The document summarizes a research report on Jack in the Box, Inc. produced by students for the CFA Institute Research Challenge hosted by CFA Society San Diego and San Diego State University. The report recommends maintaining a "HOLD" position on Jack in the Box stock, with an upside potential of 12.5% based on a target price of $99.12 per share. It highlights Jack in the Box's focus on growing its Qdoba fast casual brand and generating stable cash flows from its franchise business.
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FIVE FORCES ANALYSIS
Threat of New Entrants (4)
Threat of new entrants presents a risk
for Jack in the Box. Currently, the
overall industry includes more than
200,000 restaurant firms, and among its
main players are McDonald’s, Yum!
Brands, Wendy’s and Doctor’s
Associates (Subway). Furthermore, the
industry is very saturated and
concentrated. Given the saturation of
the industry the firms cannot fully enjoy
those economies of scale that they
achieve. New entrants offering
healthier and quick food options would
be able to compete with current large
players.
Customer Bargaining Power (5)
QSR industry customer switching costs are very low. Restaurants are usually chosen based on location
and convenience, not because of brand loyalty or product quality and taste. Because of low product
differentiation, menu similarity and industry saturation, customers enjoy high bargaining power and
large variety of choices.
Bargaining Power of Suppliers (2)
Large QSR chains have thousands of suppliers to choose from. Suppliers can be chosen and changed via
competitive bid process. Suppliers have a high interest in working with chains due to high volumes and
competition is high. Suppliers have limited negotiating ability due to the QSR buying power.
Threat of Substitute Product (5)
Hamburgers and fries food product offerings are close substitutes. Most QSRs are beginning to offer
sandwiches, healthy wraps, fresh salads and smoothies to retain their customers due to changing
consumer eating habits and changing perceptions of health. QSR product differentiation with healthy
options is very limited. Therefore, consumer switching for the substitute products remains high.
Competition Among the Existing Firms (4)
Industry competition is high. Firms compete in a saturated market with low sales growth. Franchising
models are used to transfer most business risks to franchisees. QSR firms compete with marketing and
promotion strategies, product bundling and customer loyalty programs. Additionally, economic recovery
increases consumer purchasing power and makes consumers switch to fine dining restaurants.
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Appendix 1
DCF Valuation
Jack in the Box, (NASDAQ: JACK)
Source: 10k & Team Estimates
CAGR CAGR
FY 2011 FY 2012 FY 2013 ('11‐'13) FY 2014 FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E ('14‐'19)
Sales Company Operated 1,380.3$ 1,183.5$ 1,143.8$ ‐9.0% 1,120.9$ 1,148.7$ 1,245.2$ 1,347.7$ 1,376.2$ 1,444.5$ 5.2%
% Growth ‐17.3% ‐14.3% ‐3.4% ‐2.0% 2.5% 8.4% 8.2% 2.1% 5.0%
Franchise Royalties/Fees 282.1 325.8 346.1 10.8% 363.2 372.0 381.3 389.7 405.6 419.0 2.9%
% Growth 22.1% 15.5% 6.2% 5.0% 2.4% 2.5% 2.2% 4.1% 3.3%
Total Sales 1,662.4$ 1,509.3$ 1,489.9$ ‐5.3% 1,484.1$ 1,520.7 1,626.5$ 1,737.4$ 1,781.8$ 1,863.5$ 4.7%
% Growth ‐27.6% ‐9.2% ‐1.3% ‐0.4% 2.5% 7.0% 6.8% 2.6% 4.6%
COGS 1,245.0 1,062.0 1,026.0 ‐9.2% 1,005.2 1,036.3 1,112.3 1,192.3 1,221.4 1,278.7 4.9%
% of Sales 74.9% 70.4% 68.9% 67.7% 68.1% 68.4% 68.6% 68.6% 68.6%
Gross Profit 417.4 447.3 463.9 5.4% 478.9 484.4 514.1 545.0 560.4 584.8 4.1%
% Margin 25.1% 29.6% 31.1% 32.3% 31.9% 31.6% 31.4% 31.4% 31.4%
SG&A 224.7 224.9 220.6 206.8 211.9 226.6 242.1 248.3 259.6
% of Sales 13.5% 14.9% 14.8% 13.9% 13.9% 13.9% 13.9% 13.9% 13.9%
Adj. EBITDA* 266.4 284.4 261.3 ‐1.0% 283.5 284.1 300.0 316.2 325.7 339.4 3.7%
% Margin 16.0% 18.8% 17.5% 19.1% 18.7% 18.4% 18.2% 18.3% 18.2%
D&A 96.1 98.0 96.2 91.4 95.4 100.9 105.9 110.0 114.0
% of Sales 5.8% 6.5% 6.5% 6.2% 6.3% 6.2% 6.1% 6.2% 6.1%
Adj. EBIT 170.3 186.4 165.1 ‐1.5% 192.1 188.7 199.1 210.3 215.8 225.5 3.3%
% Margin 10.2% 12.4% 11.1% 12.9% 12.4% 12.2% 12.1% 12.1% 12.1%
Taxes 46.5 33.8 40.3 51.8 66.1 69.7 73.6 75.5 78.9
EBIAT 152.6$ 124.7$ 140.3$ 122.7$ 129.4$ 136.7$ 140.3$ 146.6$ 0.9%
D&A 98.0 96.2 91.4 95.4 100.9 105.9 110.0 114.0
CAPEX (80.2) (84.7) (60.5) (82.9) (92.5) (91.1) (92.3) (93.6)
Change in NWC (8.3) 17.7 (30.8) 7.7 9.9 13.1 (5.1) 11.7
Unlevered Free Cash Flow 162.1$ 154.0$ 140.4$ 142.9$ 147.7$ 164.6$ 152.8$ 178.6$ 4.9%
% of FCF to EBIAT
WACC 5.4% Discount Period 1 2 3 4 5
Present Value of FCF 135.53 132.83 140.43 123.58 137.04
*Adjusted EBITDA was calculated by adding back impairments resulting from the sale of PP&E.
Projection PeriodHistorical Period
Cumulative Present Value of FCF 669.4$
Terminal Value
Terminal Free Cash Flow 178.6$
WACC 5.4%
Perpetuity Growth Rate 2.0%
Terminal Value 5,293.7$
Discount Factor 0.77
PV Of Terminal Value 4,061.7$
% of Enterprise Value 85.85%
Enterprise Value 4,731.1$
Less: Total Debt (507.88)
Plus: Cash and Cash Equivalents 10.8
Implied Equity Value 4,234.00$
Fully Diluted Shares Outstanding 40.2
Intrinsic Value Share 105.35$
Implied Exit Multiple
Terminal Value 5,293.7$
Terminal Year EBITDA 316.2
WACC 5.4%
Implied Exit Multiple 17.7x
DCF Valuation (PGM)
Cumulative PV of FCF (2015‐2019) 669.4$
Terminal Value
Terminal Year EBITDA 339.4$
EXIT Multiple 14.6x
Terminal Value 4,967.0$
Discount Factor 0.77
PV Of Terminal Value 3,811.0$
% of Enterprise Value 85.06%
Enterprise Value 4,480.4$
Less: Total Debt (507.88)
Plus: Cash and Cash Equivalents 10.8
Implied Equity Value 3,983.30$
Fully Diluted Shares Outstanding 40.2
Value per Share 99.12$
Terminal Year Free Cash Flow 164.6$
WACC 5.4%
Terminal Value 4,967.0$
Implied Perpetuity Growth 1.8%
DCF Valuation
Implied Perpetuity Growth Rate
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Appendix 2
Forecast Assumptions
Jack in the Box, (NASDAQ: JACK)
Source: 10K & Team Estimates
FY 2015 E FY 2016 E FY 2017 E FY 2018E FY 2019E
Operating Variables
% of Company Operated Jack in The Box 19.2% 19.2% 19.2% 18.0% 17.0%
% of Company Operated Qdoba 48.6% 48.6% 48.6% 48.6% 48.6%
Franchise AUV Jack in the Box $1.4 $1.4 1.40$ 1.42$ 1.44$
Growth Rate 1.5% 1.5% 1.5% 1.5% 1.5%
Franchise AUV Qdoba $1.1 $1.2 1.34$ 1.42$ 1.51$
Growth Rate 10.0% 10.0% 8.0% 6.0% 6.0%
Company Operated AUV Jack in the Box $1.7 $1.7 1.76$ 1.78$ 1.80$
Growth Rate 1.0% 1.0% 1.0% 1.0% 1.0%
Company Operated AUV Qdoba $1.2 $1.3 1.46$ 1.54$ 1.64$
Growth Rate 10.0% 10.0% 8.0% 6.0% 6.0%
% Change in Food And Beverage Costs 0.0% 0.0% 0.0% 0.0% 0.0%
% Change in Payroll and employee benefits 0.0% 0.0% 0.0% 0.0% 0.0%
Occupancy & Other Operating Expenses 0.0% 0.0% 0.0% 0.0% 0.0%
SG&A 0.0% 0.0% 0.0% 0.0% 0.0%
Tax Rate ‐35.0% ‐35.0% ‐35.0% ‐35.0% ‐35.0%
Investing
NEW Jack in The Box (System Wide) 15 15 15 15 15
NEW Qdoba (System Wide) 60 75 70 70 70
New Restaurant Development Cost (Jack)* 0.3$ 0.3$ 0.3$ 0.3$ 0.3$
New Restaurant Development Cost (Qdoba) 0.6$ 0.6$ 0.6$ 0.6$ 0.6$
Other Facility Expenditures 23.3$ 24.0$ 24.6$ 25.3$ 26.0$
Other expenditures, Including Corporate 21.7$ 22.3$ 23.0$ 23.6$ 24.2$
Financing Variables
Interest Rate on Long‐Term Debt 1.91% 1.91% 1.91% 1.91% 1.91%
Proceeds from revolver $689.1 $690.2 $678.0 $683.8 $650.7
Payments to revolving facility ($640.0) ($652.7) ($703.9) ($698.5) ($650.7)
Proceeds from term loan ‐$ ‐$ 200.00$ ‐$ ‐$
Principal payments on term loan (10.87)$ (15.90)$ (197.50)$ (10.87)$ (15.90)$
Increase in treasury stock (Budget) (117.08)$ (100.00)$ (50.00)$ (50.00)$ (50.00)$
Distribution of Dividends ($28.00) ($35.00) ($42.00) ($45.00) ($50.00)
*Estimated by dividing historical capital expenditures related to new Jack in the Box restaurants by total new restaurants.
**Dollar figures are represented in millions of USD.
Financing Variables
Investing Variables
Operating Variables
Forecast Assumptions Input
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Estimation of Net Working Capital
(in Millions of USD) FY 2011 FY 2012 FY 2013 FY 2014 FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E
Total Sales 1,662.4 1,509.3 1,489.9 1,484.1 1,520.7 1,626.5 1,737.4 1,781.8 1,863.5
Sales Company Operated 1,380.3 1,183.5 1,143.8 1,120.9 1,148.7 1,245.2 1,347.7 1,376.2 1,444.5
COGS (Excludes Franchise Cost) 1,108.9 895.9 852.4 822.3 849.4 920.7 996.5 1,017.6 1,068.1
Current Assets
Accounts Receivable 86.2 78.8 41.7 50.0 51.2 54.8 58.5 60.0 62.8
Inventories 7.5 7.8 7.2 7.5 7.7 8.4 9.1 9.3 9.7
Prepaid Expenses & Other 56.0 63.8 20.1 36.9 37.8 40.5 43.2 44.3 46.3
Total Current ASSETS 149.7 150.3 69.0 94.4 96.8 103.6 110.8 113.6 118.9
Current Liabilities
Accounts Payable 94.3 94.7 36.9 31.8 32.9 35.6 38.5 39.4 41.3
Accrued Expenses 167.5 164.6 153.9 163.6 167.7 181.8 196.7 200.9 210.9
Current Portion of Long‐Term Debt 21.1 16.0 20.9 10.9 15.9 15.8 18.2 10.9 15.9
Total Current Liabilities 283.0 275.3 211.7 206.3 216.4 233.2 253.4 251.1 268.1
Net Working Capital (133.3) (125.0) (142.7) (111.9) (119.6) (129.6) (142.6) (137.5) (149.2)
% of Sales ‐9.7% ‐10.6% ‐12.5% ‐10.0% ‐10.4% ‐10.4% ‐10.6% ‐10.0% ‐10.3%
(Increase)/Decrease in NWC (8.3) 17.7 (30.8) 7.7 9.9 13.1 (5.1) 11.7
Assumptions
Current Assets
Days Sales Outstanding 18.9x 19.1x 10.2x 12.3x 12.3x 12.3x 12.3x 12.3x 12.3x
Days Inventory Held 2.5x 3.2x 3.1x 3.3x 3.3x 3.3x 3.3x 3.3x 3.3x
Prepaid Expenses & Other (% of Total Sales) 3.4% 4.2% 1.3% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Current Liabilities
Days Payables Outstanding 31.1x 38.6x 15.8x 14.1x 14.1x 14.1x 14.1x 14.1x 14.1x
Accrued Expenses (% of Sales company Operated) 12.1% 13.9% 13.5% 14.6% 14.6% 14.6% 14.6% 14.6% 14.6%
Projection PeriodHistorical Period
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Appendix 3
Historical Income Statements
Jack in The Box, (NASDAQ: JACK)
Source: 10k & Bloomberg
(In Millions of USD)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Restaurant Sales/Food And Beverage 1,975.8 1,668.5 1,380.3 1,183.5 1,143.8 1,120.9
Franchised Restaurant Royalties/Fees 193.1 231.0 282.1 325.8 346.1 363.2
Other Revenue 302.1 398.0 ‐ ‐ ‐
Total Revenue 2,471.0 2,297.5 1,662.4 1,509.3 1,489.9 1,484.1
Food And Beverage Costs (640.4) (530.6) (460.8) (389.2) (372.7) (357.3)
Payroll and employee benefits ‐ ‐ ‐ (338.2) (320.4) (308.5)
Occupancy & Other Operating Expenses (915.3) (801.7) (648.1) (168.5) (159.4) (156.5)
Depreciation & Amortization (100.8) (101.5) (96.1) (98.0) (96.2) (91.4)
Total company restaurants costs (1,656.5) (1,433.8) (1,205.0) (993.9) (948.7) (913.7)
Cost Of Franchised Restaurant Royalties/Fees (78.4) (104.8) (136.1) (166.1) (173.6) (182.9)
Selling General and Administrative Expenses (282.7) (243.4) (224.7) (224.9) (220.6) (206.8)
Impairment, G/L on Disposition of PPE & Others (300.7) (448.6) (12.6) (32.8) (13.4) (14.9)
Gain/(Loss) On Sale of Business 78.6 55.0 61.1 29.1 4.6 (3.5)
Operating Income (EBIT) 231.3 121.9 145.1 120.8 138.2 162.3
Interest Expense (22.2) (17.0) (18.2) (21.0) (16.5) (16.5)
Interest income 1.4 1.1 1.3 2.1 1.2 0.9
Pretax Income (Inc. XO Items) 210.5 106.0 128.2 101.9 123.0 146.6
Effective Tax Rate 37.75% 33.78% 36.24% 33.19% 32.81% 35.32%
Income Tax Expense (79.5) (35.8) (46.5) (33.8) (40.3) (51.8)
Earnings from cont. operations 131.0 70.2 81.8 68.1 82.6 94.8
Discontinued Operations, Net (12.6) ‐ (1.1) (10.5) (31.5) (5.9)
Net Income 118.4 70.2 80.6 57.7 51.2 89.0
Fully Diluted Shares Outstanding 57.7 55.8 50.1 44.9 44.9 42.0
Diluted EPS (Cont. Operations) 2.27$ 1.26$ 1.63$ 1.52$ 1.84$ 2.26$
Year over Year % Change in Diluted EPS ‐44.61% 29.73% ‐7.2% 21.4% 22.8%
Diluted EPS After Discontinued Operations 1.26$ 1.61$ 1.28$ 1.14$ 2.12$
Dividends Per Share 0.40$
JACK in the BOX
Income Statement
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Appendix 5
Company Operated Sales Estimation
Jack in the Box, (NASDAQ: JACK)
Source: 10k, Bloomberg & Team Estimates
(2014‐2019)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E (CAGR)
Jack in the Box 1,850.44$ 1,518.43$ 1,181.96$ 943.99$ 850.51$ 782.46$ 750.94$ 763.46$ 776.15$ 717.85$ 691.08$ ‐2.5%
% Change in Sales ‐17.9% ‐22.2% ‐20.1% ‐9.9% ‐8.0% ‐4.0% 1.7% 1.7% ‐7.5% ‐3.7%
Qdoba 125.40$ 150.09$ 168.80$ 239.49$ 293.27$ 338.45$ 397.74$ 481.72$ 571.54$ 658.32$ 753.45$ 17.4%
% Change in Sales 19.7% 12.5% 41.9% 22.5% 15.4% 17.5% 21.1% 18.6% 15.2% 14.5%
Total company Operated Revenue 1,975.8 1,668.5 1,350.8 1,183.5 1,143.8 1,120.9 1,148.7 1,245.2 1,347.7 1,376.2 1,444.5 5.2%
YoY % Change in Sales ‐15.6% ‐19.0% ‐12.4% ‐3.4% ‐2.0% 2.5% 8.4% 8.2% 2.1% 5.0%
Jack in the Box Company Operated Revenue Estimation
Avg. Unit Volume (AUV) 1.42$ 1.30$ 1.41$ 1.56$ 1.61$ 1.71$ 1.73$ 1.74$ 1.76$ 1.78$ 1.80$ 1.0%
New Stores 15 19 6 1 3 3 3 (24) (21)
Acquired From Franchisees 0 0 1 4
Closed 10 4 11 2
Number of Jack in The box Restaurants* 1,073 818 611 524 455 435 438 441 404 385
Estimated AUV 1.4$ 1.4$ 1.5$ 1.6$ 1.7$
% Difference from actual** ‐2.8% 0.8% ‐1.1% ‐0.7%
Total Jack in the Box Sales*** 1,518.4$ 1,182.0$ 944.0$ 850.5$ 782.5$ 750.9$ 763.5$ 776.2$ 717.9$ 691.1$ ‐2.5%
*Number of Jack in the Box restaurants was computed by adding new, Acquired from Franchisees, and closed restaurants to the average number of stores between current and prior year.
Qdoba Company Operated Revenue Estimation
Avg. Unit Volume (AUV) 1.01$ 0.97$ 1.00$ 1.06$ 1.08$ 1.11$ 1.23$ 1.35$ 1.46$ 1.54$ 1.64$ 8.0%
Number of Qdoba Restaurants* 173 217 281 306 303 325 357 393 427 461
Estimated AUV 0.9$ 0.8$ 0.9$ 1.0$ 1.1$
% Diff. from Actual** 11.7% 28.6% 24.1% 12.7% ‐0.3%
Total Qdoba Sales*** 150.1$ 168.8$ 239.5$ 293.3$ 338.5$ 397.7$ 481.7$ 571.5$ 658.3$ 753.5$ 17.4%
*Number of Qdoba restaurants was computed by averaging the current number of stores at year end with the number of stores at year end from previous year.
**Tests the accuracy of average unit volume (AUV) estimation.
***Sales were estimated by multiplying average unit volume (AUV) by the computed number of restaurants.
Source: 10k & Team Estimates
Company Operated Revenue Breakdown
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Appendix 6
Franchise Revenue Estimation
Jack in the Box, (NASDAQ: JACK)
Source: 10k, Bloomberg & Team Estimates
(2014‐2019)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E (CAGR)
Jack in the Box (7) 175.3$ 212.7$ 263.1$ 308.0$ 328.8$ 344.8$ 351.7$ 356.7$ 360.7$ 371.7$ 380.4$ 2.0%
% Change in Franchise Revenue 21.3% 23.7% 17.1% 6.7% 4.9% 2.0% 1.4% 1.1% 3.1% 2.3%
Qdoba (7) 17.8$ 18.3$ 48.4$ 17.8$ 17.3$ 18.4$ 20.3$ 24.6$ 29.0$ 33.9$ 38.6$ 15.9%
% Change in Franchise Revenue 2.9% 164.2% ‐63.3% ‐2.6% 6.5% 9.9% 21.4% 17.9% 17.0% 13.7%
Total Franchise Revenue 193.1$ 231.0$ 311.6$ 325.8$ 346.1$ 363.2$ 372.0$ 381.3$ 389.7$ 405.6$ 419.0$ 2.9%
% increase in franchise revenue 19.6% 34.9% 4.6% 6.2% 5.0% 2.4% 2.5% 2.2% 4.1% 3.3%
Jack in the Box Sales per Store 0.17$ 0.17$ 0.17$ 0.18$ 0.18$ 0.19 0.19$ 0.19$ 0.19$ 0.20$ 0.20$
Rents (1) 0.11 0.12 0.12 0.12 0.12 0.12 0.12 0.12
Royalties (2) 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07
Franchise fees and other (3) 0.001 0.003 0.003 0.002 0.003 0.003 0.004 0.004
Average Unit Volume (Thousands) 1.29$ 1.29$ 1.31$ 1.31$ 1.34$ 1.36$ 1.38$ 1.40$ 1.42$ 1.44$ 1.5%
Avg. Number of Restaurants (4) 1,136 1,421 1,648 1,745 1,803 1,825 1,837 1,849 1,875 1,912
Estimated Total Sales (5) 1,462.0$ 1,827.4$ 2,163.2$ 2,288.8$ 2,409.9$ 2,476.7$ 2,530.6$ 2,585.5$ 2,660.4$ 2,753.9$
% Change in Franchise Sales 25.0% 18.4% 5.8% 5.3% 2.8% 2.2% 2.2% 2.9% 3.5%
Estimated Royalties Revenue (5.2% of Sales) 76.0$ 95.0$ 112.5$ 119.0$ 125.3$ 128.8$ 131.6$ 134.4$ 138.3$ 143.2$ 2.7%
Qdoba Sales per Store 0.05$ 0.05$ 0.14$ 0.06$ 0.05$ 0.06$ 0.06$ 0.06$ 0.07$ 0.07$ 0.08$
Royalties (2) 0.05 0.05 0.049 0.054 0.059 0.064 0.068 0.073
Franchise fees and other (3) 0.005 0.005 0.007 0.002 0.003 0.003 0.004 0.004
Average Unit Volume (Thousand) 0.94$ 0.99$ 0.96$ 0.96$ 1.03$ 1.13$ 1.24$ 1.34$ 1.42$ 1.51$ 8.0%
Avg. Number of Restaurants (4) 345 338 325 315 324 343 378 415 451 487
Estimated Total Sales (5) 345.9$ 338.5$ 325.5$ 316.0$ 324.5$ 388.3$ 470.3$ 558.0$ 642.8$ 735.7$
% Change in Franchise Sales ‐2.2% ‐3.8% ‐2.9% 2.7% 19.7% 21.1% 18.6% 15.2% 14.5%
Estimated Royalties (5% of Sales) 17.3$ 16.9$ 16.3$ 15.8$ 16.2$ 19.4$ 23.5$ 27.9$ 32.1$ 36.8$ 17.8%
Royalties Revenue Estimation Test
Total Estimated Royalties Revenue 93.32 111.95 128.76 134.81 141.54
% Difference from Actual (6) 0.7% 1.6% 0.4%
Total Franchise Revenue FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E
Rents 195.7 207.5 217.2 218.6 220.1 221.5 226.2 230.4 1.2%
Royalties 127.9 132.7 141.0 148.2 155.1 162.3 170.5 180.0 5.0%
Others (3) 2.18 5.91 5.05 5.17 6.10 5.79 9.00 8.60 11.2%
Total 325.8 346.1 363.2 372.0 381.3 389.7 405.6 419.0
Increase in Franchises (Jack) ‐ ‐ 33 12 12 12 39 36
Increase in Franchises (Qdoba) 9 31 39 36 36 36
42 43 51 48 75 72
(2) Represents estimated royalty revenue divided by total restaurants at year end.
(4) Average number restaurants for both segments were computed by averaging the current number of stores at year end with the number of stores at year end from previous year.
(5) Estimated franchised sales was computed by multiplying AUV by the Avg. number of stores.
(6) Tests the accuracy of the franchise total sales estimation.
(7) Computed by multiplying estimated revenue per store by the number of stores at year end.
Franchise Revenue Breakdown
(1) Rent revenue is assumed to be paid only by Jack in the Box franchisees only. Therefore, historical rent revenue was divided by number of Jack in the Box at year end. To forecast future rent
revenue we multiplied the number of franchised restaurants at year end by the unit $0.12, which was assumed to remain constant in the future.
(3) Other revenues was estimated by multiplying previous years revenues by the % change in total the number of franchise restaurants from period to period. An then allocated equally between
number of Jack in the Box and Qdoba franchised restaurants.
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Appendix 7
Projected Income Statement
Jack in the Box, (NASDAQ, JACK)
Source: 10k & Team Estimates
(In Millions of USD)
FY 2014 FY 2015E FY 2016E FY 2017E FY 2018E FY 2019E
Restaurant Sales/Food And Beverage 1,120.9 1,148.68 1,245.18 1,347.69 1,376.17 1,444.53
Franchised Restaurant Royalties/Fees 363.2 372.00 381.28 389.66 405.64 418.99
Other Revenue
Total Revenue 1,484.1 1,520.7 1,626.5 1,737.4 1,781.8 1,863.5
Food And Beverage Costs (357.3) (370.2) (401.3) (434.4) (443.6) (465.6)
Payroll and employee benefits (308.5) (318.9) (345.7) (374.2) (382.1) (401.1)
Occupancy & Other Operating Expenses (156.5) (160.2) (173.7) (188.0) (191.9) (201.5)
Depreciation & Amortization (91.4) (95.4) (100.9) (105.9) (110.0) (114.0)
Total company restaurants costs (913.7) (944.8) (1,021.6) (1,102.4) (1,127.6) (1,182.1)
Cost Of Franchised Restaurant Royalties/Fees (182.9) (186.9) (191.6) (195.8) (203.8) (210.5)
Selling General and Administrative Expenses (206.8) (211.9) (226.6) (242.1) (248.3) (259.6)
Impairment, G/L on Disposition of PPE & Others (14.9) (15.3) (16.3) (17.5) (17.9) (18.7)
Gain/(Loss) On Sale of Business (3.5) (3.6) (3.9) (4.2) (4.3) (4.5)
Operating Income (EBIT) 162.3 158.2 166.4 175.4 180.0 188.0
Interest Expense (16.5) (9.7) (10.4) (10.8) (10.0) (9.5)
Interest income 0.9 0.9 0.9 1.0 1.0 1.1
Pretax Income (Inc. XO Items) 146.6 149.4 156.9 165.6 171.0 179.6
Effective Tax Rate 35.32% 35.00% 35.00% 35.00% 35.00% 35.00%
Income Tax Expense (51.8) (52.3) (54.9) (58.0) (59.8) (62.8)
Earnings from cont. operations 94.8 97.1 102.0 107.6 111.1 116.7
Discontinued Operations, Net (5.9) (6.0) (6.5) (6.9) (7.1) (7.4)
Net Income 89.0 91.1 95.5 100.7 104.1 109.3
Fully Diluted Shares Outstanding 42.0 40.2 40.2 40.2 40.2 40.2
Diluted EPS (Cont. Operations) 2.26$ 2.42$ 2.54$ 2.68$ 2.77$ 2.90$
Year over Year % Change in Diluted EPS 22.8% 6.9% 5.0% 5.5% 3.3% 5.0%
Diluted EPS After Discontinued Operations 2.12$ 2.27$ 2.38$ 2.51$ 2.59$ 2.72$
Dividends Per Share 0.40$ 0.70$ 0.87$ 1.05$ 1.12$ 1.24$
5.1%
25.5%
JACK in the BOX
Dividends CAGR (14‐19)
EPS CAGR (14‐19)
Income Statement
Assumptions linked to Income Statement
Average
(2013‐2014)
Food And Beverage Costs as a % of Restaurant Sales/ Food and Beverage ‐32.2%
Payroll and employee benefits as a % of Restaurant Sales/ Food and Beverage ‐27.8%
Occupancy & Other Operating Expenses as a % of Restaurant Sales/ Food and Beverage ‐13.9%
Depreciation & Amortization as a % of NET PPE ‐12.6%
Cost Of Franchised Restaurant Royalties/Fees as % of Franchise Revenue ‐50.3%
Selling General and Administrative Expenses as % of Total Sales ‐13.9%
Impairment and other one‐time charges as % of Total Sales ‐1.0%
Gain/(Loss) On Sale of Business as % of Total Sales ‐0.2%
Interest income as % of total Sales 0.1%
Discontinued Operations, Net as % of Total Sales ‐0.4%
20.
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Appendix 9
Fully Diluted Shares Outstanding (Treasury Stock Method)
Jack in the Box, (NASDAQ: JACK)
Source: 10k
Share Price as of 01/30/15 88.12$
Options outstanding 1,189,570
Weighted‐Avg. exercise price 26.74$
Shares Repurchased 360,974.83
New Shares 828,595.17
Performance share awards Out. 330,203
Weighted‐Avg. Grant Date Fair Value 25.69$
Shares Repurchased 96,265.49
New Shares 233,937.51
Nonvested stock awards Out. (RSA) 95,815
Weighted‐Avg. Grant Date Fair Value 20.56$
Shares Repurchased 22,355.38
New Shares 73,459.62
Nonvested stock units out. (RSU) 330,871
Weighted‐Avg. Grant Date Fair Value 33.73$
Shares Repurchased 126,648.65
New Shares 204,222.35
Stock equivalents out. (Director's comp.) 75,466
Weighted‐Avg. Grant Date Fair Value 23.44$
Shares Repurchased 20,074.02
New Shares 55,391.98
Basic Shares Outstanding (01/18/15) 38,792,973
Fully Diluted Shares Outstanding 40,188,580
Fully Diluted Shares Outstanding
21.
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Appendix 10
WACC Computation
Jack in the Box, (NASDAQ: JACK)
Source: Bloomberg. & Team Estimates
Regression Statistics
Multiple R 0.3
R Square 0.1
Adjusted R Square 0.1
Standard Error 0.0
Observations 158
Beta 0.54 10‐year Treasury Yield 2.0% 9.6% Cost of Equity 6.1%
Adjusted Beta* 0.69
*Adjusted for mean reversion. However, raw beta was used to calculate cost of equity.
**Geometric mean of yearly returns on the S&P 500 from 1994 to 2013.
Jack in the Box Cost of Equity Estimation
3‐Year Weekly
01/23/2012 to 1/26/2015
Expected Market Return**
S&P 500 & Jack in the Box
y = 0.5379x + 0.0075
‐6%
‐3%
0%
3%
6%
9%
12%
‐5.0% ‐4.0% ‐3.0% ‐2.0% ‐1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Alternative #1 *Unsing Bloomberg Most Recent Information
Debt Price ICE LIBOR USD 3M Margin (1.25‐2.00%) LIBOR+Margin Funded Amount Fair Value w(d)
Weighted Avg.
Cost of Debt
Revolver 100.0% 0.26% 1.75% 2.0% 306,000,000 305,969,400 60.8% 1.2%
Term Loan 98.8% 0.26% 1.5% 1.8% 200,000,000 197,500,000 39.2% 0.7%
Marginal Tax Rate 35% After Tax Cost of Debt 1.2% Total Debt 506,000,000 503,469,400 100% 1.9%
Source: Bloomberg
Alternative #2 *Equivalent Credit Rate and Default Spread
EBIT Interest Expense Debt Amount Outstanding RF+Default Spread
162.31$ 16.53 Long Term 506,000,000$ 2.7%
Interest Coverage Ratio 9.8x
Equivalent Rate Aa2/AA
Default Spread* 0.70%
Risk Free ^TNX 1.99%
Pre‐tax Cost of Debt 2.7%
Marginal Tax Rate 35.0%
After Tax Cost of Debt 1.7%
Source: New York University, Stern
Alternative #3 *Dividing Interest expense by Debt Outstanding
Interest Expense Debt Outstanding Cost of Debt
16,530,000.0 506,000,000.0 3.3%
Marginal Tax Rate 35.0%
After Tax Cost of Debt 2.1%
Source: Team Estimates
Jack in the Box Cost of Debt Estimation
Shares Outstanding Share Price
38,792,973 88.12$ Cost Weight
Equity 3,418,436,780.76 6.1% 87.1%
Debt
Debt 506,000,000.00 1.9% 12.9%
Tax Shield Total Capital 3,924,436,780.76$ 100.0%
65.0% 5.4%
Weighted Average Cost of Capital
Equity
Weighted Average Cost of Capital
87%
13%
Capital Structure
Equity
Debt
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Appendix 11
Comparables Valuation
Jack in the Box, (NASDAQ: JACK)
Source: Bloomberg
Jack in The Box
Comparable Companies Analysis
(in Millions, except per share data)
Company
Share
Price
% of 52‐
wk. High Equity Value
Enterprise
Value 2015E 2016E
Net
Income
(%)
EBIT/ Int.
Exp. 2015E 2016E
LT EPS
Growth
Jack in the Box Inc 87.5 ‐1.2% 3,392.9 3,890.2 13.6x 12.4x 18.8% 6.0% 9.8x 30.8x 26.5x 13.7%
McDonald's Corp 95.0$ ‐8.5% 92,434.9 104,331.8 11.4x 10.9x 35.4% 17.3% 5.7x 18.8x 17.5x 7.3%
Yum! Brands Inc 74.6$ ‐10.8% 32,632.6 35,464.6 11.9x 10.4x 21.0% 7.9% 11.8x 21.5x 18.4x 11.8%
Chipotle Mexican Grill Inc* 670.4$ ‐7.9% 20,797.1 20,039.0 19.9x 17.0x 20.8% 10.8% N/A 39.0x 32.6x 22.0%
Domino's Pizza Inc 100.6$ ‐3.2% 5,531.4 7,024.7 18.5x 16.7x 19.3% 8.3% 24.1x 34.5x 29.7x 13.7%
Dunkin' Brands Group Inc 47.3$ ‐10.9% 4,943.7 6,553.5 16.2x 14.9x 51.0% 23.6% 18.1x 25.4x 21.6x 14.8%
Panera Bread Co 160.8$ ‐16.7% 4,337.5 4,291.4 10.3x 9.2x 14.9% 7.1% 0.5x 24.3x 21.1x 16.0%
Wendy's Co/The 11.0$ ‐4.0% 4,034.4 5,138.5 12.9x 12.7x 21.0% 5.9% 12.7x 32.6x 28.0x 12.2%
Sonic Corp 31.5$ ‐2.0% 1,686.9 2,102.4 13.1x 12.3x 27.1% 8.8% 17.3x 30.6x 26.3x 15.9%
Popeyes Louisiana Kitchen Inc 60.5$ ‐3.5% 1,412.0 1,511.8 20.1x 17.3x 31.9% 15.9% 5.4x 36.7x 31.0x 17.0%
El Pollo Loco Holdings Inc 24.2$ ‐42.0% 901.2 1,048.1 17.9x 16.2x 17.1% ‐5.4% 69.2x 43.7x 35.4x 16.5%
Minimum 10.3 9.2 18.8 17.5
25th Percentile 11.8 10.8 23.6 20.4
Median 14.6 13.8 31.6 27.1
Mean 15.2 13.8 30.7 26.1
75Th Percentile 18.9 16.8 37.3 31.4
Maximum 20.1 17.3 43.7 35.4
σ 3.7x 3.0x 8.1x 6.2x
P/E
Tier 1: QSR & Fast Casual
EV / EBITDA
2015E
EBITDA
Margin