Jack in the Box Inc. (JACK) Q2 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Jack in the Box Inc. Second 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 Chairman and CEO, Linda Lang; Executive Vice President and CFO, Jerry Rebel; and President and Chief Operating Officer, Lenny Comma. As you may have seen in our news release on Monday, Lenny was promoted to President of Jack in the Box after having served as Executive Vice President and Chief Operating Officer since 2010. A number of you on this morning's call have had the opportunity to meet Lenny in the past couple of years and are familiar with his strong background in restaurant operations. During this morning's session, we'll review the company's operating results for the second quarter of fiscal 2012 and update our guidance for the remainder of the year. Following today's presentation, we'll take questions from the investment 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. Jack in the Box management will be participating in the Morgan Stanley Retail Conference in Boston on May 23, and at Jefferies Consumer Conference in Nantucket on June 19. Our third quarter ends on July 8, and we plan to announce results on August 8 after market close with our conference call currently scheduled to be held at 8:30 a.m. Pacific Time on August 9. And with that, I'll turn the call over to Linda.

Thank you, Carol, and good morning, everyone. We're very pleased with the company's second quarter performance, which included positive sales growth and substantial improvement in restaurant operating margins, all of which contributed to a significant increase in operating earnings versus the year ago quarter. At our Jack in the Box restaurants, same-store sales remained strong with a 5.6% increase at company restaurants driven by traffic growth of 3.1% and 2.5% increase in average check. All of our major company markets saw an increase in sales, transactions and average check on both a 1- and 2-year basis. And sales were positive across all dayparts with breakfast remaining the strongest, followed by lunch. Four weeks into the third quarter, we're continuing to see strong same-store sales growth, and that strength is reflected in our guidance for the third quarter sales. We believe we've been able to sustain our sales results, largely due to the investments the company and our franchisees have made to enhance the entire guest experience at Jack in the Box. This includes our restaurant reimaging program, which was substantially completed earlier this year, as well as service initiatives that are resulting in a more consistent dining experience for our guests. We continue to improve our speed of service times in the second quarter and believe this helped to drive the one -- the year-over-year increase we saw during lunch, as well as our other dayparts. Delivering faster service more consistently will continue to build trust with our guests and drive additional visits. Quality improvements we've made to our core products continue to resonate with our guests. Recent enhancements to our classic burgers and bacon were featured in our BLT cheeseburger promotion launched in February. This holistic approach to improve all aspects of our restaurant operations has contributed to meaningful improvements in our overall guest satisfaction rating. Moving onto Qdoba. Same-store sales increased 3% systemwide and 3.8% at company locations during the second quarter. While same-store sales were slightly below our expectations, company restaurant operating margins exceeded our expectations as we did less promotional discounting during the quarter. We've been increasing our Qdoba company store base through unit growth and acquisition. With new company openings and the acquisition of 36 franchise restaurants in several markets this year, the Qdoba system was nearly 48% company-operated as of the end of quarter 2 compared to approximately 40% company ownership at the end of the year-ago quarter. We are also currently evaluating other potential franchise acquisitions. For the full year, we have lowered our company new unit opening expectations for Qdoba as we focus on development opportunities in more established, recently acquired markets. Importantly, there is no change to our long-term goals of 15% to 20% company growth and 30 to 40 new franchise units per year. As we noted in the press release, we've been conducting a comprehensive review of our overhead structure, including evaluating opportunities for outsourcing and restructuring certain functions. We incurred restructuring charges in the second quarter related to this review and expect to incur additional restructuring charges over the balance of the fiscal year, including the impact of a voluntary early retirement program. Before turning the call over to Jerry, I'd like to congratulate Lenny on his well-deserved promotion. Lenny has done an outstanding job in each of the roles he's had with the company since joining us 11 years ago. We're looking forward to his continued leadership in achieving our long-term goals. 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. Second quarter earnings were $0.48 per share compared with $0.13 last year. Operating earnings per share, which we define as EPS on a GAAP basis, less gains from refranchising were $0.27 in the quarter versus $0.12 last year. Restructuring charges of approximately $0.02 per share are included in impairment and other charges in Q2 and are reflected in our full year EPS guidance. The improvement in operating EPS before G&A from last year's second quarter breaks down as follows: approximately 50% of the improvement from Jack in the Box franchise cash flow streams, both royalties and rent; and approximately 25% each from Jack in the Box company operations and Qdoba. Average weekly sales for Jack in the Box company restaurants exceeded $30,200 and were up 12.4% in the quarter resulting in part from the 5.6% increase in same-store sales that Linda discussed, as well as the benefit of refranchising activities. Consolidated restaurant operating margins of 15.5% of sales for the quarter was 320 basis points better than last year's second quarter. Jack in the Box margins improved from 12.3% to 15.5%, and Qdoba margins improved from 12.7% to 15.6% in the quarter. The key contributors to the improvement in consolidated margins as compared to last year were, in approximate amounts, sales leverage, 160 basis points; food and packaging costs, 80 basis points; and refranchising, about 70 basis points. The 80 basis point decrease in food and packaging costs resulted from the benefit of price increases and favorable product mix at Jack in the Box, lower promotional activity at Qdoba, as well as a greater proportion of Qdoba company restaurants, all of which more than offset commodity inflation. Commodity inflation of approximately 3% was driven by higher costs for most commodities other than produce and poultry including beef inflation of 3%. Before I review our guidance for the third quarter and full year, I'd like to provide an update to our commodity cost outlook for the remainder of the year. Overall, commodity costs are now expected to increase by approximately 3% to 4% for the full year, which is our prior expectation of approximately 5%. Some key points with respect to our major commodity purchases and where we have coverage. Beef accounts for approximately 20% of our spend and remains the biggest challenge we have in forecasting commodity costs. For the full year, we now expect beef costs to be up approximately 5% to 6% versus our prior expectation of high single-digit inflation, reflecting lower cost for beef 50s. Chicken is about 9% of our spend. We have recently entered into new contracts, fixing the costs through December 2012. Cheese accounts for about 6% of our spend. We have 100% coverage on cheese through the end of June and 50% coverage through the end of fiscal year 2012. Bakery accounts for about 8% of our spend. We have 100% of our bakery needs covered through June and approximately 30% coverage for the July to September timeframe. Now let's move on to the rest of our guidance for the balance of the year. For the third quarter, we expect same-store sales for Jack in the Box company restaurants to increase 3% to 4% lapping a 4.7% increase last year. Systemwide same-store sales for Qdoba are expected to increase 3% to 4% versus a 5.1% increase in the year-ago quarter. 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 have changed since our February guidance. Same-store sales are now expected to increase 3.5% to 4.5% at Jack in the Box company restaurants and 3.5% to 4.5% for the Qdoba system. Restaurant operating margin for the full year is now expected to be approximately 14.5% to 15%, depending on same-store sales, commodity inflation and refranchising transactions. SG&A is now anticipated to be in the high 10% range with the increase due to higher expected incentive compensation as a result of our increased restaurant operating margin and EPS guidance for the full year. 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 $1 to $1.15. Included in this amount are $0.02 of restructuring charges we took in the second quarter. However, no additional restructuring charges are reflected in our full year guidance. We've increased our expectations for gains from refranchising to approximately $0.28 to $0.35 per share as compared to approximately $0.78 in fiscal 2011. Operating EPS includes approximately $0.10 to $0.11 of reimage incentive payments to franchisees in fiscal year 2012, of which approximately $0.08 occurred in the first quarter and $0.01 occurred in Q2. Reimage incentive payments in fiscal 2011 were $8.2 million or approximately $0.11 per share. Diluted earnings per share are now expected to range from $1.28 to $1.50 excluding any additional restructuring charges. The restructuring activities currently underway reflect our commitment to reducing our overall cost structure. These activities are intended to help us achieve our G&A target of approximately 3.5% to 4% of systemwide sales. In addition, they are expected to improve our restaurant level margins without negatively impacting our guests. While we anticipate additional restructuring charges during the balance of the year, it is too early to quantify the range. That concludes our prepared remarks. I'd like -- I'd now like to turn the call over to the operator, Stacy, to open it up for questions. Stacy?

[Operator Instructions] Our first question is from Joe Buckley of Bank of America.

Can you just talk a little bit about the guidance changes around Qdoba, the same-store sales being lowered a little bit and the expansion numbers being reduced a bit, in light of what looked like pretty strong performance and kind of your long-term goals there?

Joe, let me talk to the 2 questions really around Qdoba, the first one being on the sales guidance. The quarter 2 did come in slightly below our expectations. However, on a 2-year basis, it's still in that 9% range, which is consistent with the strong performance over the last several quarters. And the main reason for coming in a little bit low was just that there was less promotional activity in the second quarter relative to the second quarter in the prior year. We have some promotions planned later in this quarter, third quarter, and also in the fourth quarter. And on the franchise side, a bit more impact as the results of the Easter shift from third quarter last year to second quarter this year. So franchisees closed a few more restaurants and that's some of the underperformance relative to guidance. So we have several things coming up at the end of the third quarter and in the fourth quarter in terms of product launches, social media campaign and catering promotion. With regard to the development change, if you look at the last 18 months, we've acquired several franchise markets and a total of 68 locations. So we've shifted our focus to develop in those markets where sales are strong, margins are strong, and as a result, we've lowered just this year's -- the balance of this year's restaurant counts. And -- however, we still maintained the long-term growth target of that 15% to 20% company store growth. So it's really just a shift in timing, Joe.

Okay. And it's driven by just the number of stores you have bought and kind of the management time and attention that, that requires?

It's really the growth opportunities in those markets, where they can be -- we can successfully go in, more rapidly penetrate those markets that were acquired by the franchisees. Does that answer your question?

Okay. And then just one more for Jerry, just the lack of share repurchase in the quarter. Just update us on your thoughts with respect to buybacks, and was there any specific reason there were none this quarter?

Yes, Joe. The -- in the quarter, we purchased 25 restaurants from a Qdoba franchisee for about $33 million midway through the quarter. And our capital deployment policy has long been to invest in return-oriented capital first with respect to the core businesses, and then beyond that returning capital to shareholders in the form of share repurchases. We still believe in that allocation prioritization and the lack of share repurchase is primarily due to the investment in additional Qdoba franchise the company converts.

Our next question comes from John Glass of Morgan Stanley.

First, there was discussion of the restructuring charges being taken during the quarter, and I presume it's in G&A or sort of corporate infrastructure. Can you talk a little bit more about what the changes that are occurring there are? What the -- and there's more charges coming, so what is the -- what should we expect both quantitatively to come, and also what is the expected benefit? Is there going to be an accelerated benefit to reduce G&A as a result in the next year or maybe if you could just put a little color on that, please.

Yes, sure. So on the second part of the question first, John, is we had said for a while and including in our Investor Day, we talked about -- as part of the investment thesis and where we expected our operating EPS to go or to come from to get to that $2 EPS target that we had. So part of that was the rightsizing of our G&A structure, remembering that we have had a significant acceleration of our refranchising strategy over the last couple of years. It's time to have our cost structure kind of catch up with the refranchising pace. So our target, again, is 3.5% to 4% of systemwide sales. We were north of that last year. So the restructuring charges are intended and including the early retirement program that we have announced is intended to accelerate that reduction in our G&A targets. So additionally, we're looking at some things, including some of the activities that occurred in the second quarter that will have a positive impact on restaurant operating cost going forward. So as an example, we eliminated about 60 positions in the second quarter, which was the $0.02 charge that we had. Some of that is related to outsourcing of some restaurant facility activities, which we would expect over time to improve our restaurant operating margin somewhat modestly in the future years. But in terms of what the size of this looks like, because of the enormity of the moving pieces that we have right now, particularly with the early retirement program, which we won't know what that looks like until late in the third quarter, what that accepted rate looks like, it would be extraordinarily difficult to give you any kind of reasonable or responsible range of what those costs are going to look like. I think you'll see much more clarity by the end of the third quarter and also into the fourth quarter.

Okay, that's helpful. And then your beef inflation estimates came down, I think, fairly substantially from high single digits to, call it, maybe more mid single digits. So -- and I understand that's from the 50s but, one, if you didn't mention it and I didn't hear it, I apologize. What was the inflation during the current quarter? And two, is this sort of broken the back of the cycle or was there just an opportunistic purchase that you're able to make? What was the driving force behind that reduced inflation numbers?

The inflation in the second quarter was 3%. What we're really seeing here is the 50s, and I don't know if we've broken the back on the cycle or not. We would like to. If we do, that will give us and everybody else a little tailwind on the restaurant margin. I'd say it's too soon to tell that yet. It was not an opportunistic purchase, I can tell you that. It's difficult to forward-buy on the 50s anyway. But we're in kind of a wait-and-see at this point, Joe, with -- I mean, John, with what happens with the 50s going forward. We would like it to be more of a permanent decline, but we're cautious as we sit here today.

Okay. And just clarify, the 3% is that beef inflation or total food inflation in the quarter?

It's both.

It's both. Beef was up 3%, total was up 3%.

Our next question is from Larry Miller of RBC Capital Markets.

I just wanted to follow-up on an earlier question. And I was -- I wonder if you talked about what are those markets that you're focusing on for Qdoba growth and maybe where you're pulling back? And then also in those markets, if you can answer that, how long do you think it will be until you reach what you would consider to be a sufficient scale? And then I have another question, please.

Yes, Larry, we really don't disclose the focus of our growth because of -- for competitive reasons. And in terms of penetration, it really is market-by-market.

Okay, all right. And then I was wondering if you could talk about the Jack in the Box business. It was obviously good comps, but there was a spread between the company and franchise comps. Can you give us a sense of why that is? I think you're doing a refranchising program, so maybe you can add some color there.

Hey, Larry, it's Lenny Comma. I think the #1 reason that we see a little bit of lag with franchisees is just a pace at which they're making improvements in speed of service. The company ops are a little bit ahead of them and we think that what we're seeing is the benefits of the improvements that the company ops are making at a faster rate than the franchisees are making. And one way to look at this is that franchisees have slightly lower PSAs than our company ops. And so when we have new initiatives that really involves investing in the business, franchisees are going to move a little bit slower. And when it comes to speed of service, a lot of the investment is around training of all of procedures and systems and then deployment of labor that's going to help drive sales. We're proving it out in the company operations. You see it in our margins and our sales and the franchisees are becoming more and more confident with what we're putting on the table. So I think that you'll see them close that gap over time.

That makes sense. Last one for me. You said check was up 2.5% in the quarter. Was that all price or was there some mix in there? And then if you could talk about any plan on pricing going forward.

Yes. Price was a little higher than that. We had a little mix shift down, which didn't impact the average check obviously because average check was still up 2.5%. But what we saw on the promotional side is that it also helped the margins as we saw the new products and the promotional products launched at Jack in the Box in the quarter having lower food and packaging costs than what they had this time last year.

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

I just had a question on the COGS. Looking at the rate of improvement, I don't think you mentioned anything about a benefit, though, from the refranchising. Was there a benefit there as far as the stores that you're exposed to now especially on the Jack side? Is there any benefit in that maybe lower freight cost given that they're more consolidated in certain markets or lower produce in California versus some of -- and exiting some of the developing markets? Is there any benefit that we're seeing in the COGS line that we might not have expected due to refranchising?

One of the things that we mentioned then, and -- or that I mentioned in my prepared remarks was when I was going through what the key elements were of the 320 basis points of improvement in COG over last year, 70 basis points on the consolidated basis was due to refranchising.

Okay. And then also just looking at the 25 stores you bought on Qdoba when you mentioned the margins, can you mention those again, I'm sorry, the brand margins? Were you using comparable margins on a year-over-year basis, or did the year-ago margins not include the 25 you acquired?

The year-ago margins did not include what we had provided. We did it -- if you look at the higher margins on the acquired locations and the lower margins that you would typically expect to see on new built locations, when you combine those 2, we had a net slight benefit to Qdoba's overall restaurant operating margin.

So you had slight leverage organically and then the acquisition helped the mix, the majority of the...

We had significant leverage organically, and I would call it slight benefit from the acquisitions offset by some of the new locations that we built.

Okay. Can you give us those year-ago margins again?

Year-ago margins were -- yes, I have them right here, were 12.7% last year and 15.6% this year.

Excellent. Okay. And I guess as far as your comments with respect to why you're slowing or why the growth is a little less on the Qdoba side, I guess, is it because -- are you looking to -- is there something that you need to do to these markets that you acquired? Or I'm just wondering why that would change the growth or the development versus what you were giving on the Analyst Day as far as where you could grow or the opportunity that you had to grow. Why did the acquisition -- or why does the acquisition change that opportunity?

If you think about it this way, the market that we are repurchasing -- and by the way, it's extremely difficult to forecast exactly when these things are going to occur. But the markets that we have been purchasing are higher performing markets, both in terms of sales and restaurant operating margins. One of the criteria that we have when we're purchasing these markets back from franchisees is that they also have growth opportunities going forward. So when you look at a risk-adjusted growth model, it's much less risky to grow in these existing proven market with high AUVs and high restaurant operating margins. So we're just shifting the focus since we have greater opportunity with some of these acquired markets. We're shifting the opportunity to grow some of these first and then pick up the growth in the other markets going forward, which is why Linda said it's a more of a timing as we kind of just regroup on these newer markets. But we fully expect to hit that 15% to 20% annualized growth target going forward.

And where was this acquired market?

There were several acquired markets, and there really were only 2 markets where we delayed the development into next year. So it's 10 to 15 sites in 2 markets that we took off the table for this year. Those will be ramped back up next year as we accelerate growth in those acquired markets, and there are several acquired markets, 68 locations in total in several markets.

And for obvious reasons, we don't want to tell our friendly competitors exactly which market we intend to ramp up growth in.

Our next question is from Jeffrey Bernstein of Barclays Capital.

A couple of questions. Just first, wondering if you could talk a little bit about the competitive environment. Obviously, with some help from easing commodities, I'm wondering whether you're seeing, both from your competition, or how your thought process changed in terms of the discounting. And separately, if you could just talk about one of your larger competitors that seems to be making a surge lately and rolling out new menu and a lot of new products advertising, just wondering how you think about the competitive landscape near term? I know there's been, in the past, discounting awards and whatnot but just kind of trying to size up the competitive environment in the current environment, I should say.

Right. I would say, in general, there's not aggressive discounting with the exception of one big competitor that's trying to make a resurgence, who is doing a lot of couponing. We're not seeing an impact from that. In fact, if you look at the Jack in the Box company same-store sales growth for the quarter, we exceeded the same-store sales growth for the QSR sandwich segment that's reported by NPD Group sales track, the weekly report as of the end of April 15. So we're gaining share against the competitive group, and we're not having to do aggressive discounting. Jerry talked about our promotional activity has been around these bundled value meals. Some of them being more premium priced, some of them being a little lower priced, but they have favorable margins. So it's really working to our advantage in terms of driving sales and helping with the margin expansion.

Got it. And then just separately on the commodity side of things, obviously, you got -- it looks like 75 basis points of leverage this quarter. And it seems like the commodity basket is only getting better as we move through the rest of this year. So I'm just wondering if you're running north of whatever it is, 3 points of price, should we expect accelerated leverage as a percentage of sales as we look through the rest of '12? And perhaps, any early thoughts on when the basket could actually be down as we look into fiscal '13?

Yes. Too soon to talk about '13 yet. Let me just mention that up until recently beef 50s were still running north of $1. So they're in the $0.65 to $0.70 range now, so a few weeks of lower, more favorable 50s. We're not quite ready to make a call on fiscal year '13 yet. But let me talk about what our restaurant operating margin guidance is for the balance of the year. So we've identified 14.5% to 15% target from -- and we had a 15.5% improvement -- or excuse me, margin in Q2. So just the math would tell you, we need to have some accelerations, say, to a 15.7%, 15.8% range in Q3 and 4 to hit the top end of our restaurant operating margin range. Perhaps if beef costs continue to stay low that might prove to be a bit conservative. However, given the fact that we have to be well north of 16% to have a meaningful beef on the 14.5% to 15% range, as we sit here right now, we're comfortable with our restaurant operating margin guidance. But you're right, if beef continues to be low, we could have some upside.

Got it. And just lastly, you mentioned all dayparts positive at the Jack brand and then you said breakfast was far and away the -- or breakfast was the leader. I'm just wondering perhaps kind of the magnitude of that and what you attribute that to?

Yes. We don't give detail on exactly what each daypart is doing. I'd say it's breakfast followed by lunch, and it's the combination of new products that we've added to breakfast platter, but also the speed of service initiatives, they're really helping in those 2 dayparts where customers are more time sensitive.

Our next question is from Howard Penney of Hedgeye Risk Management.

I actually have 2 questions. The first one is not really. You used a number of things over the years to employ the turnaround at Jack in the Box, how come you didn't use couponing as one of your strategies?

We do use couponing to form -- to a limited -- for a limited basis, but couponing is part of our promotional mix.

Is it today? Is it as aggressive as the competitor that you referenced?

No, it's not as aggressive.

Secondly, sort of having followed a number of companies over the years like Jack in the Box, where you have a smaller chain that may feel at times like a stepchild to the big brother that's getting all the attention, and to some degree, I guess, the stepchild may detract from the value of the -- for the overall value of the company. Linda, how are you sort of dividing your time today when you think about the 2 different chains and Jack having significant momentum today? Are you focusing your time on keeping that momentum going, or is it focused on getting the stepchild or Qdoba to perform a little bit better in terms of the top line and the unit openings?

Yes. It's the balance of both concepts keeping Jack in the Box turnaround going. We now have Lenny as the President, so he is now in charge overseeing the Marketing department, which allows me to spend a little bit more time with Qdoba, given that we're ramping up the growth with Qdoba.

So part of the recent personnel changes is to allow -- to free up your time to focus a little bit more on Qdoba, is that how you can sort of look at that?

I think that's a fair statement.

Our next question comes from Conrad Lyon of B. Riley & Co. Conrad Lyon - B. Riley & Co., LLC, Research Division: Question regarding speed of service. I think that's a critical component here. Can you talk about what the speed of service, say, with the drive-thru was, say, a year ago in the quarter versus what it is now? And where you think it can be or where you are along that path?

We haven't given the absolute times, but we have talked a little bit about the improvements. And so we're about 30 seconds faster today in the timeframe that you compared, and we were seeing that it's making a significant difference. But not only are we faster in general or on average, we also see a tighter range of performance between our slowest operating units and our fastest operating units. And one of the core issues we were struggling with in the past was not just the average time or relative time, but it was also that the range of times from one restaurant to another were simply too wide and too inconsistent. So we think it's a combination of the improvements in the overall speed, but also in the consistency from restaurant to restaurant. As Linda mentioned and we mentioned it also on Investor Day, we think that the greatest impact will come in the time-starved dayparts, breakfast and lunch, and we're seeing it play out just as we had anticipated. But as I also stated in the Investor Day presentation, we're not pushing this to the degree that it's going to potentially break other parts of the business, like food quality or friendliness or accuracy. So it's a very methodical approach, where we're basically chipping away at the operational performance to help improve speed and at the same time, taking a look at things that we can do to make the operations easier over time. So we're going to continue to approach it that way and anticipate we'll continue to see gains. Conrad Lyon - B. Riley & Co., LLC, Research Division: Are you able to disclose or can you quantify what percent of the traffic resulted from the improvement in speed of service this quarter?

We haven't shared that, but one of the things that I've shared before is just sort of the McDonald's comparison, they've spoken about 6 seconds in improvement is of 1% comp. And you can take a look at our PSAs and sort of make your own swag at it, but we haven't shared our specific numbers. Conrad Lyon - B. Riley & Co., LLC, Research Division: Got you. Okay. A different question here. Refranchising program, that seemed to take a nice shot in the arm here in terms of the proceeds per unit. How should we look at that? Is it mean that the mindset's improving there? Is it people say, hey, there's an opportunity here? Can you add some color to that end?

Sure. It's just the individual market that we ended up selling in the restaurant that were in there. So if you go back to what we had laid out on the Investor Day with what our expectations were in terms of selling restaurants in fiscal 2012 and what we will expect us to sell in 2013, we really haven't changed that. It's just that this year happened to have a little higher AUVs than what we had been selling off of late, albeit still below what our company average AUVs are. Conrad Lyon - B. Riley & Co., LLC, Research Division: And what markets were those that were sold?

They were in Seattle. Conrad Lyon - B. Riley & Co., LLC, Research Division: Got you. Okay. A final question. Hispanic exposure, I always believe that and I think that you have a pretty strong Hispanic exposure. They tend to be pretty loyal customers, and I think we're seeing more evidence of that. Do you feel that, that has been a benefit to your traffic as well, that Hispanic exposure?

We have a very loyal customer base, Hispanic customer base. I don't know that I could say in the particular quarter, last quarter, that we -- there was anything unique about that market, that demographic. But I can say that in -- especially in California and Texas, we have -- we out-indexed the competitors in terms of our Hispanic business.

Our next question comes from Jon Komp of R.W. Baird. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: Just wanted to start maybe with one clarification question around the restructuring activity, and I know you've mentioned some outsourcing opportunities, but maybe if I could ask a little bit more directly whether or not a divestiture of the distribution business would ever be on the table?

Sure. Here's the way I would look at that, we've looked at outsourcing distribution several times in the past 8 years, at least in the time frame that I've been here. And when we did, we did not see a price advantage to do that. As I said, though, on the Investor Day is we continue to look at all opportunities to reduce our overall cost structure, including distribution, and if we can find a lower cost opportunity, we're certainly open to that.

Yes. I would say nothing is off the table. We're looking at every functional area, those at Jack in the Box in San Diego and also Qdoba in Denver. So we're also looking at synergies and shared services, more deeply shared services between Qdoba and Jack in the Box. Jonathan R. Komp - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then Jerry, just maybe a follow-up question on the outlook for the balance of the year. I think you touched on some of these parts, but if I look at the guidance for core EPS, excluding the gains for the year, a $0.15 range is still pretty wide given that there's only 2 quarters remaining for the year. So maybe if you could just talk to some of the potential moving parts as you look to the back half of the year?

Yes, I think the potential moving parts are obviously same-store sales and commodities, particularly on the beef, where there's not any significant long-term contract protection out there. So I think those are the 2 big wildcards. One of the things that I'll mention, though, is while the range seems high, because of where we are with the share count, it only takes about $700,000 on a pretax basis to equal $0.01. So the $0.15 may seem wide, when you just do the math, it's not that wide at all.

Our next question is from Nick Setyan of Wedbush Securities.

We've seen a recent industry-wide focus on the quality of beef, and you guys also mentioned that you've taken steps in improving the quality as well. So have -- has there been a mix shift towards sort of higher mix of the beef 90s versus the beef 50s, and is that something that we can see going forward?

Yes, it doesn't really have anything to do with the shift in formulation between 50s and 90s, but I can say that all of the products that we've improved over the last 1.5 years or so, that's including the latest improvement with our burger line, the tacos and the bacon, we're seeing increased sales, increased mix of those products. We've communicated an improvement, the product's quality improvement. Operator? Are there any other questions, operator?

There are no further questions.

Okay. Well, thank you for joining us, and we look forward to speaking you -- speaking to you in the next few weeks. Thank you.

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