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Jack in the Box to Shut Grill Chain

From Reuters

Jack in the Box Inc. on Wednesday scrapped its test of the more upscale JBX Grill restaurants and said the costs of revamping its namesake burger chain would hurt profit. The news sent its stock down 17%.

The company, based in San Diego, cut its earnings estimate for the fiscal fourth quarter ending Oct. 2, mainly because of a $2-million charge to end the JBX Grill experiment. It also cited a disappointing launch of a premium club sandwich at Jack in the Box restaurants, as well as higher gasoline prices that could be affecting customer demand.

The company did not disclose how much it had invested in JBX Grill, whose fast-casual restaurants were designed to appeal to a broad customer base. It did say it could best use JBX Grill’s menu, service and design elements across its 2,000 namesake restaurants rather than at a separate chain.

Incorporating JBX Grill concepts into the company’s existing restaurants “will require lower capital investment and will likely generate higher profit,” Jack in the Box President Linda Lang said in a conference call with analysts. Lang will succeed Robert Nugent as chief executive when he retires this month.

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A spokesman said Jack in the Box had been testing JBX Grill since December at four restaurants in Bakersfield and five in Boise, Idaho. Those restaurants were an extension of an initial test conducted at two locations in San Diego from March 2004.

The company, which plans aggressive growth of franchised Qdoba Mexican Grill restaurants, lowered its fourth-quarter earnings estimate to 56 cents a share from 63 cents. The JBX Grill charge accounts for 5 cents of the anticipated shortfall.

Analyst Fitzhugh Taylor of Banc of America Securities kept a “neutral” rating on the stock but lowered his target price to $35 from $40. “We continue to be wary of the effect a challenging consumer environment will have on some brands, combined with the waning effect of premium priced menu items on comp growth,” he wrote to clients.

Jack in the Box shares fell $5.82 to $27.70.

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