We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Jack in the Box's (JACK) Sales-Building Initiatives on Track
Read MoreHide Full Article
Jack in the Box Inc.’s (JACK - Free Report) increased focus on franchising, menu and delivery innovation as well as other sales-building initiatives is likely to drive growth. However, escalating costs act as a constant drag.
Franchising to Drive Earnings
Jack in the Box, one of the largest hamburger chains, believes that majority of its new unit growth will be driven by franchise restaurants. In the third quarter of fiscal 2018, the company refranchised 42 units, reaching the year-to-date number to 127, which shows 94% franchised restaurants.
The company plans to close its refranchising initiative with the sale of another restaurant in the fourth quarter of fiscal 2018. We believe franchising a large chunk of its system will lower its general and administrative expenses and thereby boost earnings. Moreover, over the long haul, it would generate a higher return on equity by lowering capital requirements.
In fact, the company’s earnings grew 26.6% on a year-over-year basis in the third quarter of 2018. Consolidated restaurant operating margin was 23.9%, up 460 basis points (bps) year over year. Restaurant-level EBITDA rose 430 bps from the year-ago quarter to 27.5% on benefits from refranchising, partially offset by wage inflation as well as higher repairs and maintenance costs. The company also sold its Qdoba brand this March to reduce general and administrative expenses.
Menu Innovation in Focus
Jack in the Box constantly innovates the menu and provides limited period offers (LPO) at its flagship restaurants to drive customer loyalty. With the current focus on premium products like Buttery Jack Burgers, sauced & Loaded Fries, munchie mash-ups and teriyaki bowls, the company is seeing considerable comps growth. Reflective of this, in the fiscal third quarter, comps grew 0.6%.
The company is also increasingly focusing on third-party delivery channels to boost sales. Currently, three-fourths of its restaurant system is served by major delivery companies like DoorDash, Postmates and Grubhub. Jack in the Box plans to invest in drive-thrus as those derive more than 70% of total sales. Further, the implementation of digital menu board and menu board canopies is in line with the company’s developmental plans.
Headwinds
Jack in the Box operates in the highly competitive retail restaurant space. While leading American restaurateurs like Yum! Brands (YUM - Free Report) , McDonald’s (MCD - Free Report) and Domino’s (DPZ - Free Report) are continuously expanding in the fast-growing emerging markets, Jack in the Box seems to be slow on this front. Thus, limited international presence might hurt its competitive position.
Meanwhile, the company has been under pressure from nationwide wage increases, which is negatively impacting its operational results. Also, costs related to marketing initiatives, unit expansion and opening catering call centers are expected to keep profits under pressure.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Jack in the Box's (JACK) Sales-Building Initiatives on Track
Jack in the Box Inc.’s (JACK - Free Report) increased focus on franchising, menu and delivery innovation as well as other sales-building initiatives is likely to drive growth. However, escalating costs act as a constant drag.
Franchising to Drive Earnings
Jack in the Box, one of the largest hamburger chains, believes that majority of its new unit growth will be driven by franchise restaurants. In the third quarter of fiscal 2018, the company refranchised 42 units, reaching the year-to-date number to 127, which shows 94% franchised restaurants.
The company plans to close its refranchising initiative with the sale of another restaurant in the fourth quarter of fiscal 2018. We believe franchising a large chunk of its system will lower its general and administrative expenses and thereby boost earnings. Moreover, over the long haul, it would generate a higher return on equity by lowering capital requirements.
In fact, the company’s earnings grew 26.6% on a year-over-year basis in the third quarter of 2018. Consolidated restaurant operating margin was 23.9%, up 460 basis points (bps) year over year. Restaurant-level EBITDA rose 430 bps from the year-ago quarter to 27.5% on benefits from refranchising, partially offset by wage inflation as well as higher repairs and maintenance costs. The company also sold its Qdoba brand this March to reduce general and administrative expenses.
Menu Innovation in Focus
Jack in the Box constantly innovates the menu and provides limited period offers (LPO) at its flagship restaurants to drive customer loyalty. With the current focus on premium products like Buttery Jack Burgers, sauced & Loaded Fries, munchie mash-ups and teriyaki bowls, the company is seeing considerable comps growth. Reflective of this, in the fiscal third quarter, comps grew 0.6%.
The company is also increasingly focusing on third-party delivery channels to boost sales. Currently, three-fourths of its restaurant system is served by major delivery companies like DoorDash, Postmates and Grubhub. Jack in the Box plans to invest in drive-thrus as those derive more than 70% of total sales. Further, the implementation of digital menu board and menu board canopies is in line with the company’s developmental plans.
Headwinds
Jack in the Box operates in the highly competitive retail restaurant space. While leading American restaurateurs like Yum! Brands (YUM - Free Report) , McDonald’s (MCD - Free Report) and Domino’s (DPZ - Free Report) are continuously expanding in the fast-growing emerging markets, Jack in the Box seems to be slow on this front. Thus, limited international presence might hurt its competitive position.
Meanwhile, the company has been under pressure from nationwide wage increases, which is negatively impacting its operational results. Also, costs related to marketing initiatives, unit expansion and opening catering call centers are expected to keep profits under pressure.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>