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Why Is Jack In The Box (JACK) Down 0.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Jack In The Box (JACK - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Jack In The Box due for a breakout? 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 Beats Q4 Earnings Estimates

Jack in the Box reported solid fourth-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 $1.61 per share, beating the Zacks Consensus Estimate of $1.14 by 41.2%. The metric also increased 69.5% from 95 cents reported in the prior-year quarter.

Revenue Details

During the fiscal fourth quarter, total revenues of $255.4 million surpassed the Zacks Consensus Estimate of $249 million by 2.6%. Moreover, the top line grew 15.4% on a year-over-year basis.

Franchise rental revenues increased 23.1% year over year to $78.7 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 15.1% year over year to $44.9 million owing to a rise in franchise same-store sales.

Franchise contributions to advertising and other services revenues increased 14.2% year over year to $45.1 million, primarily due to a rise in technology and sourcing fees, partially offset by a drop in marketing contributions.

Comps Discussion

Comps at Jack in the Box’s stores increased 9.6% in the fiscal fourth quarter compared with 3.5% growth in the prior-year quarter. 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 3% growth in the prior-year quarter. Meanwhile, system-wide same-store sales increased 12.2% compared with 3% growth in the year-ago quarter.

Operating Highlights

Restaurant-level adjusted margin expanded 280 basis points (bps) in the fiscal fourth quarter from the year-ago quarter to 27%. The increase was backed by improvements in labor and food and packaging costs.

Notably, labor costs improved 120 bps on the back of sales leverage, partially offset by approximately 6% wage inflation. Meanwhile, food and packaging costs (as a percentage of company restaurant sales) decreased 100 bps owing to menu price increases and positive mix shift. However, this was partially offset by higher ingredient costs. Commodity costs during the fiscal fourth quarter increased 0.4% year over year.

Franchise level margin was 41.3% in the fiscal fourth quarter compared with 40.8% in the prior-year quarter.

During the fiscal fourth quarter, selling, general and administrative expenses accounted for 5.8% of total revenues compared with 4.7% in the prior-year quarter.

Balance Sheet

As of Sep 27, 2020, cash (inclusive of restricted cash) totaled $236.9 million compared with $151.6 million as of Sep 29, 2019. Inventories during the quarter increased 1.8% year over year to $1.8 million. Long-term debt totaled $1,376.9 million as of Sep 27, 2020, compared with $1,274.4 million at the end of Sep 29, 2019.

Owing to the temporary suspension of the share repurchase program on Apr 15, the company did not repurchase any shares during the fiscal fourth quarter.

Jack in the Box currently has $200 million left under the share repurchase authorization, out of which $100 million will expire in November 2021 and the remaining $100 million will expire in November 2022.

On Nov 13, the company declared a cash dividend of 40 cents per share. The dividend will be paid out on Dec 18, 2020, to shareholders on record as of Dec 2, 2020.

Fiscal 2020 highlights

Earnings per share for the full fiscal year came in at $4.65, compared with $4.35 reported in the prior year.

Company restaurant sales for fiscal 2020 was reported at $349 million, compared with 336.8 million in 2019.

Adjusted EBITDA for the 52-week ended Sep 27, 2020 came in at $274.2 million, compared with $269 million reported in the previous year.

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 14.89% due to these changes.

VGM Scores

Currently, Jack In The Box has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly 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.


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