Jack in the Box Inc (JACK) 2015 Q1 法說會逐字稿

Good day, everyone, and welcome to the Jack in the Box Inc. first-quarter 2015 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'd 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, David, and good morning everyone. Joining me on the call today are Chairman and CEO, Lenny Comma; and Executive Vice President and CFO, Jerry Rebel. During this morning's session, we will review the Company's operating results for the first quarter of fiscal 2015, as well as some of the guidance we updated yesterday for the second quarter in fiscal 2015.

In our comments this morning, per share amounts refer to diluted earnings per share. And operating earnings per share is defined as diluted EPS from continuing operations on a GAAP basis, excluding restructuring charges and gains or losses from re-franchising. Following today's presentation, we will 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 and Q, and other public documents filed with the SEC. These documents are available on the investor section of our website at www.jackinthebox.com.

A few calendar items to note. Jack in the Box management will be presenting at the Bank of America Merrill Lynch Consumer & Retail conference in New York on March 3, and at the UBS Global Consumer Conference in Boston on March 4.

Our second quarter ends on April 12, and we tentatively plan to announce results on Wednesday, May 13, after market close. Our conference call is tentatively scheduled to be held at 8:30 AM Pacific time on Thursday, May 14.

And with that, I will turn the call over to Lenny.

Thank you, Carol, and good morning. Jack in the Box reported a great quarter yesterday. Our same-store sales were better than expected, and we continued to grow margins at both brands. This, along with a 10% reduction in our diluted share count, helped drive a 24% increase in operating EPS versus the year-ago quarter. Same-store sales at company Jack in the Box restaurants increased 3.9% for the first quarter of fiscal 2015, as we experienced a significant acceleration in trends in the second half of the quarter. On a system-wide basis, comp sales increased 4.4%, which was our highest increase since the fourth quarter of fiscal 2007.

While most macro indicators seem to be moving in the right direction, the tide is not lifting all boats equally. And, once again, Jack in the Box outperformed the industry with system-wide same-store sales growth 340 basis points higher than the QSR sandwich segment. I'm pleased to report that the sales results at company Jack in the Box restaurants were driven by a combination of average check and transaction growth across all of our major markets.

Breakfast and late-night were again our strongest dayparts in the quarter. As we have seen in the past couple of years, these are areas where we have very strong equities. Consumers recognize us for our freshly prepared breakfast and fresh cracked eggs. And with our 24/7 drive-through service, and the all-day availability of our full menu, they recognize us for accommodating their late-night activities. But we have opportunities in the lunch and dinner dayparts to grow sales, and we have increased our focus on those areas in order to make a stronger position in the hamburger business.

We will continue to leverage late-night and breakfast, as we did in the first quarter, with media messaging around both dayparts, including a late-night sweepstakes promotion, our new line of breakfast burritos, as well as a breakfast value message. But we will also increase our focus on introducing more compelling lunch and dinner promotions, as we did in the first quarter with the launch of the new Sriracha Burger, and with value priced offerings like the $4.99 chipotle chicken combo, which we introduced after Christmas.

As we said at ICR, you can expect us to introduce new items this year that foreshadow the type of products and quality that you can expect from Jack in the Box in the hamburger space, like the Buttery Jack burgers that we launched earlier this month. By the way, if you saw any of the Buttery Jack ads that debuted on Super Bowl Sunday, you might have noticed a greater emphasis on the food. While Jack will remain a prominent part of our advertising, expect the food to have more of a starring role in our campaigns going forward.

Another way to demonstrate the quality improvements we're making to our menu is in the presentation to our dine-in guests. Concurrent with the launch of the Buttery Jack burgers, which are a permanent addition to the menu, we began serving all burgers and sandwiches in baskets, using half wraps to enhance their visual appeal.

In addition, we're addressing some of the critical guest feedback we heard while conducting brand research last year. In a nutshell, they said we just weren't friendly enough. So we kicked off the year by launching an effort to retrain our entire workforce on hospitality. Our franchisees have been instrumental in this effort, and we are pleased with the progress made in the first quarter. Our new Brand President, Frances Allen, is making the new hospitality model one of her top priorities. So expect to see other guest service initiatives activated in the future.

Now, turning to Qdoba. We are very happy with the 12.9% increase in same-store sales at company-operated restaurants, and with the 14% increase system-wide. This represented our fourth consecutive quarter of sales growth above 7%. Qdoba's performance reflected an increase in average check resulting from our new simplified menu pricing structure, less discounting, solid transaction growth, the benefit of continued menu innovation, and another quarter of double-digit growth in catering sales.

Despite aggressive competitive activity, our catering offering continues to perform extremely well. The holiday catering occasion proved to be one of our strongest ever. And for the quarter, we experienced catering comps of 18%, which contributed more than 1 point to same-store sales growth.

We kicked off the first quarter by rolling out a new, simplified menu pricing structure that allows guests to pay a single price for any entree offered, a price that's based on the protein chosen and includes as many additional flavors as the guest would like to add, including our hand-smashed guacamole, three cheese queso, Queso Diablo, and more. Our guests have responded very favorably to the new pricing structure. As we saw in our market tests, the incidence of our craveable and differentiating flavors is increasing.

As an example, orders including our hand-smashed guacamole more than doubled in the first quarter versus last year, and nearly half of all entrees featured queso.

In addition to the all-inclusive menu, we have remained aggressive with the new product innovation. In December we introduced a new, permanent addition to our menu, Smothered Burritos, which features three new sauces that are layered inside, and on top of, one of three new Smothered Burritos: Tangy Verde, Bold Red Chili, and Smoky Chipotle Cream. We added a fourth flavor, Savory Queso, last week.

And considering the knife-and-fork nature of this differentiated product, we also think the platform can help encourage visitation during the dinner daypart. The new pricing structure and intensified focus on menu innovation are really the first major outcomes of Qdoba's brand strategy and positioning work.

We have also been addressing how to incorporate various elements of the brand strategy into the restaurant facility. With the exception of a few nontraditional locations, all new company units over the remainder of 2015 will be opened in existing markets, and will be dedicated to testing new restaurant prototypes that feature those elements. Construction is currently underway on the first two prototypes, which we expect to open in the spring.

Before I wrap up my comments, I wanted to provide some color on our same-store sales guidance for the second quarter. Sales trends through the first four weeks of this quarter are tracking above our guidance for both brands. Jack in the Box same-store sales are running at about 10%, and Qdoba's are above our Q1 performance. While momentum is very encouraging, we want to be cautious about extrapolating those trends across the rest of the quarter. The initial response to our new Buttery Jack burger has driven sales into uncharted territory, but we're less than three weeks into that promotion.

And Qdoba is just now beginning to lap the launch of the very successful Queso Bliss promotion last year, which helped boost comps to high-single-digit levels in the last eight weeks of the prior year's second quarter.

In closing, I'm extremely pleased with the performance of our two brands during the quarter. Qdoba is still in the very early stages of activating key initiatives that were identified in the comprehensive brand positioning work we undertook last year, yet we're already producing very strong results. Jack in the Box is also showing that it's capable of improving upon the sales growth we've seen in recent years while continuing to outperform the industry. We've done a great job of driving sales during the breakfast and late-night dayparts. And with the great new products like the Buttery Jack, we feel confident that we can stake a greater claim to lunch and dinner.

In addition, we invested in some research last year that is giving us insight on opportunities we can explore to significantly improve our brand positioning. We're just now beginning to execute on those learnings, and believe we can attribute at least some of the recent sales outperformance to those initiatives.

And now I'd like to turn the call over to Jerry for a more detailed look at our first-quarter results and outlook for the remainder of the year. Jerry?

Thank you, Lenny, and good morning, everyone. With strong same-store sales growth at both brands and the benefit from re-franchising at Jack in the Box, we were able to drive significant margin improvement and continue to return a substantial amount of cash to shareholders during the quarter. For Jack in the Box, the 3.9% increase in company same-store sales was comprised of pricing of approximately 2.1%, mix benefits of 1%, and transaction growth of 0.8%.

For Qdoba, the 12.9% increase in company same-store sales was comprised of a 9.8% increase in the average check, which was driven primarily by the new simplified menu pricing structure, and to a lesser extent by lower discounting; transaction growth of 1.9%; and catering contribution of 1.2%.

For the first quarter, consolidated restaurant operating margins improved 100 basis points to 19.3% of sales, as same-store sales growth translated into nice margin expansion at both brands, despite headwinds from commodities and minimum-wage increases.

We were particularly pleased to see the 290 basis point improvement in Qdoba margins.

SG&A was negatively impacted by pension expense, as we expected, as well as mark-to-market adjustments. In addition, Qdoba advertising costs were higher in the quarter, as we added support to the launch of the new simplified menu pricing structure.

The tax rate for the quarter of 36.1% was positively impacted by the retroactive reinstatement of the Work Opportunity tax credits for calendar year 2014. But we expect our full-year tax rate to be approximately 37% as those credits have not been authorized for 2015.

Given the annuity-like cash flows our business model generates, and the greater flexibility of our new credit facility, we remain committed to return cash to shareholders. We repurchased over $101 million of stock during the quarter, and have approximately $115 million available under current Board authorizations. Our outstanding shares decreased by more than 10% versus last year's first quarter, which will continue to contribute to our EPS growth.

As far as commodities are concerned, overall we continue to expect commodity cost for the full year to increase by approximately 3%, with higher inflation in the first half of the year as we roll over deflationary periods in the prior year. We currently anticipate inflation in the second quarter of approximately 4% to 5% at Jack in the Box, and 2% to 3% at Qdoba, driven by substantially higher beef costs. Most of our other major commodities are locked for a portion of the year, including chicken, cheese, and bakery. In addition, our supply chain team continues to leverage the purchasing power of our combined brands to lessen the impact of inflation.

Here's our current thinking on guidance for other key items for the balance of the year. Same-store sales growth at company restaurants in the second quarter of 5% to 7% for Jack in the Box, and 7% to 9% for Qdoba. As Lenny mentioned, our quarter-to-date sales are tracking above those ranges. But the midpoint of those ranges would result in two-year trends at least as good as we just reported.

The only changes we made to our full-year guidance were as follows. We raised our full-year same-store sales guidance for Jack in the Box company restaurants to 3.5% to 4% from 1.5% to 2.5%, reflecting our performance in Q1 and our outlook for Q2. We raised our full-year same-store sales guidance for Qdoba company restaurants to 7.5% to 9.5% from 6% to 8%. As a reminder, we begin to lap 7%-plus same-store sales growth in each of the last three quarters.

We increased our consolidated restaurant operating margin guidance for the full year by 30 basis points to a range of 19.1% to 19.9%, based on the higher same-store sales guidance. Primarily as a result of our higher same-store sales guidance, operating earnings per share are now anticipated to range from $2.85 to $2.97 in fiscal 2015.

That concludes our prepared remarks. I'd now like to turn the call over to the operator to open it up for questions. David?

(Operator Instructions). Joseph Buckley, Bank of America.

Lenny, can I take you back again to the Jack in the Box sales numbers, and just what the inflection points have been? It sounds like in the current quarter, in the buttery burger promotion that kicked off on Super Bowl Sunday, I think you said -- not promotion, addition -- has been like an incremental driver. But what was the first couple of legs up from the 1% to 2% expectations you had maybe seven weeks into the first quarter?

Yes. So, Joe, I spoke about at ICR that we were going to really focus on the lunch and dinner dayparts primarily, trying to grow some equities in the burger business. And a lot of that thinking came from the research that we did last year, where the consumer essentially told us, you're not doing a great enough job with burgers. So, the Sriracha Burger we think helped in Q1. And then supporting the Sriracha Burger, we kicked off the year with the hospitality training. So I think both of those things helped.

Now, I wish I could tell you how all of the economic drivers are putting wind in the industry's sails. Obviously it's putting a little more wind in our sails than others. But we would think that it's essentially the service and the focus on luncheon and dinner dayparts with the new burger, which is all incremental to what we've been focusing on for the last year in late-night and breakfast. Because we still haven't let up on those two dayparts. So we're thinking that all those things are just coming together nicely.

Was there any -- because from our seats, anyway -- it looks like almost like a light switch was flipped, and the business got dramatically better. Were there any differences in advertising, or any differences you can talk about in competitive activity? Or would you attribute some of the improvement to declining gasoline prices? Just interested in your broader thoughts.

So, I won't talk about the economic drivers, only because it's not impacting us the way it is impacting others. We're actually doing better than the industry, so it's hard for us to say it's one thing or the other. If we were tracking with everyone else, I might say it's gas prices or other things, but I think it's the things we're doing in addition to that. But you alluded to something that we have experienced some subtle changes with. And it's too soon to tell whether the consumer is responding to that; but, at least, there's some evidence, and our hypothesis would say maybe it's helping.

On the advertising front, growth in the food footage that we use in our outdoor advertising and POP, and also in our television advertising, the emphasis on food and the way we display the food to the consumer has changed. So, if you look at our POP today, if you look at our outdoor advertising today, our marketing group has made an adjustment that really points out specific ingredients and tries to focus on the quality of those ingredients. So the products may not be as neatly put together, but the emphasis on things like that juiciness of the patty or the texture of the bun or the freshness of the tomato, those things are coming across loud and clear.

And actually even when you look at the amount of space on the television screen, or on the POP that we give to the food, it's a much larger percentage of the space, so we're getting close-ups. So, you can check out the commercials on our website. You can compare and contrast for yourself. But that is certainly one change that was put in place.

Joe, this is Jerry. Just one addition to that. If you look at the pacing of the sales throughout the quarter, when we were announcing guidance back in November we had seven week's worth of data, and we were trending at about 1.5% on Company sales growth for Jack in the Box. The last half of the quarter, though, we averaged greater than 5% comps. And we were driving positive transaction growth beginning in the second half of the quarter. So, you're right; we did see the pacing pick up about midway through the quarter.

And then also I just want to add one clarifying comment here with my prepared remarks. I'm told that my natural conservatism snuck into my same-store sales guidance for Jack in the Box. I should have said 3.5% to 4.5% for Jack, and apparently I said 3.5% to 4%, so I apologize for that.

Next question.

Brian Bittner, Oppenheimer.

Congratulations, guys. On the comps -- look, it's probably going to be talked about a lot -- but I totally have my head wrapped around these Qdoba comps of double digits. Not that it makes it any less incredible, but I can point to exact reasons why you're seeing that, and the momentum you're seeing there makes a lot of sense.

Again, coming off Joe's question, Jack in the Box at 10% trends -- they got me a bit astonished here. And the industry is obviously healthy, but not to that extent. You just went through some of that stuff with Joe. But is being heavily concentrated -- I'm just trying to get some more out of this -- is being heavily concentrated in California, with minimum wage step-ups helping there, how are your peers doing in those kind of specified markets, and relative to the national landscape?

And with the 10% comps that you're seeing over the past month, how does the average check differ in that composition of that comp, versus what you saw in the quarter? If you could walk through those two things, that would be helpful.

Brian, a couple of things. First off, I just have to be honest: we're just as astonished by the performance as you are. These are subtle changes, and very few changes, compared to what we intend to do that are already driving pretty big-time results. And honestly, they are so hot off the presses that we haven't even had an opportunity to dig deep enough into the drivers to fully understand why the guests are responding so favorably. Keep in mind, there's just more learnings to be had, and you'll see some of that -- we'll talk about some of that in the future.

We look at Buttery Jack and the launch of that product, we look at the mix on that, it's the highest we have ever seen on the launch of a permanent new item, at least during my entire time at Jack in the Box. And we can't seem to find anyone who's been here long enough to say that we've had a product that performed better than the launch of the Buttery Jack. So this is, as we said in the prepared remarks, pretty uncharted territory.

But when we look at the -- we go back to the research that we did last year, the way that we have come to reason with the results is when we looked at how the consumer rated in our hamburgers in the research, they rated them pretty poorly compared to our competitors.

Yet, when you look at our average unit volumes and what we were able to achieve as a brand, we fare pretty well. So when we dug into some of the more qualitative side of that, what we found was that consumers have their fan favorites on our menu, things like the Sourdough Jack. But what they don't say about our burgers is that we holistically love your entire line of burgers, and we holistically believe that you're selling us quality products.

What they say is, we like this one product. So we're getting the benefits associated with that. But what we were not getting is the halo associated with a belief system that Jack in the Box's entire menu, and particularly their entire line of burgers, are craveable.

So when you look at the launch of Buttery Jack, Sriracha Burger before it, as I said at ICR, these are all great foreshadowing of where the entire menu will go. And it's exactly what the consumer said that they would respond to in the research. So, although it's a few things, those are the drivers.

No, that's interesting. But what -- on the burgers, what is it exactly that they were saying that they didn't like about your burger lineup?

We haven't shared a lot of that detail, but I'll give you just a little color. What they said was that our beef patties were not juicy enough. And they also said that some of the ingredients on the hamburgers -- that we could make some changes there that would really bring the flavors to life. And they also said that they expect from Jack in the Box, compared to our competitors -- they expect bold, craveable flavors, and we weren't doing enough of that.

Great. Well, keep up the good work. Thank you.

Jake Bartlett, Morgan Stanley.

I wanted to (technical difficulty) to the Qdoba and talk about just the -- because it seems like sales have ramped in the first and beginning of the second quarter here. Any changes that went on that may accelerate -- looks like the year-ago comparison are probably more difficult.

Yes. There's a couple of different sides to that. Because part of what we did at the beginning of the year was we launched the new value proposition that I spoke about, where the consumer has the freedom of choice across the entire menu. Essentially, it's one price; you pick the protein; and then you get to build the product of your dreams. What happens in the transaction is that the consumer now has a much more pleasant interaction with our employees. And the employees are essentially helping them build what would be a great product, and suggesting ingredients like guacamole or the quesos.

So, it's not just as some folks have spoken about; it's not just a price increase. And in fact, the consumer doesn't interpret it that way. So when we launched the value prop -- and keep in mind, we tested it last year in Seattle and Boston. We had great results, and we continue to have great results in those markets. No drop-off in the performance there.

So, when we launched this thing system-wide, we anticipated there would be at least a little bit of a transaction erosion. Because we expected that some of the consumers that were really hooked on some of the value-based things we were doing in the past would be detractors. And so we did get a small amount of that. We did lose some of those transactions.

However, we grew at a faster rate with the consumers who really found value in the freedom to choose anything across that menu, and build the ultimate product. So, that far outpaced the negatives, and we were able to see a nice uptick.

So when you look at the overall gain in pricing, the way you can look at that is about half of the gain is real price. But the other half is a reduction in discounting.

Got it. And so it sounds like sales were higher towards the back half of the quarter as this was gaining steam. Were the sales in the back of the quarter in line with what we're seeing in the beginning of the second quarter here?

Jake, this is Jerry. The pacing of the Qdoba comps for the Company in each of the four periods of the quarter were -- all of them were about 10%, so we really didn't see the change period-to-period like we saw at Jack in the Box.

The other thing that I want to mention here is the second-quarter comps, which are trending above these levels right now, have not yet begun to roll over the 7% comp trends that we saw beginning, actually, this week. So as we sit here today, we are just now beginning to roll over the Queso Bliss promotion last year, which I think Lenny said in his prepared remarks, we're tracking at high-single-digit level comps last year, beginning this week.

Got it. Okay. I guess I was just trying to figure out what's caused of the acceleration here, since the cadence was pretty even in the first quarter, but it seems to accelerate in the beginning of the second. And there's no other changes that were made (multiple speakers)?

It's just really consumer acceptance. We monitor social media, and the consumers -- there's an increase in the positive remarks associated with what we're doing across the quarter, and even trending into the second quarter. So, as people become aware of our differences, and the freedom to choose all of what makes us distinct across the menu, that's just gaining momentum.

Got it. Thanks a lot. Appreciate it.

Next question.

Chris O'Cull, KeyBanc.

My question is regarding the Qdoba's margin. Clearly the margin improvement was very impressive this quarter. But Jerry, I was wondering if the margin improved through the quarter. I was thinking maybe there was some suggestive marketing after the menu change that could have initially pressured the gross margin. And then also just curious what the gross basis point impact of the 6% commodity inflation was on Qdoba.

Let me take the first part of that question first, Chris. So what we saw in the quarter is that margins at Qdoba were pretty consistent throughout the quarter. If anything, they trend down in the January time frame, which is what we normally see; just as the PSAs trail off a little bit in January, following Christmas. But we really didn't see any significant changes throughout the quarter on the Qdoba comps.

The impact to food and packaging costs, though, for Qdoba, if you look at that, the intention of the Qdoba pricing structure is that food and packaging would tend to go up along -- or let me rephrase that. Food and packaging as a percent of sales would tend to stay pretty static as what it did prior to the pricing change, then we would get leverage on everything else along the P&L, which is exactly what we saw happen. The 6.2% increase in comps for Qdoba specifically -- not comp, but increase in the commodity costs, was -- I'll get that for you, Chris. But I'm just looking around at some notes right here.

We don't have that specifically. But I can tell you what the total increase in the Qdoba food and packaging costs was. Let me just get that for you in just a moment.

80 bps.

80 bps.

Okay. And just as a follow-up, post the change to the menu, the pricing structure on the menu, the stores that do the $1.3 million, $1.4 million in AUVs, are they still showing margin in that -- around 24%? Or are they showing better margin? Just trying to understand how that menu change maybe affected the higher-volume stores.

Yes, we didn't update that, Chris. But they were trending at -- we said north of 23% on the call before that. So, with the pricing structure, you would expect that that would have risen as the entire system rose 290 basis points; you would expect that to have risen right along with it.

Okay, great. Thanks.

Jeff Bernstein, Barclays.

Seems like there's a lot of focus on the comp side. I was just going to ask more on the margin side for the broader entity. And I know you just recently updated your long-term goals to -- I think it's now 19% to 20%. I think you bumped it up 50 bps on both ends, but you're actually guiding to that new higher level for fiscal 2015. And as you mentioned, that's despite elevated food inflation and labor concerns. I guess it's actually both minimum wage and Affordable Care.

So I'm just wondering, as you think about it, do you think you're capturing the opportunity sooner, and therefore it's more limited expansion going forward? Or can you see that long-term target pushing into the low 20s?

And I guess as you think about that, what would be the greatest drivers of future expansion? Is it dayparts that would really drive more of the margin, or improved throughput? Just trying to get our hands around the margin opportunity, as it seems like you are well ahead of schedule, or continue to run well ahead of schedule.

Jeff, let me give you just a little color, and then I'll pass the baton to Jerry. And I think, in general, when you look at upside potential for margins, it will all be driven by sales growth. The drivers of sales growth at both brands will be a little different. For Jack in the Box, it will be driving dinner and lunch through improvements in the more targeted dinner and lunch menu items -- primarily burgers, drinks, fries. And we'll do that very similarly to how we handled late-night and breakfast, where we will continue to bring innovative products to the menu, but will also continue to try to enhance the experience and differentiate the experience.

So, for the Jack side, as you hinted, it will be daypart expansion. It will be lunch- and dinner-focused. And then, obviously, we'll continue to invest in late-night and breakfast because we don't want to let go of those equities and the growth that we have achieved there.

On the Qdoba side, it's really more of the brand reinvention work that's happening. And the focus of that has initially been across the entire menu. It's been establishing a new consumer value proposition. And on the heels of that will be all of the image in place, or experience-related work that really then signals to the consumer, not just in the menu but in appearance and behavior, that we're different. And that work is just being initiated today. So we would expect, in 2016 and beyond, to start capturing some of the impacts there.

And keep in mind, Jeff, ACA doesn't kick in until 2016 for us.

Jeff, the other thing is when we gave you the long-term guidance, you can see what we provided in terms of same-store sales growth, which ended up driving what the margin improvement was going to be. We didn't contemplate same-store sales growth that we're beginning to see here in the second quarter. So I think it's fair to say if that continues, you would expect to see the margins grow higher than that.

Understood. And then, Lenny, you just mentioned -- or earlier, you mentioned -- the advertising and media the Jack in the Box brand, and that's maybe one of the subtle changes. Can you just remind us maybe the total spend, or maybe the mix of local versus -- I guess it would be regional; I'm not sure how you define the way you spend the ad dollars if it's not national -- but how you measure the efficiency that -- I guess the concern being that you push lunch or dinner, and you risk breakfast and late-night, if you're still talking about the same total dollars.

Yes, so a little color in that. We're still spending about the same total dollars. Obviously the sales will drive up the advertising budget. It may fuel a slightly higher spend. But essentially about 1% of what we spend goes local, and the remaining 4% goes -- well, not quite national, but at least regional. And that's total. That includes what the consumer sees, but then also some of the underlying G&A associated with that support.

Nothing has really changed there. What has changed is just what we're doing with it in the time that we purchased on television, or the space that we've purchased on billboards. I hope that made some sense to you.

It seems like it's a whole lot more efficiency with the same dollar spend, or more effectiveness.

Yes, and I think the way to look at this is -- and I'll give you an example. When we -- we've been running ads for 20 years that have the same formula. And that formula gives us a certain number of seconds of food footage. We have almost doubled the amount of time allocated to food footage in our television advertising, versus what that prior formula would have dictated.

So, it is more efficient as long as the consumer responds by giving us a greater share of their wallet. That seems to be working today. But this is the first quarter we have really tried this, so it's too soon to peg all the results on that. And we're going to try a few more things before we are able to say we have really honed end on the new formula.

Understood. Thank you.

David Tarantino, Robert W. Baird.

Congratulations on a great start to the year. A couple of questions around the Jack in the Box comps. First, Lenny, the guidance for the second half of this fiscal year assumes a fairly dramatic slowdown from the rate that you're running right now. So I'm just wondering if there's anything that we should consider, other than just a prudent approach on giving that guidance. Is there a change coming in terms of initiatives, or anything that we should be aware of that would cause that level of slowdown?

I think, to use your words, it is a prudent approach, which is very typical of Jack in the Box. And I said earlier, this is sort of uncharted territory for us with this second-quarter performance and the Buttery Jack performance. So we don't want to bank an entire year on three week's worth of performance. And that's why we're taking a look at the two-year trends in 2Q here, and trying to be reasonable. And then we're not forecasting out beyond Q2 this type of rate of growth.

So it is just a prudent approach. Obviously at the end of Q2, we'll have a better idea to the staying power, and we're hopeful there will be some upside potential. But we're going to remain in a show-me state. It's just who we have been historically, and it's really nothing other than that.

David, just on a two-year trend on the back half of the year, we're still plus 5 on a two-year trend, given what the implied guidance would be for the back half of the year, and considering what we're rolling over.

Yes, makes sense. Thank you. And then I guess my real question is around the longer-term implications of some of this comp strength that you're seeing in the Jack in the Box brand. I was just wondering if you're starting to see any initial signs from franchisees or the system, in terms of interest in ramping up unit development as you look out to next year, or even the following couple of years.

So, what I would say is there's a lot of enthusiasm both internally and with our franchise community to define growth opportunities. So, we are optimistic that if the sales trends continue, we would be able to ramp up growth at Jack in the Box.

Great. Thank you very much.

Jeff Farmer, Wells Fargo.

A little bit of a topic change. Given where your Qdoba average unit volume and restaurant-level margins have been trending in 2015, what could the concept's unit level economics look like as you potentially accelerate development, be it 2015 or 2016?

Yes, so Jeff, a couple of things there. So, margins this quarter of 19% -- we've indicated that we would expect the margins for the Qdoba brand to exceed that of the Jack in the Box brand for this year.

I think in order to look at what the unit economics could be going forward, we are probably a little premature -- great question -- probably a little premature on the answer on that. We haven't yet built the first prototype. We have two under construction that we expect to open up in the spring. And I think we'd have to see first if those new units open up where we think they should open up. And if they do, then I -- open up, say, above the $1 million, $1.1 million level -- then we would expect to be able to provide you some additional color on what the unit economics would look like.

But I would say we would expect them substantially better than what we had reported to you guys back in the 2012 Analyst Day. But it's too soon to tell yet. We don't even have one operating yet.

Okay. And then just following up on margins. You just touched on this. Qdoba expected to be stronger than Jack. But obviously you've given us long history here of consolidated restaurant-level margin guidance. But just considering all the moving pieces at both concepts, are you willing to provide any additional color in terms of margin performance by concept in 2015, beyond just Qdoba outperforming Jack?

Well, we do provide -- in the Q, we do provide brand-level restaurant margins for each brand. So we would expect to continue to do that. But with guidance, we'll probably continue to keep it on a consolidated basis for guidance. But I think you could probably deduce what the margins could be from the sales guidance that we do give you versus -- and also consider what we've been reporting, in terms of the historical margins for each brand.

Okay, thank you.

Nick Setyan, Wedbush Securities.

Just a quick clarification on an earlier -- answer you guys gave to an earlier question, and then a question. So, geographically, are you guys actually seeing any kind of big divergence in terms of comps for Jack in the Box across -- whether it's California, Texas, or any other region?

I think one of the things that folks are wondering is if the sales are being fueled by a huge uptick in California and Texas. And folks are wondering if weather or minimum wage changes are driving some weird anomaly. We're not seeing that. And, in fact, outside of Texas and California, we're seeing quite a bit of growth. So, we believe it's what we're doing, more so than what the economy is doing for us.

Got it, okay. And then on the re-franchising, I thought we were going to get, I think, approximately 20 or so stores re-franchised this quarter. Is that going to happen next quarter, or is that off the table now?

No, it's not off the table at all. We had -- I think we said on the November call, Nick -- and if we didn't, I apologize for that. But we expect that to now happen in the second quarter.

Perfect, thank you.

(Operator Instructions). Joseph Buckley, Bank of America.

Just was curious on waiver costs. I realize this might be skewed by the California minimum wage increases. What kind of wage rate inflation are you seeing currently? And are you starting to see some pickup in turnover as the overall economy improves?

Joe, this is Lenny. We're not seeing an uptick in turnover. We had been reading some of the articles out there that are pointing towards this competition for talent, and that there's this war being waged for talent across competitive brands. We're not seeing that. We are not seeing it in our turnover numbers. And we're just not experiencing that behaviorally in the restaurants.

In the first quarter of this year, when we did the hospitality training, we think one of the things that we experienced there was just better staffing to sales, where our management teams are doing a better job of fully staffing the high sales hours. And we think that actually is helping to drive our comps. But that's really basic blocking and tackling. It's nothing that's macro.

Okay, thank you.

Alex Slagle, Jefferies.

Question on SG&A. Just along with the revenue upside, it seemed to come higher than expected; SG&A in the quarter, both in dollars and as a percentage of revenues versus at least our expectations. Maybe you could talk to how that compared to your internal forecasts, and if there are any timing shifts or accrual adjustments that may move forward.

Yes, I would say, Alex, a couple things. One, if you look at the spend versus last year on a G&A, excluding advertising, we were about $3 million higher than what we were first quarter last year. The difference was due to two non-cash items. One would be the pension expense, which was $1.5 million higher in this year's first quarter. You may recall that back in the November call, we guided pension expense to be $5 million higher for the full year.

The other item was last year's first quarter saw a favorable mark-to-market adjustment on the non-qualified retirement programs that we have of $1.4 million. This year saw a modest negative impact to that of $0.2 million. So when you look at the change versus last year, that was $1.6 million. That was a surprise. The pension wasn't.

But if you look at -- other than that, the control of the G&A from what we used to run the business I think was pretty well-controlled. And ex those items, we would have actually seen a lower G&A as a percent of system-wide sales than what we had last year.

Alex, this is Lenny. If you look at the G&A opportunity going forward, one way to think about that is in the short term -- next, let's say, 18 to 24 months -- both brands are trying to initiate new activities in the field and with marketing that are going to require some resources. So, you can expect us to make sure we have those resources available so those brands can continue to drive type of growth in sales that would also lead to growth in units. So there will be an investment there.

But beyond that, when you look at an opportunity to bring down the G&A, it's a couple of things. One is, in a post-brand reinvention time frame, you need a little less resources. Two, going through the painstaking task of trying to bring down your pension costs. And then, three, continuing to find efficiencies across the entity associated with the new shared services model that we put in place.

So, we think those opportunities are there. They are just not all going to flow through in the short term.

Great, thank you.

Jake Bartlett, Morgan Stanley.

The question was about the share buybacks, and much larger than we expected in this quarter. Was this what you had contemplated when you gave your initial guidance? Any guidance you can give us for the rest of the year? Almost your entire authorization was done in this quarter, or what is upcoming -- any comments on that would be appreciated.

Yes. Jake, we had a dollar value that we had assumed in our guidance which had an EPS impact, obviously. And the $100 million that we did in Q1 was consistent with what we had planned to do. We would expect to continue to return cash to shareholders throughout the course of the year, which I think has been our practice. I don't know that I would expect $100 million quarters for the next three quarters. We have $115 million left of authorization, but we do intend to continue to return cash throughout the year, though.

Okay. So you had expected that amount in the first quarter?

We expected that amount in the first quarter, yes.

Okay, got it. Thank you.

And there are no further questions in queue at this time.

Great. Thanks, everyone, for joining us. And we will look forward to speaking to you either later today or at the upcoming conferences.

This does conclude today's conference. All parties may disconnect at this time.