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Jack in the Box (JACK) Rides on Robust Comps & Digitalization

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Shares of Jack in the Box Inc. (JACK - Free Report) have surged 34.7% in the past six months, compared with the industry’s rally of 16.1%. The company is benefiting from initiatives like regular menu innovation, robust comps, and increased focus on delivery channels and marketing.

Moreover, an upward revision in earnings estimates for fiscal 2021 reflects analysts’ confidence in the company’s potential. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2020 earnings has moved up 13.4% to $5.59. Let’s delve deeper and find out factors driving growth.

Solid Comps

Despite the coronavirus pandemic, the company has reported robust comparable sales for the fourth, third and second quarter of fiscal 2020. Comps at Jack in the Box’s stores gained 9.6% in the fiscal fourth quarter compared with growth of 4.1 and 2.8% in the fiscal third and second quarter of 2020, respectively. This upside can be attributed to average check growth of 21.9%. However, transactions declined 12.3% in the quarter.

Same-store sales at franchised stores grew 12.4% compared with increase of 3% in the prior-year quarter. Meanwhile, system-wide same-store sales improved 12.2% compared with growth of 3% in the year-ago quarter.


Robust Delivery Channel & Menu Innovation

The Zacks Rank #2 (Buy) company is also increasingly focusing on delivery channels, which is a growing area for the industry. Given the high demand for this service, the company has undertaken third-party delivery channels to bolster transactions and sales. The company has partnered with DoorDash, Postmates, Grubhub and Uber Eats. It is expanding its mobile application in a few markets that support order-ahead functionality and payment. Notably, delivery sales have more than doubled in the quarter courtesy of high mobile application usage.

Jack in the Box is one of the largest hamburger chains in the country. The company makes regular menu innovations and provides limited period offers (LPO) at both its flagship restaurants to drive long-term customer loyalty. Notably, sales in the fourth quarter were primarily driven by solid performance of Tiny Taco, homestyle chicken sandwich and Classic Buttery Jack. It not only regained trust of its customers but also witnessed repetitive guest ordering. Ever since the launch of Tiny Tacos in mid-January, it has contributed to the company’s performance.

Margin Improvement

Restaurant-level adjusted margin, an important financial metric that gives an indication about the company’s health, expanded 280 basis points (bps) in the fiscal fourth quarter from the year-ago quarter’s 27%. The upside was backed by improvements in labor costs, and food and packaging costs. Notably, labor costs improved by 120 bps, on the back of sales leverage, partially offset by approximately 6 percent wage inflation. While, food and packaging costs (as a percentage of company restaurant sales) decreased 100 bps due to menu price increases and positive mix shift. However, this was partially offset by higher ingredient costs.

Other Key Picks

Some other top-ranked stocks, which warrant a look in the same space, include Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Fiesta Restaurant Group, Inc. (FRGI - Free Report) . All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cracker Barrel earnings for fiscal 2021 is likely to witness growth of 152.9%.

Darden Restaurants has a three-five year earnings per share growth rate of 19.5%.

Fiesta Restaurant’s 2021 earnings are expected to soar 418.8%.

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