Carol DiRaimo - Vice President of Investor Relations and Corporate Communications Lenny Comma - Chairman and CEO Jerry Rebel - Executive Vice President and CFO.

Joseph Buckley - Bank of America Merrill Lynch Brian Bittner - Oppenheimer Alex Slagle - Jefferies John Glass - Morgan Stanley Robert Derrington - Wunderlich Securities Jonathan Komp - Robert W. Baird Nick Setyan - Wedbush Securities Peter Saleh - Telsey Advisory Group Jeff Farmer - Wells Fargo Jake Bartlett - Morgan Stanley.

Good day, everyone, and welcome to the Jack in the Box Inc. Second Quarter Fiscal 2014 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’s corporate website 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, Christina, and good morning, everyone. Joining me on our call today are our Chairman and CEO, Lenny Comma and Executive Vice President and CFO, Jerry Rebel.

During this morning’s session, we’ll review the company’s operating results for the second quarter of fiscal 2014, as well as some of the guidance we issued yesterday for the third quarter and full fiscal year. In our comments this morning, per-share amounts refer to diluted earnings per share.

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’ll 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 website at www.jackinthebox.com. A few calendar items to note. Jack in the Box management will be presenting at Jefferies Consumer Conference in Nantucket on June 18, the Oppenheimer Consumer Conference in Boston on June 24. And our third quarter ends on July 6.

We tentatively plan to announce the results on August 6 after market close. And our conference call is tentatively scheduled to be held at 8:30 a.m. Pacific Time on August 7. With that, I’ll turn the call over to Lenny..

Thank you, Carol and good morning. Yesterday Jack in the Box reported a 38% increase in operating earnings in the second quarter. Our results were driven largely by better than expected same-store sales growth at Qdoba, margin expansion at both brands and lower G&A.

While our sales -- our same-store sales performance at Jack in the Box was lower than our expectations, the system outperformed the QSR sandwich segment by 120 basis points. Sales softened in the second half of the quarter as some of our major competitors began discounting and aggressively promoting value messages.

On our sales-to-date, the third quarter have rebounded, which has reflected in our guidance of 2% to 3% same-stores sales growth in the third quarter. Breakfast and late-night again drove the overall same-store sales growth in quarter two. And we continue to see an acceleration in breakfast sales through the first four weeks of the current quarter.

Restaurant operating margins for our Jack in the box brand improved 150 basis points in the second quarter, even with the modest same-store sales growth. Strategically, we’ve chosen not to pursue deep discounting at the expense of margins as we don’t believe it’s too late for us to effectively compete in this segment.

Our broader innovative menu remains in area of differentiation for the Jack in the Box brand. Our focus in this area continues in the second quarter as we introduced the Bacon Insider Burger as a premium LTL and extended our line of Monster Tacos with two new flavors.

We also launched several new products at the beginning of the third quarter including Jack’s Blazin’ Chicken Sandwich which features a hot ghost pepper ranch sauce. In addition, we added two new flavors of iced coffees and a Reese’s Peanut Butter Cup Pie, both of which are great check builders.

Speed of service remains the key priority of ours and we continue to make progress during second quarter with both company and franchise restaurants gaining traction. As for refranchising in the second quarter, we sold 14 restaurants in one market that is now completely franchised.

In addition to this transaction, we signed letters of intent to sell two of our three remaining southeast market. As we wind down our refranchising initiative, we expect to see higher AUVs at our company-operated locations.

We also expect to see the kinds of benefits that favorably influence our second quarter performance such as higher margins, reduced overheads and lower advertising costs. Turning to Qdoba same-store sales, as company restaurants increased 7.2% in the second quarter.

We grew transaction in the quarter while substantially reducing discounting in our restaurants. Qdoba’s strong sales performance which included double-digit growth in catering sales help drive 110 basis points of improvements in that brand’s restaurant operating margin.

Our messaging in the quarter centered around our Queso Bliss promotion that featured two limited time offers, Queso Diablo and Queso Verde. This promotion leveraged the popularity of our most craveable menu item, our 3-Cheese Queso. Looking ahead, we’ll be increasing our focus on menu innovation to drive traffic and sales.

As an example, last week we began promoting Mango Mojo as a limited time offer in our restaurant.

In addition to getting, yes, the opportunity to customize any product with the new flavors, we’re offering three new summer items, a Mango Mojo Burrito, Mango Mojo Salad and a sampler we call the Mango Mojo Trio, which features our signature mango salsa, 3-Cheese Queso and hand-smashed Guacamole served with handmade chips.

In addition to menu innovation and creating more new product news, we are also testing additional initiatives resulting from our brand positioning work.

We announced yesterday that we’re initiating a dividend with transformation of our business model nearing completion, our brands are generating more stable and predictable cash flows, which gives us the confidence to pay quarterly dividend in addition to our ongoing stock repurchase program, while simultaneously investing in the growth of our above brands.

All-in-all it was a solid quarter for the company. Midway to the fiscal year, we’re pleased with our overall result and execution of the strategies we’ve put in place to drive long-term performance and success.

And now, I’d like to turn the call over to Jerry for more detailed look on our second quarter results and outlook for the remainder of the year.

Jerry?.

Thank you, Lenny and good morning, everyone. I’m just going to touch on the highlights for the quarter as I know is everyone is pressed for time this morning.

Operating earnings per share excluding gains from refranchising and restructuring charges were $0.51 in the quarter versus $0.37 last year, up 38% even with the $0.01 charge write-off for the deferred financing costs in this year’s second quarter.

Our results for the quarter continue to reflect the transformation of our business model for the Jack in the Box brand and the annuity line cash flows that refranchising -- that franchising produces. With positive same-store sales growth at both brands and the benefit of refranchising, we were able to leverage margins and SG&A.

Jack in the Box margins improved 150 basis points to 18.6% as we explained in the release and benefited from pricing of about 2.5% in the quarter. Qdoba restaurant operating margin increased 110 basis points to 18.3% of sales. Qdoba price increases during the quarter averaged 0.8%.

The increase in beverage equipment rental costs mentioned in the press release relates to the Coke freestyle machines that were recently installed in all company restaurants.

SG&A decreased by $3.8 million as compared to last year as we described in the press release, even with an increase in advertising costs at Qdoba due to timing, a legal settlement of $1 million and a year-over-year increase in SG&A related to mark-to-market adjustments.

We continue to make good progress on refranchising and have now reached the 80% franchised level for the Jack in the Box brand. The net gain for the quarter includes a gain on the sale of 14 restaurants in one market and the expected loss on the sale of two markets in the Southeast for which we have signed letters of intent.

We expect the sale of one of these markets to be completed during the fourth quarter and the other market to be completed by the end of the calendar year. In the second quarter, we bought back $125 million of stock or approximately 2.1 million shares.

Year-to-date for the second quarter, we returned over $200 million to shareholders through the repurchase of nearly 3.7 million shares which leaves just under $135 million remaining under the $200 million stock buyback program that expired in November of 2013.

Given the transformation of our business model, the confidence that we have in the sustainability of our cash flow generation and the greater flexibility of our new credit facility, we decided to initiate a dividend as part of our commitment to return cash to shareholders. Here is our current thinking on guidance for the balance of the year.

For the third quarter, we’re expecting same-store sales growth at company restaurant of 2% to 3% for Jack in the Box and 3% to 4% at Qdoba. Qdoba sales to the first four weeks of this quarter are trending above this level even with the negative impact of the Easter shift. The only changes we made to our full-year guidance are as follows.

Same-store sales are now expected to increase approximately 3% to 4% at Qdoba company restaurant, reflecting the results we’ve seen through the first two quarters. Overall commodity costs are now expected to increase by approximately 1% to 2% for the full year, with roughly 3% inflation expected in Q3. Beef has been extremely volatile.

And we now expect beef cost to increase approximately 4% to 5% for the full year. Both of our other major commodities are locked for a good portion of the year including chicken, cheese and bakery, which is helping to mitigate some of what we are seeing in the stock markets.

In addition, our supply chain team continues to leverage the purchasing power of our combined brand to lessen the impact of inflation. Operating earnings per share from continuing operations are now expected to range from $2.45 to $2.35 in fiscal 2014 compared to $1.82 in fiscal 2013.

We’ve raised the lower end of our full-year operating EPS guidance from $2.20 to $2.35 but maintain the high end, given the higher expected commodity inflation as well as the deferred financing cost write-off and the legal settlement incurred in our two -- included in our second quarter results. That concludes our prepared remarks.

I’d now like to turn the call over to the operator to open up for questions.

Christina?.

Thank you. (Operator Instructions) Our first question is from Joseph Buckley from Bank of America Merrill Lynch. Your line is now open..

Thank you. Good morning. I wonder if you could elaborate a little bit more on the Jack in the Box sales trend in the latter part of the second quarter and then in the third quarter. Were your actions that were company specific behind this program of reacceleration or was it more just changes in the competitive environment.

Is there any color you can give on what caused this slowdown and then what led to the reacceleration would be helpful?.

Yeah. This is Lenny, Joe. Thanks for the question. I’ll maybe add even a little more color than that. We were featuring the Bacon Insider Burger. We’re also featuring the Monster Tacos throughout most of the second quarter.

And about midway to the quarter, just prior to the launch of Tacos Bell’s breakfast, we started to see competitive discounting and free offerings that started to impact our sales.

We kept a close eye on that and decided towards the last couple weeks of the quarter to switch off of the Monster Tacos and secondary message to breakfast items as a secondary message, although we are not necessarily seeing the Taco Bell launch of breakfast negatively impacting our breakfast day part, we felt that the offering that we could put in place was more of a value bundle and we will get some attention in the marketplace to compete against some of your messages that were out there.

And keep in mind, Jack in the Box serves breakfast 24 hours a day. So when we put those messages out there, they’re not necessarily just day part of specific sales that we are driving.

So that was essentially the adjustments that we made and then going into the third quarter, we have planned promotions that are in place that we did not change and those included the Jack’s Blazin’ Chicken Sandwich as well some new breakfasts griller items.

So, a few slight adjustments that we made to just made sure that that we were putting some messages out there that were value bundled oriented so that we could make sure that our voice was being heard on the value side of the scale so to speak.

But ultimately what we didn’t want to do is create so much focused on primary messaging around deep discounting that we sacrificed our margins. So we think balanced the quarter pretty well. We weathered what we thought would be a temporary storm, turned out to be a temporary storm discounting.

And as we go into the third quarter here, we are seeing a nice rebound in sales. In addition to that what I would mention is, what I think, folks, maybe keep in mind that when the competition puts out new items or heavily discounted items, it’s always going to generate some trial.

And so we know that there is going to be some energy at that time that we have to pay attention to. We make a constant decision at that time, how much of a response we want to have and we think we manage this one appropriately. But we don’t see ourselves as vulnerable to that type of discounting.

We are making a choice to managed margins and manage sales. If we feel at any time that the competitive set which is doing things that is sustainable and will essentially take our business away over the long-term, we know that we can pull that lever more aggressively promoting value items.

And we do know that it will favorably impact our sales because we know that it will come at the expense of margins. So it’s a balancing act. We think we are in the right place. So, I think that kinds of sums up our approach..

Okay. Thank you..

Our next question comes from Brian Bittner from Oppenheimer. Your line is now open..

Brian?.

Can you hear me?.

Yes, great..

Okay. Sorry.

The Qdoba sales acceleration in the quarter, can you just talk a little bit more about that and the buckets that drove that, how much of it was truly just product driven in the trial of that product and how much of it is more strategic in what you’re doing with the brand?.

Maybe, Brian, I will speak a little bit about the strategic nature of what we are doing and then, let Jerry give a little bit of color on what we can share about the numbers.

But what essentially we did is we took out strongest equity in that brand from a product perspective, being the 3-Cheese Queso and we brought attention to the brand by leveraging that equity.

So that part of it is what is strategic and what we saw within that promotion is that we had a much higher percentage of our transactions, including one of the Quesos or the Sampler. So we know that that equity was driving traffic because we saw it in the attachment rate to all the transactions.

So that usually is sort of just a very, very simplified view on strategically how we approach this..

Okay. And just wanted to ask another question on just the G&A opportunity and as we kind of start procuring additional $15 million, I know it’s still a ways away but just simply thinking about the G&A. You are going to have another market that you are going to refranchise by the end of this calendar year.

Can you just talk to what your initial thinking on maybe how much slot there is under the hood on the G&A opportunity and maybe start to kind of make us think a little bit more about how fiscal ‘15 could start to look from G&A, could it be another down year?.

Yes. So, Brian, this is Jerry. Let me tell you what I can tell you about G&A. It probably won’t be everything as you would like me to tell you about G&A. But with the sale of the 14 restaurants in the one market and also with the sale of the Southeast, we would expect the field level G&A to be reduced as it has been, when we have sold other markets.

I would expect that to be down. I would expect that to be down in form of a permanent basis there. Also with the sale of those markets, the advertising of load and shift from the company to the franchised operator also. So that will be a reduction of the SG&A within those transactions.

Then I want to talk to you a little about is where I think we have from room under the hood if you would or what’s left under the hood for some of the G&A.

We talked about at the end of 2013 that we had completed the integration of the Jack in the Box and the Qdoba offices and support and created a shared service model, such that we have one accounting department, one HR group, one IT department as an example and obviously others.

We also described that what that integration created was the organizational structure and the people element of that. It isn’t necessarily going to create systems, so strictly restaurant level systems. So while they had people on organizational change had a significant impact on G&A, which you are seeing here in fiscal 2014.

The opportunities exists and which is really related to our restructuring charges this quarter is -- as we look at the IT systems that we have within the restaurants, while the Jack in the Box brand and the Qdoba brand, each have a single platform suite of restaurant level technologies within each brands, they are different across the brand.

So what that means is that we are supporting say two POS system, two back office systems, two other items, all of which that we have in the restaurant level or too. So that obviously creates some additional IT and infrastructure required to support and maintain all those systems.

What we are beginning to look at now is how we can integrate those restaurant level technology systems so that we can say one of those systems and reduced not just the G&A costs but also reduce restaurant level operating costs going forward. I can’t give you a lot more detail than that as we are in the beginning stages of that analysis.

But I think that there is some significant opportunity on the G&A side as a result of that..

Okay. Thank you. I just had to sneak one more on top of that.

Would this ever disallow you to separate Qdoba with this kind of staffing from being able to spin it up or sell it down the road this integration of systems?.

No. Not a lot. I mean, there is people separate divisions or other operating entities all the time and whether you are operating on the same system or not, it really doesn’t have an impact on that. So it’s not our intent to do that but this isn’t number taken anyway..

Okay. Thank you..

Our next question comes from Alex Slagle with Jefferies. Your line is now open..

Thank you for the question on the Qdoba labor leverage about 70 basis points.

Wondering how much was due to the better same-store sales growth or have you started to lap the increased staffing levels sold out last year?.

Alex, this was almost entirely due to the improvement in the same-store sales as most of that was in the -- most of the favorable impact of the sales was in the management level comp. So that was all leveraged.

But we also have -- offsetting some of that we did pay higher restaurant level bonuses, as a result of restaurants driving higher restaurant level sales and restaurant margins. So that offsets some of the leverage on the production labor or on the management labor side..

Okay.

How should we think about your ability to keep leveraging at Qdoba going into the second half? Do you kind of need these mid single-digit store sales or is 3%, 4% sufficient?.

I would say, look, same-store sales will obviously help with that quite a bit. I would say some of this in terms of the leveraging on the entire restaurant operating margin side. Some of this was kind of what commodities do.

But I would suggest that if we are able to continue say, mid-single-digits, perhaps even maybe a little bit lower than that within the range of guidance as an example, we would expect to be able to leverage labor..

Okay. Thank you..

Our next question comes from John Glass with Morgan Stanley. Your line is now open..

Thanks. First of all, I want to make sure I understand and maybe clarify your comments around the competitive environment, particularly given your share of the epicenter of this breakfast launch.

Did your breakfast day part, is that the piece that we can bring the breakfast launch to Taco Bell now since they are covered, or was it other parts of your business because you just saw higher competitive discounting and if you are not seeing any breakfast impact on your next door, would you think Taco Bell is seeking share from because it would seem like you would be the most obvious candidates..

Yeah. So, first, let me clarify the breakfast results, we did not see a negative impact to our breakfast day part with the launch of the Taco Bell breakfast. In fact, late night and breakfast continue to drive the improvement in our comps.

In addition to that, as we progressed into the beginning of the quarter, we’ve seen acceleration in both breakfast and late-night.

So don’t think that that’s where it was coming from, but for certainly a lot of the competitive discounting that was taking place, although it seemed to be in conjunction with the timing of the Taco Bell launch of breakfast. The items that were being promoted were actually across all dayparts.

And so we’re seeing the impact in other dayparts outside of breakfast and late-night. And then as far as the impact that Taco Bell is having on the industry, I would just emphasize that our breakfast has always been 24 hours. At the end which I think it’s a huge equity and then we also do serve a very freshly prepared breakfast with fresh cracked egg.

Not everybody does that, we think it’s a differentiator and it does change the execution of that product. And so breakfast is 22% of our mix. It’s a strong daypart for us that we think is driven by those differentiators.

So I can only assume that the folks that are selling more heat and eat and sort of not freshly prepared foods are getting impacted by Taco Bell more so than the ones who are giving more freshly prepared foods. And at this point, we will have to wait and see how that shakes out in everyone’s results. So that’s the assumption..

That’s helpful. Jerry, as you gotten to the end of your prescribed refranchising and you’ve got it all but done.

Have you -- given now incremental thought, is 80% the right level? Others have taken it further or when do you reassess it, or is it going to be dynamic from here on in there might be one or two offs that there would be new goals at?.

We are comfortable with the 80% to 85% target. And I think the real lemonade for us would be the level of volume sales and the high margins that the restaurants that we would continue to operate generate.

So we would -- we always look at this as where do we get the best cash flow bang for the buck and we also don’t want to create a bunch of dilutive refranchising transactions here. So we always look at that and I would say that 80% to 85% range is probably the right number where we sit today..

Got it. Thank you very much..

Our next question comes from Robert Derrington with Wunderlich Securities. Your line is now open..

Thank you. Jerry, if I could hit you with the bookkeeping question first. I am pretty simpleminded around a lot of things, but could you help us understand the $1 million legal settlement worth about a $0.01 in it -- roughly up $0.015 to your EPS and then the charge for the deferred financing write-off. You told us on March 30 that was coming.

I am just curious why these things didn’t get excluded from the EPS, the $0.51 that you reported?.

I think our process used to -- if it’s continuing operations, we have a definition of what we considered to be continuing operations and we like to maintain what that level of definition is. I think it creates comparability across year-to-year.

So our definition is, EPS from continuing operations, excluding restructured charges and gains, were losses on refranchising item. But what we also want to do is, to your point create transparency about what’s in the numbers and then allow investors and the sell-side folks to decide what they want to include or exclude from those numbers.

And I would say both of those items though would be -- would not be considered to be recurring on an ongoing basis. So I don’t know whether that helps..

No, excuse me, that does, that’s tremendously helpful. And then secondarily, if you could give us little bit of color around your dividend program, we are really encouraged to see initiated that.

Can you kind of give us some sort of strategy around whether there is a targeted payout that’s planned? Should we anticipate that it likely would grow along with net income, free cash flow, what kind of -- can you help us there?.

Let me say how we thought about the dividend and why now as an example. So I think when you look at the progress that we’ve made on our refranchising strategy and hitting the 80% level in the quarter, also having two letters of intent signed for two of the Southeast markets.

You look at that, the confidence that we have in our growing free cash flow as well as the new credit facility which is -- which creates a tremendously more flexible returning cash to shareholders options for us. We felt now is the right time to implement a dividend.

We would look at that as that is just part of our strategy of returning cash to shareholders and the dividend allows participation in that strategy for long-term holders who may not be trading in and out of the stock. So we want to be able to do that.

The level that we set, we looked at what’s created as we looked at the folks in the restaurant industry who pay dividend. We excluded those who are paying on the high end and we also excluded some who are paying on the low end.

What we saw at least in our analysis was that an additional dividend yield in the 14 to 15 range with the right kind of was a good sweet spot, that’s where we landed. So that’s how we thought about it. It also enables us to continue to invest in growing both the Jack in the Box and Qdoba brands.

What I would say with respect to what we intend to raise it over time, I think to talk about that we haven’t written a first check, but we will have dividend news as we go forward here..

Terrific, and again congrats on a terrific quarter..

Our next question comes from Jonathan Komp with Robert W. Baird. Your line is now open..

Hi, thanks. Maybe just first, Jerry, follow up to your last answer there. If you look at your balance sheet and the pace of repurchase activity, I know year-to-date in the first two quarters you repurchased about $200 million of stock and then also taking the debt balance up by more than $100 million.

So if you look forward with the transform business model, what’s your current thinking longer term about the right degree of financial leverage for the business and maybe tie that into the pace of repurchases going forward?.

Sure. A two-pronged approach, one would be we just have a regular ongoing share repurchase program, but we would also expect to be opportunistic given where the stock maybe at any point in time. So I think we will look at the share repurchases in that way.

We have -- currently in the second quarter we were levered 1.71 times debt-to-EBITDA ratio, which is as defined in the bank agreement. You won’t be able to calculate that from the financials. There is pluses and minuses within that but -- and the maximum leverage ratio is 3 within the credit facility.

We are very comfortable in the 2 to 3 range, which is about 1 turn of debt higher than what we’ve historically been comfortable with. So that’s where we are..

Okay, great. That’s very helpful. And then just one other question related to the pricing outlook for both brands. I know you pointed to Jerry an expectations for a little bit higher commodity inflation, especially in the third quarter with beef inflation a bit higher.

And so -- and you also -- I think you have also pointed to potential for labor pressures in the fourth quarter at minimum wages.

So can you just talk about both Jack in the Box and Qdoba maybe outlook for pricing in the near term?.

Jon, this is Lenny. A couple of things there.

First, for the better reasons, we don’t foreshadow pricing, but what I will just point out is for the Qdoba brand specifically, we’ve spoken about the work we’ve done to reduce the discounting and that certainly is having a favorable impact on the business, while at the same time we have been able to drive the transaction growth.

So that’s probably about as far as we could go, as far as foreshadowing price, but at least it gives you an indication of the types of thing we are doing to balance out sales and margin..

Okay, got it. Thank you..

Our next question comes from Jeff Farmer with Wells Fargo. Your line is now open..

Great. Thank you.

Just following up on Qdoba, I was wondering if you guys could discuss the media weights in the second quarter versus what you saw last year? And then moving forward over the balance of ‘14, what do you expect your media weights to look like relative to the FQ2?.

We don’t really discuss media weights, but for Qdoba, one thing to think about is we don’t use traditional media, television advertising.

So we do a lot of social, we do a lot of outdoor advertising and radio, which doesn’t get measured quite the same way as television, but we’ve had some increases in those methods of advertising related to some of the strategic initiatives that we’ve launched in new product innovation.

Keep in mind it’s been years that Qdoba was on a core product strategy and as part of the brand positioning, where it really has started to ramp up the development of new products from innovation..

Just a follow-up, you are getting at the heart of my question which is you have a lot of this new product news, we see the radio, we hear the radio, see the billboard, but how are you best communicating that there is no food news that there is a new reason to go to Qdoba now, how are you guys making that happen for the consumer?.

I would say a social media is probably one of the biggest areas where we see a push and what we are finding in some of the new initiatives that we’re testing is that the activity that that’s driving with our loyalty program and then the consumer generated voice that we’re seeing in social is really helping to spread the word on the things that are happening at Qdoba.

So we’re quite pleased with what we’ve been able to create primarily through social media..

Okay. Thank you..

The next question comes from Nick Setyan from Wedbush Securities. Your line is now open..

Thank you. There is a lot of focus on the cost impact from the minimum wage increase that can have, but not as much focused on the potential to drive some incremental comps as your potential customers have more money in their pockets.

I mean, maybe if you guys could conceptualize, historically, how have minimum wage increases in California, historically, impacted or benefited your comp? Have you guys ever taken a look at that?.

Nick, this is Lenny. What I would say in general is that when we have a minimum wage increase, and I don’t know this is just for California, but when there is a statewide situation, all of the competition are impacted by it.

We will sometimes see it reflected in price, will sometimes see it reflected in discounting or how aggressively things are moving with promotional activities. But we also see that there are other periods in the business that have been balanced out in relation to minimum wage increases and that things like commodity or utility.

And so although we will experience the increase in cost, especially with labor, there are other lines that we’re also going to have to look at to understand the full impact. And I know that all the other competitors will do that as well.

So with that as the backdrop, we don’t experience typically some cliff type events that negatively impact our comps when we have minimum wage increase.

So if I look at the third quarter and just sort of look back on the 2% to 3% guidance we’ve given on the Jack in the box brand, it’s reflective of a high degree of confidence that we have based on what we’re experiencing right now and what we anticipate having..

Got it. And then just kind of longer-term, as we look at Qdoba and the momentum that we’re seeing in the brand, with respect to unit growth, you guys floated down a little bit this year.

What are looking to see going forward in the second half year to potentially reaccelerate that unit growth rate in 2015 or beyond?.

I think the way to look at it is a lot of the work that we’ve done around the brand positioning sort of exploration has gotten us to a place where we’ve got some early initiatives here, they’re mainly product related.

And we weren’t be looking at many of the facets of the business in association where this brand work and some of that may require some improvements or changes to dining room or décor, things like that that we think will tie to the positioning that we’re trying to establish. All of those pieces of the puzzle haven’t been finalized yet.

And so we don’t want to accelerate growth at this time because we know that we have to backtrack and make adjustments to all those locations. And I think that about half of our system is franchised in order to drive growth through that channel of business.

We really do need to have things sort of buttoned up and well tested before we would step on the accelerator. So we’ve mentioned on our last call that we will have some concept tests that will be getting very active with later this year, towards the end of the year and at the beginning of 2015. We’re going to read those results.

It’s going to take us many months to work through what we learn and how to come to the final concept that we’d like to start -- involve the brand too. That’s going to take the greater part of 2015.

So, I think, expectation should be but as we start to bring some of that learning to fruition in the middle of next fiscal year, that’s when we’ll be able to talk more about what we think growth in units will look like going forward..

Perfect. Thank you..

Our next question comes from Peter Saleh of Telsey Advisory Group. Your line is now open..

Great. Thank you. I want to ask about Qdoba, the strength that you saw in the catering.

Can you just elaborate a little bit on what drove that strength and how has that strength continued into the third quarter as well?.

So, let me just speak to when we brought in Tim Casey as the new brand President for the Qdoba brand, we spoke a lot about the brand work that we were doing and also that we were bringing in new talent into the organization to start focusing on the areas of the business that we thought, we had opportunities to grow.

So we added resources and brought in some new talent into the catering business that we believe created a much greater focus and efficacy on that size of the business. In addition to that, we then aligned the management -- restaurant level management, our compensation bonus programs to driving sales in all areas of the business including catering.

So, we think we have been able to create a greater level of focus, both from a comprehensive structure standpoint and then also at the restaurant level. And then keep in mind that we just were experiencing a very strong catering season for us in Cinco de Mayo and also graduation and it’s the highest catering months that we experienced.

So we are tracking currently above our 3% to 4% guidance and that’s probably an indication of some of the strength that we’re seeing in overall sales including the catering business..

Great. Thank you very much..

Operator, I think we can talk for any last questions..

(Operator Instructions).

Anyone has an additional one in the queue?.

Our next question comes from Joseph Buckley from Bank of America Merrill Lynch. Your line is now open..

Thank you. Just wanted to circle back to the southeast, letters of intent.

Can you show us which of the two markets are covered by that or if maybe the number of restaurants are included in the two agreements?.

Joe, I won’t show you the markets because we haven’t necessarily had the employee meeting yet, so we want to do that. But I can say that’s about 30 markets -- 30 restaurants over the two market, 30 markets would be a lot, 30 restaurants across the two markets that we have letters of intent on..

Okay.

And what is the status of the third southeast market?.

Currently talking to perspective franchisees, there is interest..

Okay.

And then are you thinking that the Southeast, there is a lot of progress at Southeast for very long time which actually been accretive immediately? Is that still feel -- look that way to?.

Yes. We would expect all of the southeast market to be immediately accretive..

Okay..

And then growing overtime, the same-store sales increase..

Very good. Thank you..

Our next question comes from Jake Bartlett with Morgan Stanley. Your line is now open..

Yeah. Hi, I have a quick question on the 14 units sold in the second quarter. Whether they were accretive or dilutive and also whether the guidance for kind of pro forma impact over the refranchising for ‘14, how they’re going to impact ‘15? Looks like they’re little bit later than expected..

Okay. So the first part of the question is on the 14 restaurants, they are accretive. They’re not as accretive as say the Southeast would be. As they have better level of margins but they will be accretive. And as far as the second question, Jake, I think the question was pertaining to the Southeast impact on ‘15 margins..

Right. I think before you mentioned that it should be incremental by about a 100 basis point or maybe....

Exactly right. Jack in the Box brand margins, as we said it, at least the 100 basis points. So I think, with -- we expect one of these two LOI’s to close this fiscal year and the fourth quarter. The market that we currently have interest in, they also are very well closed this fiscal year.

And then with the other market closing in the first quarter and to the calendar year of 2014, I’ll expect that to be a very, very close to the 100 basis point improvement number..

Okay. So just to confirm, there’s one quarter in the fourth -- one market in the fourth quarter, one market in the first and then the third market is sometime later than that.

Is that correct?.

No, I think the third market may actually close before the second letter of intent..

Okay..

So that the third market may very likely close this fiscal year..

Okay. Got it. And then fourth question on inflation, the 0.9% deflation you’re seeing in Qdoba.

Is this is a pure inflation to consider, is this kind of net of savings from your, kind of, -- your merging with the purchasing groups and all those efforts?.

Yeah. It’s net. I will say that the big portion of the Qdoba savings are due to lower discounting as an example.

And then also the other piece of the Qdoba saving would be from our supply chain integration, where we are leveraging the combined purchasing power and setting up programs that allows us to say, have lower cost inflation on avocados and what you’re reading about in the industry.

It’s still up but it’s not up nearly what you’re reading out with the spot market pricing..

Got it. And lastly, can you break it down the 1% or 2% inflation for the different concepts.

What it means for Jack versus Qdoba for ‘14?.

I think what we’ve said on that is about 1% to 1.5% for a full year..

I think what Jake is asking is what the inflation of the 1 to 2 is by brand is that what you’re asking?.

Yeah..

Yeah. It’s pretty similar for both..

It’s right in that middle of that range Jake for both brand..

Okay. Thank you very much..

At this time, I would like to hand the call back to Ms. Carol DiRaimo for comments and closing remarks..

Hey, thanks for joining us today. We’ll be around all day for follow-up question and thanks for joining us. We will see you on the conference circuit..

This does conclude today’s call. All participants may disconnect now..