It has been about a month since the last earnings report for Jack In The Box (JACK - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Jack In The Box due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Jack in the Box Q3 Earnings Beat Estimates, Increase Y/Y
Jack in the Box reported solid third-quarter fiscal 2020 results, wherein earnings and revenues not only surpassed the Zacks Consensus Estimate but also increased on a year-over-year basis.
Adjusted earnings from continuing operations came in at $1.37 per share, beating the Zacks Consensus Estimate of $1.01 by 35.6%. The metric also increased 28% from $1.07 reported in the prior-year quarter.
During the fiscal third quarter, total revenues of $242.3 million surpassed the Zacks Consensus Estimate of $237 million by 2.4%. Moreover, the top line grew 9% on a year-over-year basis.
Franchise rental revenues increased 20.0% year over year to $76 million. The increase was primarily backed by the adoption of ASC 842 as well as higher percentage rent revenues due to a rise in franchise restaurant sales.
Franchise royalties and other revenues increased 7.6% year over year to $43.2 million owing to a rise in franchise same-store sales.
Franchise contributions to advertising and other services revenues increased 0.5% year over year to $40.6 million. The increase was primarily due to a rise in technology and sourcing fees, partially offset by a drop in marketing contributions.
Comps at Jack in the Box’s stores increased 4.1% in the fiscal third quarter compared with 2.8% growth in the prior-year quarter. This upside can be attributed to average check growth of 20.2%. However, transactions declined 16.1% in the quarter.
Same-store sales at franchised stores grew 6.9% compared with 2.7% growth in the prior-year quarter. Meanwhile, system-wide same-store sales increased 6.6% compared with 2.7% growth in the year-ago quarter.
Restaurant-level adjusted margin contracted 160 basis points (bps) in the fiscal third quarter from the year-ago quarter to 25.4%. The downside can be primarily attributed to wage inflation along with a rise in delivery fees and supply costs owing to the coronavirus pandemic. Also, commodity costs increased 3.6% year over year on high beef costs.
However, food and packaging costs decreased 20 bps owing to rise in menu prices, partially offset by higher ingredient costs.
Franchise level margin was 41.5% in the fiscal third quarter compared with 42.4% in the prior-year quarter.
During the fiscal third quarter, selling, general and administrative expenses accounted for 5.6% of total revenues compared with 11% in the prior-year quarter.
As of Jul 5, 2020, cash (inclusive of restricted cash) totaled $196.9 million compared with $151.6 million as of Sep 29, 2019. Inventories during the quarter increased 3.3% year over year to $1.8 million. Long-term debt totaled $1,366.2 million as of Jul 5, 2020, compared with $1,274.4 million at the end of Sep 29, 2019. Cash flow from operating activities declined to $90.2 million in the fiscal third quarter from $116.8 million in the prior-year quarter.
Jack in the Box currently has $122 million left under the share repurchase authorization, out of which $22 million will expire in November 2020 and the remaining $100 million will expire in November 2021. The company has temporarily suspended its share repurchase program.
On Jul 31, the company declared a cash dividend of 40 cents per share. The dividend will be paid out on Sep 3, 2020, to shareholders on record as of Aug 18, 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 22.98% due to these changes.
Currently, Jack In The Box has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Jack In The Box has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.