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Jack In The Box (JACK) Up 4.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Jack In The Box (JACK - Free Report) . Shares have added about 4.3% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Jack in the Box Q3 Earnings & Revenues Beat Estimates

Jack in the Box reported solid third-quarter fiscal 2021 results, wherein both earnings and revenues not only surpassed the Zacks Consensus Estimate but also improved on a year-over-year basis. While the bottom line beat the consensus mark for the fifth straight quarter, the top line surpassed the same for the seventh consecutive time.

Earnings & Revenues

During the fiscal third quarter, adjusted earnings from continuing operations was $1.79 per share. The reported figure beat the Zacks Consensus Estimate of $1.46. The metric improved 26.1% from the prior-year quarter’s $1.42.

Quarterly revenues of $269.5 million surpassed the Zacks Consensus Estimate of $258 million. The top line increased 11.2% on a year-over-year basis. Franchise rental revenues climbed 6% year over year to $80.6 million. Franchise royalties and other revenues rose 12.4% year over year to $48.6 million owing to rise in franchise same-store sales. Franchise contributions to advertising and other services revenues surged 19.3% year over year to $48.4 million. Company restaurant sales increased to $91.9 million from $82.4 million.

Comps Discussion

Comps at Jack in the Box’s stores increased 9% in the fiscal third quarter compared with 4.1% in the prior-year quarter. The upside can be attributed to average check and transactions growth.

Same-store sales at franchised stores increased 10.3% year over year compared with 6.9% growth reported in the prior-year quarter. System-wide same-store sales were up 10.2% year over year compared with the year-ago quarter’s gain of 6.6%.

Operating Highlights

During the fiscal third quarter, restaurant-level adjusted margin came in at 25.4%, flat year over year. Sales leverage was offset by rise in food and packaging costs, wage inflation of 8%, higher incentive compensation, and increase in delivery fees and maintenance and repair costs.

Food and packaging costs (as a percentage of company restaurant sales) rose 20 bps to 29.4% year over year, due to increase in costs for ingredients, partially mitigated by favorable sales mix and menu price increases. Commodity costs in the quarter increased 5.7% year over year. The increase was due to a rise in pork and beverages costs, partially offset by fall in beef prices.


Franchise level margin was 43.3% in the fiscal second quarter compared with 41.5% in the prior-year quarter.

During the quarter, selling, general and administrative expenses accounted for 8.1% of total revenues compared with 5.6% in the prior-year quarter.

Balance Sheet

As of Jul 4, 2021, cash (inclusive of restricted cash) totaled $102.4 million compared with $196.9 million as of Jul 5, 2020. Inventories during the quarter were $2.1 million compared with $1.8 million as on Sep 27, 2020. Long-term debt (net of current maturities) totaled $1,272.4 million as of Jul 4 compared with $1,376.9 million at the end of Sep 27, 2020.

During the fiscal third quarter, the company repurchased 0.6 million shares of its common stock for $65 million. As of Jul 4, 2021, the company had $70 million left under the share repurchase authorization, which will expire in November 2022.

The company declared a cash dividend of 44 cents per share. The dividend will be paid out on Sep 3, 2021 to shareholders on record as of Aug 18, 2021.

Fiscal 2021 Outlook

General and administrative expenses are anticipated to be $71-76 million in 2021. For fiscal 2021, labor cost inflation is estimated in the range of 7-8%, up from the prior estimate of 5-6%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Jack In The Box has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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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