Jack in the Box Inc. (JACK) Q1 2015 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Jack in the Box Inc. First Quarter Fiscal 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 Web site 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 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 and 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 refranchising. 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, 10-Q and other public documents filed with the SEC. These documents are available on the Investors section of our Web site 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 and Retail Conference in New York on March of 3rd and at the UBS Global Consumer Conference in Boston on March the 4th. Our second quarter ends on April the 12th and we tentatively plan to announce results on Wednesday, May the 13th after market close. Our conference call is tentatively scheduled to be held at 08:30 AM Pacific Time on Thursday, May the 14th. 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 continue to grow margins at both brands. This along with the 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 restaurant increased 3.9% for the first quarter of fiscal 2015. As we experienced the significant acceleration in trend 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. On those macro indicators seem to be moving in the right direction, the tide is not lifting all those 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’ve 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 24x7 drive through service and the all day availability of our full menu, they recognize us for accommodating late-night activities, but we have opportunities in the lunch and dinner dayparts to grow sales and we’ve increased our focus on those areas in order to make a stronger position in the hamburger business. We’ll continue to leverage late-night and breakfast as we did in the first quarter with media messaging around both dayparts including our late-night Tweet Stakes promotion, our new line of Breakfast Burritos as well as breakfast value message. But we’ll 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 price offerings like the 499 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 hamburger space like the Buttery Jack burgers that we launched earlier this month. By the way if you saw any of the Buttery Jack ad that debuted on Super Bowl Sunday you might have noticed a greater emphasis on 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 menus is in the presentation to our dining 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 work force 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 a new hospitality model one of our top priorities. We expect to see other guest service initiative activated in the future. Now turning to Qdoba. We’re 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 to continue menu innovation and another quarter of double-digit growth in catering sales. Despite aggressive competitive activity, our catering offering continues to perform extremely well. Our 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 a point for same-store sales growth. We kicked off the first quarter by rolling out a new simplified menu pricing structure. It allows guests to pay a single price for any entrée offered, a price is based on the protein chosen and includes as many additional flavors as the guest would like to add, including our hand-smashed guacamole, 3-cheese Queso, Queso Diablo and more. Our guests have responded very favorably to the new pricing structure. As we saw in our market test, 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 entrée featured Queso. In addition to the all inclusive menu, we 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 the three new Smothered Burritos, Tangy Verde, Bold Red Chile 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 dayparts. The new pricing structure and intensified focus on menu innovation are really the first major outcomes of Qdoba’s brand strategy in positioning work. We’ve also been addressing how to incorporate various elements of the brand strategy into the restaurant facility. With the exception of a few non-traditional locations, all new company units over the remainder of 2015 will be opened in existing markets and will be dedicated for 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 to 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 second quarter. In closing, I’m extremely pleased with 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 this 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 take a greater claim to lunch and dinner. In addition, we invested into the 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 learning and believe we can attribute at least some of the recent sales outperformance for those initiatives. And now, I’d like to turn the call over to Jerry for more detailed look in our first quarter results and outlook for the remainder of the year. Jerry?

Thank you Lenny and good morning everyone. The strong same-store sales growth at both brands and the benefit from refranchising 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 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 that 290 basis point improvement in Qdoba markets. SG&A was negatively impacted by pension expense as we expected as well as mark-to-market adjustments. In addition, Qdoba advertising cost 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 we 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% Qdoba driven by substantially higher beef cost. 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 brand to lessen the impact of inflation. Here is 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 were 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 the last 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 and I’d now like to turn the call over to the operator to open it up for questions. David?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Due to time considerations, we ask that you please limit yourself to one question and one follow up per turn. If you do have additional questions, you may re-queue at that time. Thank you. And our first question comes from Joseph Buckley of Bank of America. Please go ahead with your question.

Lenny can I take you back again to Jack in the Box sales numbers and just sort of what the inflection points have been it sounds like in the current quarter the Buttery burger promotion that kicked off at Super Bowl Sunday I think you said had -- 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?

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 this Srirache Burger we kicked off the year with the hospitality training. So I think both of those things help now. I wish I could tell you how all of the economic drivers are putting wind in the industry sales, obviously putting a little more wind in our sales than others. But we will think that it's essentially the service and the focus on lunch and dinner dayparts with the new burger which is all incremental to what we've been focusing on for last year in late night and breakfast, because we still haven’t led up on those two dayparts. So we're thinking with all those things it is 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 definitive 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 the way it's impacting others, we're actually doing better than the industry. So it's hard for us to say -- its one thing or the other we we're 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 sort of changes with it's too soon to tell whether the consumer is responding to that but at least there some evidence and our hypothesis would say maybe it's helping. On the advertising front both in the food footage that we used in our outdoor advertising and POP and also in our television advertising the emphasis on food in the way we display the food to the consumer has changed. So if you look at our POP today, you look at our outdoor advertising today our marketing group has made adjustments 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 the juiciness of the patty or the texture of the burn or the freshness of the tomato and those things are coming across loud and clear and actually when you look at the amount of space on the television screen or on the POP that we give to the food it's much larger percentage of the space. We’re getting close ups. So you can check out the commercials on our Web site and you can sort 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 have seven week 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 average 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 mid way to the core. And then I just also want to add one clarifying comment here with my prepared remarks, I'm told that my natural conservatism snuck into my same-stores 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 4.5%, so I apologized for that.

Your next question comes from Brian Bittner of Oppenheimer. Please go ahead with your question.

On the comps prior we talked about a lot, but I totally have my head wrapped around these Qdoba comps of double-digit, 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 on Joe's question Jack in the Box at 10% trends they got me a bit astonished here. The industry is obviously healthy but not to the extend -- you just went through some of that stuff would Joe. But is being heavily -- I'm just trying to get some more out of this. Is being heavily concentrating California with minimum wage step up is helping there? I mean how are your peers doing in those kind of specified markets in relative to the national landscape and with 10% comps that you're kind of seeing over the past months. How does the average check different in that composition of that comp for us what you see on the quarter if you could kind of walk through those two things that would be helpful.

Brian 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're so hot off the press is that we even had an opportunity to dig deep enough into the drivers to fully understand why the guests are responding so favorably. So keep in mind is just more learning's to be had and you'll see some of that, we'll talk about some of that in the future. And we look at Buttery Jack and the launch of that product, we look at the mix on that it's the highest we've ever seen on a 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 that’s been here long enough to say that we got a product that performed better than the launch of the Buttery Jack. So this is as we said in the prepared remarks pretty unchartered territory. But when we look at the -- we go back to the research that we did last year, the way that we have sort of come to reason with the results is when we look at how the consumer rated 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’re 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 the consumers have their sort of fan favorite 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 and what we were not getting is the halo associated with the 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 it at ICR these are all great sort of foreshadowing of where the entire menu will go, and it’s exactly what the consumers said that they would respond to in the research. So all those are few things, those are the drivers.

But on the burgers, I mean what is it exactly that they were saying that they didn’t like about your burger line up?

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.

Your next question comes from Jake Bartlett of Morgan Stanley. Please go ahead with your question.

I really [indiscernible ] in terms of Qdoba and talk about just in terms of it seems like has ramped in the first and beginning of the second quarter here, any changes that went on to make them accelerate, let’s take the year-ago comparison are probably more difficult?

Yes Jake we’re just -- there’s a couple of different sides to that. It’s part of what we did at the beginning of the year was we launched the new value proposition that I spoke about when a 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 sort of your dreams what happens in the transaction is that the consumer now has a much more pleasant interaction with our employees and 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 that 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. And when we launched this thing system wide we anticipated there’d be at least a little bit of a transaction -- no erosion because we expected that some of the consumers that were really hooked on some of the value base things we were doing in the past would be detractors. And so we do 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 the reduction and discounting.

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

Jake this is Jerry the pacing of the Qdoba comp for the company in each of the four periods of the quarter were all of them were above 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 began the roll over the 7% comp trends that we saw beginning actually this week. So if we sit here today we're just now beginning to roll over the case of less 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.

I was just trying to figure out what caused the kind of acceleration here I guess since the case is pretty even with first quarter. But things look alright in the beginning of the second, and there is no other changes that were made.

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

Next question comes from Chris O'Cull with KeyBanc. Please go ahead with your question.

My question is regarding the Qdoba's margin. Clearly the margin is very impressive this quarter. But Jerry I was wondering if the margin improved through the quarter. I was thinking maybe there were 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 that margin that Qdoba were pretty consistent throughout the quarter, if anything they trend down in the January timeframe which is what we normally see, just as the PSA 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 on the food and packaging cost 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 -- food and packaging as a percent of sales would tend to stay pretty static as what it did prior to the pricing change maybe we get leverage on everything else along the P&L, this is exactly what we saw happen. The 6.2% increase in comp for Qdoba specifically I'm not confident presently in the commodity cost, I'll get that for you Chris. I'm looking just looking round at some notes right here but. We don’t have that specific that but I can tell you what the total increase in the Qdoba food packaging cost was, let me just get that for you in just a moment.

And just as a follow up, post the change to the menu, the pricing structure on the menu. The source that due the 1.3 million, 1.4 million in AUV are they still showing margin in 24% or they showing better margin I'm just trying to understand how that menu change may be affected the higher volume stores.

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 would have risen as the entire system rose 290 basis points. You would expect that to have risen along with it.

Next question comes from Jeff Bernstein of Barclays. Please go ahead with your question.

Seems there is a lot of focus on the comp side, I was going to ask more on the margin side for the broader entity. I know you just recently updated your long-term goal to kind I think it's now 19% to 20%, get bumped it up 50 bps on both ends. But we're actually guiding to that new higher level for fiscal '15. And as you mentioned that despite all the food inflation and labor concerns, I guess it's actually both minimum wage and affordable care. So 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 could you see that long-term target pushing into the low 20s and I guess as you think about that. What would be the greatest driver to future expansion? Is it dayparts that would really drive more the margin or improved throughputs kind a get our hands around the margin opportunity as it seems like you're well ahead of schedule or continue to run well ahead of schedule.

Jeff let me give you just little color and then I'll pass it on to Jerry. I think in general when you look at upside potential for margin 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 more targeted dinner and lunch menu items primarily burgers, drinks, fries, and we’ll do that very similarly to how we handle late-night and breakfast where we’ll continue to bring innovative products to the menu, but we’ll also continue to try to enhance the experience and differentiate the experience. So for the Jack side as you sort of hinted, it will be daypart expansion and it will be lunch and dinner focused and then obviously we’ll continue to invest in late-night and breakfast if you don't want to let go those equities and the growth that we 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 the image and place or experience related work that really been signaled to the consumer not just in the menu, but in appearance and behavior that were different. And that work is just being initiated today, so that we would expect in 2016 and beyond to start capturing some of the impacts there.

Yes 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.

And then Lenny you just mentioned or earlier mentioned kind of the advertising and media for Jack in the Box brand and maybe that’s 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 $8 if it’s not national but I mean how you measure the efficiency that I guess the concern being that you push lunch or dinner and risk breakfast and late-night if you’re still talking about the same total dollars?

Yes so a little color on that we’re still spending about the same total dollars obviously the sales will drive thus the advertising price you may feel a slightly higher spend but essentially that 1% of what we spend goes local and the remaining four goes well not quite national but at least regional and that’s total that that includes what the consumers sees but then also some of the underlying sort of G&A associated with that support. So nothing’s really changed there, what’s changed is just what we’re doing with it in the time that we purchased on television or the space that we purchased on billboard. That made some sense to you.

It seems like there’s a whole lot more efficiency with the same dollar spend well more effectively?

Yes and I think the way to look at this is and I’ll give you an example when 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’ve 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 response by giving it a greater share of their wallet, that seems to be working today. But this is the first quarter we’ve really tried to sow it, it’s too soon to sort of peg all the results on that and we’re going to try a few more things before we’re able to say we’ve really honed in on the new formula.

Your next question comes from David Tarantino of Robert W. Baird. Please go ahead with your question.

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?

So 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 weeks where the performance and that’s why we’re taking a look at the two year trends into Q2 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 of the same power and we're hopeful there'll be some upside potential. But we're going to remain in a show-me state, it's just who we've been historically and it's really nothing other than that.

Just on a two year trend on the back half of the year we're still plus five on a two year trend given what the implied guidance would be for the back half of the year and the consumer rolling over.

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 is lot of enthusiasm both internally and with our franchise community to define growth opportunities. So we are optimistic if the sales trends continue we would be able to ramp up growth at Jack in the Box.

Your next question comes from Jeff Farmer of Wells Fargo. Please go ahead with your question.

A little bit of a topic change. Given where your Qdoba average unit volume and restaurant-level margins have been trending in '15, what could the concept's unit level economics look like as you potentially accelerate development, be it '15 or '16?

Yes so Jeff couple of things there, margin this quarter 19 we've indicated that we would expect margins for the Qdoba brand to exceed Jack in the Box brand for this year. I think in order to look at what the unit economics could be going forward it was a little premature, great question, pretty little premature on the answer on that. We haven’t yet built the first prototype we have two under constructions that we expect to open up in the spring. And I think we have to see first if those new units open up where we think they should open up. And if they do 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 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 you we don’t even have one operating yet.

And then just sort of following up on margins. You just touched on this. Qdoba expected to be stronger than Jack. But obviously you've given us a 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 concepts in '15, sort of beyond just Qdoba outperforming Jack?

We do provide in the queue we do provide brand level restaurants margins for each brand. So we would expect to continue to do that but with guidance we'll probably continue to keep 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 and in terms of historical margins for each brand.

Next question comes from Nick Setyan of Wedbush Securities. Please go ahead with your question.

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 but huge uptick in California and Texas and folks are wondering if whether or minimum wage changes are driving somewhere to normally. We're not seeing that in fact outside of Texas and California we're seeing quite a bit growth. So we believe it's what we're doing more so than what the economy is doing for us.

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, I think we said on the November call Nick and if we didn’t I apologize that but we expect that to now happen in the second quarter.

[Operator Instructions]. Next question comes from Joseph Buckley of Bank of America. Please go ahead with your question.

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 turn over, we have been reading some of the articles out there that are pointing towards this competition for talent and that there’s this war being waste for talent across competitor brands. We’re not seeing that, we’re 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 team’s 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 sort of macro.

Your next question comes from Alex Slagle of Jefferies. Please go ahead with your question.

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 can kind of 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 couple of 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, so a modest negative impact about 0.2 million. So when you look at the change versus last year that was 1.6 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 of 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 I would say 18 months to 24 months both brands are trying to initiate new activities in the field than with marketing that are going to require some resources. So you can expect that to make sure we have those resources available, so both brands can continue to drive type of growth in sales that would also lead to growth in units, so there’ll be investments there. But beyond that when you look at an opportunity to bring down the G&A there’s a couple of things one is post brand reinvention timeframe you need a little less resources, two going through the painstaking task to trying to bring down your pension cost, 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 that those opportunities are there, they’re just not all going to flow through in the short-term.

Your next question is from Jake Bartlett of Morgan Stanley. Please go ahead with your question.

And 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? And any guidance you can give us for the rest of the year? Almost your entire authorization was done in this quarter or what's kind of upcoming, any comments on that would be appreciated.

Yes so we had Jake we had a $1 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’d expect $100 million quarters for the next quarters we have $115 million of authorization, but we do intend to continue to return cash throughout the year though.

So you had expected that amount in the first quarter?

We expected that amount in the first quarter, yes.

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.