Lade Inhalt...

Sales and EBIT Analyses - Evaluation of Jack in the Box (Fast Food Restaurant)

Seminararbeit 2006 8 Seiten

BWL - Rechnungswesen, Bilanzierung, Steuern

Leseprobe

Sales and EBIT Analyses

Jack in the Box, Inc. (JBX) owns, operates, and franchises its restaurants and is currently one of the nation’s leading fast-food hamburger chains. The first Jack in the Box restaurant was founded by Robert Peterson in 1951.1 In addition to the Jack in the Box fast-food chain, the company also owns Qdoba Mexican Grill and Quick Stuff, a convenience store chain. It has over 2,079 Jack in the Box locations in 17 states, primarily in the western half of the United States, and 318 Qdoba Mexican Grill locations in 40 states.2 The company aims to offer quality products, provide fast and friendly service, and maintain a strong brand image.

Sales and EBIT Analysis

Jack in the Box has experienced many fluctuations of growth rates in sales and operating income from 1990 until the present. In the past 15 years, its sales have continued to increase, with the exception of 1994 and 1995, however, the rate at which it has been growing has not been consistent. The lowest growth in the sales in the past 15 years was -15.10%, which occurred in 1994. The factor that contributed to this decline was a crisis that occurred in the previous year. In early 1993, four people in Washington died from ingesting hamburger meat contaminated with E. coli bacteria and over 700 hundred other people became ill in the Pacific Northwest region.3 This incident continued to have reverberations through 1995 where the growth in sales continued to decline. Due to loss in sales, numerous lawsuit settlements, compensation of medical costs, and the need for public relations and crisis management, the growth in EBIT was -60.52% in 1993 and -43.15% in 1994. Customers, shareholders, and franchisees sued the company, who in turn sued its meat supplier, Vons. In addition, it incurred more expenses because it instituted a food safety program.4

The highest growth in sales occurred in 1999 and was 23.65%. There were a couple major factors that attributed to this growth. In October, the company changed its name from Foodmaker, Inc. to Jack in the Box, Inc. in order to increase brand recognition.5 This movement was a new beginning for the company. In addition to the name change, it also launched a highly successful marketing campaign featuring “Jack,” the fictitious CEO of the company. Since then, the Jack in the Box mascot has gained much popularity.

In 1999, the company also implemented an “assemble-to-order” program, which was advertised in the media with the tagline, “We won’t make it ‘til you order it.” 6 This increased sales because it promised hot and fresh food items and each order could be customized to fit each consumer’s preference. This project affected the growth in EBIT in 1999 as well as 1998. The numbers were not as high as they could have been both years because the project had an 18-month timeline and was not completed until May 1999. Implementation of this program also required extensive overhauling of all restaurant kitchens.

In January of 2003, the company acquired a new subsidiary called Qdoba Mexican Grill, introduced its Quick Stuff convenience store, invested in training and recruiting new employees to ensure customer service and convenience, created a new healthier diverse menu, began building a new innovation center, worked on a new store design, and shifted to technology by starting to use debit and credit cards at their available stores. 7

In 2003, the company saw an increase of growth in sales of 4.68%, however, it experienced a decrease in EBIT of -13.04%. The reason for this decrease in EBIT is because the company was expanding its company-based stores and franchises. Not only did the company include more stores, but it also performed research and development to add more cost from their variable and fixed costs. Jack in the Box still has work in progress for its new innovation center and overhead cost for training and recruiting. The company believes that if it works harder and smarter, it will have an increase in sales and a higher growth in EBIT if sacrifices are made to expand their brand.

From 2003 to 2004, the shift of growth in sales and EBIT were impressive. Compared to 4.68% in 2003, Jack in the Box experienced a jump to 12.83% in sales and from a -13.04% growth in EBIT to 1.40% in 2004. These numbers show that working smarter and harder helped the company. Working at a reasonable pace and with the right decisions, the company was able to use their new technology, customer service and new locations to expand. The long-term vision from 2003 did not take that long to see.

Jack in the Box had other milestones during 2004. In March, the innovation center was complete, cutting the cost of the work in progress. In the same month, two new stores (the new models introduced in 2003) opened in San Diego called JBX Grill. This chain provided a more casual dining experience with flame grilled meals and appetizers. After building the new models for their company, Jack in the Box opened their 2,000th store location in Long Beach, CA.8

From 2004 to 2005, the company had a decrease of growth in sales from 12.83% in 2004 to 7.96% in 2005. On the other hand, its growth in EBIT increased from 1.40% in 2004 to 9.30% in 2005. In 2005, Jack in the Box, Inc. owned 2,049 Jack in the Box restaurants, 515 of which were franchised-operated, 250 Qdoba stores in 37 states, and 44 Quick Stuff convenience stores.9 In 2005, Jack in the Box began to change some of the company owned locations to JBX Grills to show its customers its new and improved image. Due to this conversion, the company recorded poor sales thus showing a decrease in sales from 2004 to 2005.

Overall, the fluctuation of the growth rates during the company’s three most recent years is due to its vision of aiming to improve customer satisfaction by accepting other methods of payment, providing a wider range of product choices, and maintaining convenience. In 2003, the building and shaping of the new vision caused a decrease in operating income. From 2003 to 2004, it became evident that consumers were content with the company’s new services because sales continued to grow and the company was able to bounce back from its negative growth in EBIT. Finally, from 2004 to 2005, Jack in the Box showed a steady growth.

EBIT and DOL Analysis

Due to unexpected events and fluctuations in sales growth, the projected growth in EBIT was underestimated and overestimated in certain years. Although sales slightly increased in 1993, EBIT decreased by more than 60% in comparison to the previous year’s. Under normal circumstances, EBIT would have increased by approximately 3.7%. However, due to the E. coli crisis that occurred in the earlier part of the year, Jack in the Box suffered from a significant amount of unexpected and heavy losses which lowered its EBIT substantially. Furthermore, Jack in the Box focused its efforts on maintaining sales and its reputation, which explains why sales were rather consistent.

However, the result of the reparation of reputation and sales caused the company to suffer from low profits. If they had not attempted to maintain sales, profit losses would have become long-term.

In 1995, Jack in the Box had a slight negative growth in sales, which can be attributed to the crisis of 1993. Therefore, using the degree of operating leverage (DOL) factor of the previous year’s, its operating income was projected to be negative. However, the result was an EBIT growth of over 80%. This underestimation could also be explained by the crisis. In 1993, Jack in the Box incurred a lot of additional expenditures, which lowered its operating income. After two years, most of the expenditures had decreased so its operating income was able to recover and be normal in relation to sales. Thus, there was a large difference between the projected and actual EBIT growth rates.

EBIT recovered during 1995 and 1997 because additional expenditures that unexpectedly arose in 1993 decreased, therefore operating income grew faster than sales, causing a higher DOL factor in these years. The high DOL factor in 1997 explains why the projected EBIT for 1998 was so high, and therefore could not be met. Also, because sales growth in 1998 was mediocre, the DOL factor was low. This caused the projected EBIT for 1999 to be underestimated.

Jack in the Box has had continuous growth in sales since 1990, with the exception of 1994 and 1995. These years experienced repercussions from the 1993 E. coli incident, which caused the growth rate in sales and operating income to be negative. Growth in operating income has fluctuated throughout the past 15 years. This is result of reinvesting back into the company by introducing more locations and instituting improvement programs as well as dealing with lawsuit settlements and implementing crisis management strategies. Overall, Jack in the Box has proven its strength by surviving the 1993 incident and continuing to show growth.

ENDNOTES

1.Hoovers. 4 December 2006. <http://cobrands.hoovers.com/global/cobrands/ proquest/history.xhtml?ID=13321>

2.Mergent Online.4 December 2006. <http://www.mergentonline.com.lib proxy.fullerton.edu/compdetail.asp?company_mer=50201&company=-1>

3. Hoovers.

4. Scripps Howard News Service.Seattle PI. 24 June 2002. 3 December 2006. <http://seattlepi.nwsource.com/business/75728_fill24.shtml>

5.Jack in the Box. 2000. 4 December 2006. <http://www.jackinthebox.com/ investors/downloads/annual1999.pdf>

6. Ibid.

7.Jack in the Box. 2004. 4 December 2006. <http://www.jackinthebox.com/ investors/downloads/annual2003.pdf>

8.Jack in the Box. 2005. 4 December 2006. <http://www.jackinthebox.com/ investors/downloads/annual2004.pdf

9.Jack in the Box.2006. 5 December 2006. <http://www.jackinthebox.com/ investors/downloads/annual2005.pdf>

Details

Seiten
8
Jahr
2006
Dateigröße
469 KB
Sprache
Englisch
Katalognummer
v111112
Institution / Hochschule
California State University, East Bay
Note
1,7
Schlagworte
Sales EBIT Analyses Evaluation Jack Food Restaurant)

Autor

Teilen

Zurück

Titel: Sales and EBIT Analyses  -  Evaluation of Jack in the Box (Fast Food Restaurant)