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Jack in the Box Drops Estimate

The chain's shares fall 13% on news it expects lower profit next year and is scaling back plans to open restaurants.

September 18, 2003|Karen Robinson-Jacobs | Times Staff Writer

Shares of Jack in the Box Inc. fell 13% on Wednesday after the company announced profit estimates for next year significantly below Wall Street's expectations and scaled back plans to open new restaurants.

The San Diego-based fast-food chain expects to earn $1.68 a share in its 2004 fiscal year, which starts Sept. 29, down from the $2.04 the company expects to earn this year.

The company will also overhaul its restaurants in the next several years, scrap some lower-priced menu items, reduce its reliance on discounting to lure customers and develop a new Jack in the Box restaurant prototype. The moves are aimed at helping the nation's No. 4 burger chain compete with fast-casual restaurants that are siphoning off customers from all the major burger restaurant franchises.

In fiscal 2004 the company plans to open 65 Jack in the Box restaurants, down from 90 in 2003, to save money for the re-branding campaign.

Jack in the Box also said it expected to earn 53 cents a share in its first quarter, down from 56 cents a year earlier.

Wall Street reacted quickly to the report, which was released before the market opened. Jack in the Box's stock fell $2.93 for the day to close at $19.86 on the New York Stock Exchange. Despite the drop, the stock is still up 15% this year.

Some analysts wonder how successful Jack in the Box's new campaign will be.

"The combination of the lowered outlook near term and the uncertainty associated with the strategy to re-image the stores, just causes this kind of reaction in today's market," said Mark Sheridan, restaurant analyst with Johnson Rice & Co.

Like its rivals in the competitive fast-food business, Jack in the Box hopes to expand its business beyond its typical customer group of men ages 18 to 34.

"For the quick-service business, it's time for new ideas," said Robert J. Nugent, Jack in the Box's chairman and chief executive.

Last September, the company -- which has about 2,000 restaurants, mostly in the South and West -- announced plans to become a national restaurant company through acquisitions and the expansion of the Jack brand.

Now Jack in the Box will halt its expansion in the southeastern U.S. and focus instead on upgrading the look and menu at its three chains. Besides its flagship Jack in the Box, the company operates Quick Stuff, a combination restaurant and convenience store, and about 100 Qdoba Mexican Grill restaurants.

Nugent said the company was still committed to the national strategy. "However, we must differentiate Jack in the Box through bold innovation," he said.

Part of the reduced profit estimate for the year is because of increased insurance and pension costs, Nugent said.

The company anticipates revenue for 2004 of $2.2 billion, up slightly from the $2.06 billion estimate for this year.

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