurants have $29,200 or up 12.6% in the quarter, resulting in part from the 5.3% increase in same-store sales that Linda discussed, as well as the benefit of refranchising activities last year. Consolidated restaurant operating margin of 13.5% of sales for the quarter was 90 basis points better than last year's first quarter. Jack in the Box margins improved 110 basis points to 13.9%, and Qdoba margins improved 60 basis points to 12% in the quarter despite significant commodity cost headwinds for both brands. As we discussed last year, Qdoba is generally dilutive to consolidated margins in Q1, and their business is more seasonal than Jack in the Box, but we expect Qdoba to be accretive to consolidated margins in quarters 3 and 4 as well as for the full year as it was last year. The 90 basis point improvement in consolidated margins as compared to last year included approximately 110 basis points of higher food and packaging cost and 20 basis points of higher debit card fees, resulting from the Durbin Amendment to the Dodd-Frank Act. This was more than offset by 200 basis points of improvement, about half of which was driven by the benefit from refranchising over the last 12 months and the other half primarily from same-store sales leverage. Additionally, prior Qdoba acquisitions, net of new restaurants added about 20 basis points of margin improvement. The increase in food and packaging costs was due primarily to commodity inflation of approximately 8%, which was in line with our expectations, driven by higher costs for most commodities other than produce, including beef inflation of 15%. The increase was partially offset by pricing, which was 3.3% higher in the quarter at our company, Jack in the Box restaurants. Before I review guidance for the second quarter and full year, I'd like to provide an update to our commodity cost outlook for the remainder of the year. Overall, we expect commodity costs for the full year to increase by approximately 5%. Some key points with respect to our major commodity purchases and where we have coverage. These accounts for approximately 20% of our spend and remains the biggest challenge we have in forecasting commodity costs. For the full year, we still expect these costs to be up in the high-single-digit range. Chicken is about 9% of our spend. Our current contract, which have been in place for the last 2 years expire at the end of March. We have recently entered into new contract, fixing the costs through December of 2012. These accounts for about 6% of our spend. We have 100% coverage on cheese through the end of March and 50% coverage through the end of fiscal year 2012. Pastry accounts for about 8% of our spend. We now have 100% of our bakery needs covered through June of 2012 and approximately 30% coverage for the July to September 2012 time frames. Now let's move on to the rest of our guidance for the balance of the year. For the second quarter, we expect same-store sales for Jack in the Box company restaurants to increase 4% to 5%, lapping a 0.8% increase last year. System-wide same-store sales for Qdoba are expected to increase 4% to 5% versus a 6% increase in the year-ago quarters. I won't repeat all of the full year guidance included in the press release, but here's our current thinking on some of the line items that we have changed since our November guidance. Same-store sales are now expected to increase 3% to 4% at Jack in the Box company restaurants and 4% to 5% for the Qdoba system, reflecting our performance in Q1 and our expectations for Q2. Restaurant operating margin for the full year is now expected to be approximately 14%, depending on same-store sales, commodity inflation and refranchising transactions. Our guidance reflect the impact of the acquisition of 25 franchise Qdoba restaurants earlier this week. These restaurants have higher than system average unit volumes and margins, and are expected to be accretive to both margins and operating EPS this year. Diluted earnings per share are now expected to range from $1.15 to $1.43, with the range reflecting uncertainty in the timing of the anticipated refranchising transactions as well as same-store sales results and commodity inflation. Operating earnings per share, which we define as diluted earnings per share on a GAAP basis less gains from refranchising, are now expected to range from $0.95 to $1.10. Operating EPS includes approximately $0.09 to $0.10 of reimage incentive payments to franchisees in fiscal 2012, of which approximately $0.08 occurred in the first quarter. Reimage incentive payments in fiscal 2011 were $8.2 million or approximately $0.11 per share. Lastly, as we approach completion of our Jack in the Box refranchising -- strategy, we're seeing the results of our business model transformation, including a higher AUV, higher margin company operated footprint, growing annuity like royalty and rental income streams that we now sublease approximately 90% of our franchise locations and lower CapEx with more capital deployed towards growth versus maintenance. At the same time, Qdoba has become a more significant part of our business, now 28% of our company-operated store base and will continue to become larger still as we more aggressively grow our brand in the fastest-growing segment of the restaurant industry. That concludes our prepared remarks. I'd now like to turn the call over to the operator to open it up for questions. Stacy?

[Operator Instructions] Our first question is from Jeffrey Bernstein of Barclays.

Just one question and one follow-up. The question specific to the comp side of things specific to Jack in the Box. You talked about the significant jump in the 2 year. I'm just wondering if you could talk about perhaps the competitive environment kind of promotional activity, whether you think that you're taking share or whether you think this is just kind of broader category growth and perhaps just address what still seems to be the GAAP between the company and the franchise? And then I just had a quick follow-up.

Okay. There's few parts there. In terms of the competitive environment, I'd say it's probably not as price promotion driven as it was perhaps a year ago, so a little more rational behavior in the industry. But I can tell you that we believe that we are taking share especially in the California market with the regional players in California. So we do look at the competitive set. We do track their sales. We do look at NPD data, and it's clear that we are taking share. And then in terms of the GAAP between the company and franchise, it hasn't widened in the quarter. On a 2-year basis, it's slightly wider. And we believe, I think, as we said earlier that the company is a little further along on some of the initiatives especially the reimage program. We are very focused on that. The franchisees are very focused on continuing to focus on the entire experience, so addressing speed of service and some of the other tactics that we have in place to improve the guest experience at the location.

Okay. And then just as a follow-up on the Qdoba side, you mentioned, I guess, being 44% company-operated, which was an 8-point jump from a year ago, and it seems like you're aggressively making acquisitions. I'm just wondering whether you can kind of give us an update perhaps, one, where that goes from here, whether you have any kind of limitation or hesitancy or kind of where you could see that going. And perhaps more broadly, on just the portfolio whether there's sort of any kind of other acquisition? Or kind of what your thoughts are on the portfolio beyond Qdoba?

Right. Jeff, we will cover a lot more of the Qdoba long-term growth plan next Tuesday during our Investor Day. So I can tell you that we have been doing strategic acquisitions now for a couple of years. And we look for markets that have high AUVs, that have solid restaurant operating margins and there's opportunity for growth. So we'll continue with that acquisition strategy with Qdoba, but we'll cover more of that next week.

Our next question is from Matthew DiFrisco of Lazard Capital Markets.

Just to follow-up on that, can you just tell us where those 25 stores were acquired?

We haven't typically done that primarily for competitive reasons, particularly when there's a shift in the -- from franchise operator into company operations, we typically don't talk about that. But it is as with the other acquisitions and markets that have ample room for us to add additional location, we think we will do that more quickly than the franchisees will. It also have substantially higher AUVs and restaurant operating margins than what the system average has.

And then earlier on the call, you also said -- I thought you said something about Qdoba being dilutive to earnings in this quarter as it was last year. I was lost there.

The dilutive -- that was dilutive to restaurants' operating margin.

Okay. So it's just lower margin than the mix?

That's lower margin. And if I could just address that a bit more, the Qdoba business is more seasonal than the Jack in the Box business. They close 2 days in the quarter for Christmas and for Thanksgiving and of course, all those fixed costs continue. But when you look at the weekly average per store sales in Q1 versus what that weekly average looks like for the full year, it's about 80% in Q1 versus the average for the whole year. So it's substantially lower AUVs in the quarter, which drives that lower restaurant operating margin in the quarter. You just don't see that kind of seasonality within Jack in the Box.

Okay. And then can you just comment on how much accretion you're getting on an annual basis from the 36 stores that you acquired?

Sure. On a restaurant operating margin basis or an EPS?

Which ever is -- both will be great.

Yes, let me tell you the 25 restaurant that we just acquired is the new news to the guidance. Those we expect on a full year basis to be about $0.05 to $0.07 per share accretive, and we're estimating about $0.03 this year accretive. The restaurant operating margin, those restaurants had north of 20% restaurant operating margins. And we will expect that to have most of the improvement in our restaurant operating margin guidance from the end of the last quarter to now is driven primarily by those additional 25 restaurants, along with some improvements in the bottom end of our same-store sales guidance.

Our next question comes from John Glass of Morgan Stanley.

First, could you just talk about your -- at the Jack business, the traffic and check. Last quarter, there was an unusual shift of very high traffic and lower check because of the breakfast promotion. Can you roughly give us the break out in traffic and check this quarter?

Yes, traffic was up 2.8%. Check was up 2.5%. So a very nice balance between traffic and check. And you're right, we did come off of a fairly aggressive promotion with the Jumbo Breakfast Platter last quarter. And so if you look at the promotional events that we had in this quarter, it's really is a nice balance between kind of the premium, more premium top-tier or mid-tier products like Outlaw Burger and Outlaw chicken. And then we did have a bundle deal, which still offers compelling value to those that are seeking value, and we continued with the Jumbo Breakfast Platter that grew our breakfast deal. And then of course, early in the second quarter, we introduced the bacon -- BLT Cheeseburger, which is more of a premium price. So we did come off of some of the discounting that we had last quarter, and that's reflected in the average check move [ph]. .

Okay. And then just -- I guess, Jerry, on the guidance and maybe the restaurant margins, it feels like it's conservative in the sense that, let's say, the 14% guidance you're lapping now, that I guess, the peak inflation, I assume this is the peak inflation quarter, so that should get better. You made an accretive acquisition both to margin and to EPS. Comp store sales momentum is strong. It seems like everything is going against in your favor, so why wouldn't 14% seem a little conservative based on that? Maybe there's another -- and by the way, you're getting rid of all your upfront remodel expenses, as you know is a margin issue at restaurant level, but still helps earnings. So I guess could you address sort of conservatism of what's going on the rest of the year or margin perspective that's negative that wouldn't allow -- how about 14% and maybe also just address only raising the bottom of the range of EPS for the same reasons.

John, other than the debit card, the increase, which is going to cost us about 20 basis points in margin, again, that was related to a -- some new regulations that went in after our first quarter, excuse me, after our year-end call. We're not seeing anything on the horizon that would cause us to be concerned about restaurant operating margin that we can control. So you're right, we're very happy with where the same-store sales performances, and we're happy with everything that we're doing from a cost and a sales-building perspective. The challenge, I guess, or perhaps the largest concern going forward would be what happens with beef. I think we have a pretty good handle on the remaining part of our commodity spend. And then the other piece is how high do gas prices go and how long do they stay there. So those would be the 2 cautionary pieces that I would say, but I would hope that our margin is conservative. But given those other external factors I just mentioned, might cause some conservatism within the margin number.

And if I could just clarify, are you assuming any more refranchising benefit to margin in that 14%? Or is that just the existing portfolio, and it could be upside if you refranchise on margins?

Yes, it depends on timing, but our refranchising transactions were included in our margin guidance that we issued in November. And it's still in the margin guidance that we are expecting now and that have not changed.

Our next question comes from Joe Buckley of Bank of America.

Yes, I just have a follow-up on the guidance. Sort of a $0.05 off the low end of the guidance, but it sounds like $0.03 of that comes from the acquisition this week, and we're calculating maybe $0.01 from the tax rate coming down a little bit. So are those the primary drivers of the guidance increase at this point?

Yes, what I would say, Joe, is you look at that $0.03 that I just described on the acquisition, you're right. The tax rate we're anticipating is going to be in the 36 to 37 range, off a little bit from where we were prior. We also increased the reimage payments from $0.07 to $0.09 to $0.09 to $0.10. That's a little bit of a drag. And then the additional improvement is the raising of the bottom end of the same-store sale guidance for both the Jack in the Box and the Qdoba brand, reflecting what we expect to be continued strong performance.

Okay. And then just a question on food cost. What are you thinking for the second quarter? And can we look forward to a -- if a 5% full year number comes through, can we look forward to a more manageable rate of food cost inflation in the second half?

Yes. Well, clearly with 8% forecast -- excuse me, with 8% actual for the first quarter, we're expecting in the 3% range for Q2.

Okay. And then I guess that would sort of imply 4% to 5% in the second half of the year?

No, we would say Q3 and Q4 is still inflationary, but in a 3% to 4% range. Remember, Q1 is 16 weeks, and the remaining quarters are only 12 weeks each, so it's...

Right, of course, yes. Okay. And then one last question on the commodities, the new checking contract, are costs up?

Well, costs are up, but they're not as high as we had expected them to be. We were able to do some other creative things with combining the Qdoba chicken contract also. So it worked out in our favor.

Our next question comes from Keith Siegner of Credit Suisse. Keith Siegner - Crédit Suisse AG, Research Division: First question, Jerry. Just wondering, you often talk about G&A in terms of like long-term targets as a percent of system sales. So I just wondered if you could just maybe talk about kind of where -- what rate are you running as a percent of system sales now? Maybe how does this compare to last year? And for the guidance of mid-10s for SG&A for this year, what does that imply as a percent of system sales?

Sure. Let me talk about that a bit. And first of all, we will have perhaps a bit more information on all of our long-term outlook, including G&A at the Tuesday Investor Day. But let me speak as best as I can to the rest of your question. So if you go back to fiscal 2011, we were at 4.4% of system-wide sales and 10.2% of revenue. And that 4.4% was down about 140 basis points from our percent of system-wide sales that we experienced in fiscal 2006. Most of that has been as a result of our refranchising strategy. Our 2010 guidance reflected in the mid-10% range was including 3 key items that we talked about on our November call. One was an increase in our pension cost of about $3 million. We describe it as being noncash and just relate it to accounting requirements on pension cost primarily because of discount rates. We also talked about $3.5 million worth of incremental G&A cost in the '12 plan for the implementation and rollout of some restaurant technology. And then we also described about another $3.5 million of higher cost to support the anticipated ramp-up and the planned ramp-up in Qdoba growth. So that $10 million was about 45 basis points in terms of increase in percent of revenue and roughly 30 basis points as a percent of system-wide sales. If you look at where we are thus far in first quarter, we -- those costs that I just described for the IT, the Qdoba and the pension creates about 30 basis points worth of increase in our cost as a percent of sales in Q1. And if you look at where we are in terms of the system-wide sales run rate in Q1, it's pretty similar to what it was in Q -- or in fiscal 2011. Remember, however, that we did have the benefit of some mark-to-market adjustments in Q1 of this year, which helped that out a bit. Keith Siegner - Crédit Suisse AG, Research Division: One quick follow-up if I can. Often, in a lot of the recent quarters, there've been some kind of one-time moving pieces in the margins for Jack in the Box, the restaurant level margins, either workers comp, maintenance and utilities adjustments, uniform purchases, were there any items that you'd like to call out in the first quarter results?

None that I would not like to call them out. There weren't any to call out. So this was a remarkably clean restaurant operating margin quarter. The unusual item, I would say, would be the debit card fees, but that is not one-time that will hit us, until the regulation is changed though. I think that will hit us forever.

Our next question is from Chris O'Cull of SunTrust.

Jerry, I wanted to follow up on a earlier question. What is the margin benefit you're assuming in 2012 for refranchising more stores this year?

Yes, I think we said on the call last...

What we said on the last call is if you looked at what we sold in 2011, our margins going forward in this year would have been about 100 basis points higher. But we didn't call out the benefit what we expected. So these are going to depend on the timing of those markets.

Exactly.

Just as a follow-up, how would you recommend we model the expected refranchising activity for this year?

Chris, that's a great question. When -- over the last 2 years, we sold about 550 locations. So we had deals in the works at all times. And because of the nature of those transactions, some would fall out of a quarter, some would fall into the quarter. But overall, they were reasonably easy to predict. With the 150 to 200 restaurants that we have remaining to sell, most all of which is in full markets, they become much more difficult to predict. So the way that we look at it is we look at it in terms of what do we think we're going to hit for the year and not within the quarter. So I think the -- trying to estimate what it's going to do quarter-to-quarter just creates a little extra noise. And I think what our focus is on is on the operating EPS because -- and what we expect to be 2 years that will be what GAAP EPS will be also, will be essentially what the operating EPS is. So that's where our focus is. But again, for a full year basis, we're comfortable with where our guidance is for our refranchising transactions.

Okay. And then one more here. Linda, would you provide us a little more color on the service improvements that really help build the sales or recover sales? And then maybe what are the biggest service issues Jack still needs to address?

Sure. I'm going to let Lenny speak to that since he's really leading the effort, Chris. So he'll speak to that.

Chris, I think, probably the best way to describe it is our speed of service is the place where we've improved the most. And we also implemented, which we talked about last year, a program that creates some urgency around fixing our service issues mainly around cleanliness, accuracy, the basic transactional things that happen in the drive-thru and at the counter. And what we've seen is -- and we'll talk about this more next week. What we've seen is an improvement from the time we started and even more accelerated improvement from about period in '12 or towards the end of our fourth quarter last year through today. So we know speed of service is a big contributor, but we also know that the consistency around the way people are executing in the transaction is really driving the improvement that we're experiencing. And we now that, that is, along with the investments we've made in the reimages, contributing to the overall improvement that we're seeing.

Is that still the biggest service issue that needs to be addressed going forward?

Biggest service?

Right.

Yes.

Our next question is from Conrad Lyon of B. Riley. Conrad Lyon - B. Riley & Co., LLC, Research Division: I also have a question regarding guidance. I think it was the last call, Jerry, that you indicated that 10 basis point improvement with the restaurant operating margin would benefit earnings by $0.01 to $0.02 with -- is that embedded in the guidance or should we expect a cushion of, say, $0.05 to $0.10?

So I think that's embedded in the guidance, so yes. Conrad Lyon - B. Riley & Co., LLC, Research Division: Okay. All right. A follow-up, I know you relaxed the requirements for franchisees across the Jack in the Box system this year. Is that being reflected in the uptick in franchise development recently? And how has the pipeline firmed up?

Yes, I think that the incentives that you just described is reflective by the increase in franchise development. You may have noticed that we increased our total Jack in the Box opening expectations from what it was in the prior guidance, while keeping firm on what the company development look like. So we do believe that's having some impact. It's -- but I would tell you also just from a cautionary perspective, it's pretty soon. It's pretty early within this process or maybe too soon to draw any real conclusions from that. Conrad Lyon - B. Riley & Co., LLC, Research Division: Got you. Just a quick question here, how's the Jumbaco mix this year versus last year?

The Jumbaco? You have to have ask our customers because they're making them at home, and we don't have any control over that.

Our next question comes from Bart Gleand of D.A. Davidson and Company. Bart Glenn - D.A. Davidson & Co., Research Division: I was just curious how price sensitive you're going to be us you wrap up the refranchising process? And would you consider waiting longer with the business recovering if you think there's an opportunity to sell the units later for even more attractive prices?

Yes, no. We -- what you'll see on Tuesday a much more clear picture of what we have left to sell and how those restaurants are performing and what impact that would have to operating EPS going forward. But, I wouldn't cover that off right now, but what I will tell you is that the pricing, as it always have been, will be some multiple of cash flow. And so I would expect that we wouldn't really change the pricing philosophy on those. It will be just based on they're operating. But again, we'll cover off on a lot more detail on that on Tuesday.

Our next question is from Larry Miller of RBC.

Speaking of price, you said I think you're running 3%, just over 3% here in the first quarter to company sources. Is that a good number for the year?

That's what we're running right now. And as we've said before, we work with a consultant to look for any opportunities and analyze opportunities to take additional price. So we don't really disclose forward pricing.

Okay, fair enough. Just want to follow up on one area and then ask a question. Back on those Qdoba stores that you bought, did you buy the whole market? I know you won't say what market. And also, can you kind of give us a sense of what the AUVs are there?

Sure. The -- it was the whole market. It was actually 2 and I described that the restaurant operating margins were north of 20%. And the AUV, just north of $1 million.

Okay. And then the question I had was on interest expense, your debt balance is increasing, can you give us some thoughts about, what you plan to do with respect to your debt balance and thoughts on share buybacks? You have $100 million authorization out there with any share buyback in the current guidance.

Sure. Let me talk about the debt piece first. So the debt, you're right. It's a little higher than what we typically do, what we typically carry, and it is reflective of the Qdoba acquisitions that we've had over the last 6 months or so as well as an acceleration of our share repurchase program last year. Last year -- between actually last year and early in the first quarter this year, we repurchased about $200 million worth of stock. And the last $25 million to $50 million was at a very attractive rate. So that is included in the debt flow right now. Debt-to-EBITDA were a little north of 2x debt-to-EBITDA, as we said at the end of the first quarter. We expect that though, Larry, through refranchising transactions and other to be in the 1.5x to 1.75x debt-to-EBITDA, more of a normalized run rate that we would have. And the share count that we are currently guiding to is reflective of share repurchases that we've made thus far, and anything else will be opportunistic. Remember, what our capital deployment priorities are is first, gross-oriented CapEx, which would include Qdoba acquisitions and then of course, returning cash to shareholders. And I think we've been pretty consistent with that philosophy and also pretty consistent with that execution of that philosophy.

Our next question comes from Howard Penny of Research Edge.

I'm good.

Our next question is from Jonathan Komp of R.W. Baird. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: I'm wondering if you could just provide maybe a little bit more color on some of the various pieces that you think are really driving the improved comp trends at Jack in the Box? I know you've touched on some of these, but you've made significant investments and essentially completed the reimaging and also having an improving environment as a tailwind. So maybe just qualitatively, could you help parse out the benefit from some of those various pieces?

Sure. And really, we focused on bringing back our customers and stealing market share couple of years ago, and it's really driving us sustainable sales by improving the overall experience. So let's talk about what that is, and we talk about 3 pillars here at the company. It's the environment and so our franchisees and the company has invested in completing those reimages. Inside and out, we've also invested in new menu boards, new uniforms, and so we are seeing the benefit in our dine-in business. We can absolutely see that we're getting more dine-in business as a result of our reimages. Then when you look at service, Lenny talked about some of the service initiative and putting in a program, where we had immediately -- we provided immediate feedback to our operators to improve friendliness or accuracy, cleanliness, and then most recently, really focusing on speed of service, staffing levels, especially the weekends and late night. And so we're seeing positive response to those service initiatives and we could see that from our VOG, which is Voice of the Guest, our internal surveys, as well as our research -- external research. And then on the food category, the menu category, it's a combination of 2 things. One is improving those core products, so we had coffee improvements, french fries, tacos, bacon, and then most recently our burger line. So reformulating the burgers to improve the juiciness, the texture, the flavor, and we had actually rolled out a new bun, and we had a new softening [ph] application as well. So enhancing the core products and we're seeing higher incidence of sales of each of those products that we have improved. And then combined with that, we've promoted them in unique and compelling ways. So things like the Bacon Shake to draw attention, which went viral, to draw attention to bacon at Jack in the Box. Things like our bundle deals like the Jumbo Deal that features the new improved Jumbo Jack, the new and improved tacos, the new and improved french fries. So all of that is designed to drive trial of those products that we've improved, but do it in a compelling and unique way that really provide some value. And we're really connecting with our consumers through improving our brand relevance and that's through the social media that you saw, how that Bacon Shake went viral. And then you combine that with the marketing events that we have with some new products that are -- have broad appeal but they're unique to the category, as well as those bundled value offerings. And I think the combination of all those together is just working very well for us to bring back those customers and increase frequency. Does that help? Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: That's very helpful. And then just to follow-up, as you look to the balance of the year, I know one of your larger taco-based competitors has certainly set the stage for a rebound in trends behind some new product innovation for the year. So I'm just wondering, given some of the geographic overlaps, is there any concern about competitive activity during the balance of the year in your ability to maintain the share gains that you've gotten?

This is Lenny. Let me speak to that just a little bit. I think first off, we're very confident in where we've invested in the business, and that will continue to drive traffic regardless of what the competitive set is doing. But I think one way to look at what we're doing versus the competitive set is that when you look at the winners in the industry today, they're really focusing holistically in their businesses, and we think Jack in the Box is reflective of one of those winners. But when you look at the individuals that are chasing one particular thing, like potentially high capital investment and an image, but nothing with the menu or potentially new menu line, but nothing with service, there's a disconnect with the guest, and they tend to be short-term, short-lived investments that don't really sustain sales for those competitors. So that's not how we're going to complete and we're not going to be concerned with the folks who are sort of chasing one thing versus a holistic approach.

Our next question is from Brian Bittner of Oppenheimer. Brian J. Bittner - Oppenheimer & Co. Inc., Research Division: Can you just give us a sense of the variants of restaurant margins within the current company-owned Qdoba system? The Qdoba business did about 13.5% restaurant margins in fiscal 2011. And you said that recently acquired Qdoba generate north of 20% margin. So I'm just trying to get a sense of what percent of company-owned Qdobas are generating those type of margins, really just trying to get a better handle on Qdoba's margin profile here.

Sure. I think you'll be able to get a much better handle on that after we meet on Tuesday. We're going to cover exactly that. But just a little teaser, higher AUVs generates substantially higher restaurant operating margin for Qdoba, and we will go through that at perhaps some level of detail for you on Tuesday.

Our next question is from Jake Bartlett of Susquehanna.

I'm wondering how much the refranchising might be affecting company versus franchise same-store sales? Are we getting a boost to the company because of the refranchising?

No. Jack, this is Lenny. We're not seeing a boost to company. Other than the fact that when we refranchised, those are generally lower AUV groupings of stores. Other than that, you don't see anything that's driving that GAAP to influence company experiencing something unique.

Okay. In the past, part of the equation for the refranchising was franchisees being able to operate them better, and I think you've talked about, say, a 2% lift when they've gotten to the franchisees' hands. Is that something that you're seeing? I guess, I'm not seeing it from the -- just the differential between the 2, but maybe there's other factors that are affecting the differential between company and franchise same-store sales?

Maybe the way to think about that is that in the past, when we refranchise stores, essentially, the franchisees would take a little more price than what we would take, and they would also be a little more urgent about the operational improvements that need to be made. I think what you're seeing in the entire brand now just -- not just the company or franchise is a sense of urgency around providing the guest with what they need. And so we don't see this huge gap in performance between company and franchise when it comes to any one particular item. And in general, I think what Linda said earlier is more indicative of the gap. It's just that we were able to make changes a lot faster than the franchisees. Our reimages were done sooner, and we were able to make investments in the guest experience sooner than them, which is sort of our role as a franchisor to sort of prove out conceptually that the investments will provide a return, and we see that the franchisees are following suit and in general, starting to see the same types of improvements in their businesses that we're seeing.

Okay, great. And on that front, with the reimages, I think you're kind of -- you're into year 2 on some of those company-owned reimages. Can you talk about whether you're getting a lift in year 2 versus just in year 1 after reimaging the stores?

We haven't shared a number related just to a reimage. But what you're seeing in our numbers are really reflective of the investment in the entire experience. I think even if we did try to parse out what the reimages we're driving in sales, the number would be so noisy that I wouldn't be able to claim that it was accurate. So the cleaner way to look at it would be just to say image, menu, environment, it's all adding up to what you're seeing today.

Right. In addition, just to kind of prove that out is we -- I had indicated that across all of our major markets, we're seeing the kind of sales growth that we're experiencing as a system even in those markets that has the early reimages done more than 2 years ago.

Our next question is from Peter Saleh of Kelsey.

Most of my questions have been answered. I just wanted to ask. It sounds like you're getting more dine in business with the remodels. Do those consumers tend to spend more, is the average check higher dine in? And if so, how much higher?

Yes, we don't provide specificity on exactly how much higher, but it is a higher average check because they're getting beverages and some things that perhaps a drive-thru person or a transaction doesn't include. Mind you, we still -- the vast majority of our business 70%, almost 70% is still drive-thru business, but we have capacity in the dining room, we are seeing a nice lift in the dine-in business.

Are you seeing it more at lunch and dinner? Or is it across the board, at breakfast as well?

We're seeing breakfast and dinner.

Our final question comes from Nick Setyan of Wedbush Securities.

I was hoping you could give us some more detail on the year-over-year franchise margin decline. How much of that was the lack of refranchising fees versus rent, versus the higher reimage contributions?

Yes. Here's what -- here's the way we look at that. So if you go through quarter-by-quarter in fiscal '11 and also into fiscal '12 and you remove the items that tend to have the most variability with respect to timing like the franchise fees, which are related to when restaurants open from franchisee to when you have lease renewals and franchise fee renewals and also when you sell them restaurants. You remove that noise and you also remove the timing of the reimage payment to franchisees over the last 2 years. What you see is that the franchise margins for last year actually were pretty tight. They were between 49.2% and 50.3%, so about a 1 point swing in any given quarter, which is actually pretty tight. What I would tell you is in Q1 of fiscal '12, the margin rate is at 49%. And while the margin rates look lower than what you might see out in the industry, that's driven by this other cash flow that most in the industry do not have, which is the rental stream. And while that rental income stream has much lower-margin rates, it generates a significant amount of EBITDA for the company. And we're going to provide a lot more clarity on that for you at our Tuesday Investor Meeting, and I hope that will answer whatever additional questions you may have on the franchise margin side.

Okay. And would it be possible to quantify to what extent that transactions are benefiting from the inclement weather?

We had really no weather difference at all in the first quarter. The second -- early last year second quarter, we had bad weather primarily in Dallas. You all remember the Super Bowl activities down there and all the ice storms, and we're rolling over that now. But again, we've didn't -- we typically don't call out weather as being a drag on sales. In terms of quantifying it, it had a minor impact last year and we're getting the benefit of that this year.

Okay. Just a final question, you mentioned the accretion from 25 Qdoba was acquired after Q1. I apologize if I missed this, but what's the full year contribution to your other margins and EPS from the 11 acquired in the quarter?

The 11 acquired in the quarter, those were -- they were known at the time of our fourth quarter call back in mid-November, and so that was reflected in the guidance already. The update to the guidance is reflected -- is due to these additional 25 locations that we acquired earlier this week.

Thanks, everyone, for joining us, and we look forward to speaking to you next week.

This concludes today's presentation. Thank you for your participation. You may now disconnect.