Foodmaker Sees a Quarterly Loss : Fast food: Jack in the Box parent expects a $20-million to $30-million setback after poisonings, but says sales are rebounding.
The parent of Jack in the Box said Wednesday that it expects a second-quarter loss of $20 million to $30 million because of a food-poisoning epidemic that was linked to tainted hamburgers sold by the fast-food chain.
Foodmaker Inc., which owns the Jack in the Box and Chi-Chi’s Mexican restaurant chains, also said sales at its fast-food operations have rebounded by half from lows reached shortly after the mid-January poisonings in Washington and three other states. Three children died and at least 500 people became ill after being infected with E. coli bacteria.
Foodmaker blamed the projected loss, which will amount to between 50 cents and 75 cents a share, on a sharp drop in sales, as well as financial assistance to franchisees and other one-time expenses. In the second quarter of 1992, Foodmaker reported net operating income of $3.04 million, or 10 cents a share, but an extraordinary charge to pay off debt resulted in a net loss of $57.4 million, or $1.93 a share.
“The past two months have clearly been the most traumatic in the company’s 43-year history,” Foodmaker Chief Executive Jack Goodall said. “We are confident that our business will fully recover. We believe our quick response to the crisis, our existing financial resources and our insurance coverage will be sufficient to protect the long-term viability of the company.”
Foodmaker said sales have bounced back thanks to product advertising and heavy discounting. Sales last week were 19% below the same period a year ago, a “significant improvement” from the 37% drop recorded in the week ended Feb. 7, Goodall said.
Foodmaker’s stock rose 12.5 cents to close at $8.50 a share on the New York Stock Exchange, after trading as high as $9.125 earlier in the day. Analyst Sheila O’Connell of Duff & Phelps said the size of the projected loss is not surprising and that the company is expected to recover eventually.
“The important thing is getting that core customer back,” O’Connell said, even if that means cutting into earnings with big product discounts. “I don’t think the company minds losing money as long as sales are increasing.”
About $8 million of the loss for the quarter ending April 11 is the result of special financial assistance given to Jack in the Box franchisees as a result of lost revenue due to the poisonings, with another $10 million in write-offs from the postponement of expansion plans, attorney and public relations fees, increases in workers’ compensation reserves and other costs.
Foodmaker said it has drawn about $17 million on its bank credit agreement, leaving about $30 million in unused credit, which the company said it hopes to leave untouched during fiscal 1993.
