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Why Is Jack In The Box (JACK) Down 6.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Jack In The Box (JACK - Free Report) . Shares have lost about 6.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Jack in the Box Q3 Earnings Lag Estimates, Revenues Top

Jack in the Box reported mixed third-quarter fiscal 2022 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same. The top line rose year over year, while the bottom line declined on a year-over-year basis. Revenues surpassed the consensus estimate for the second straight quarter.

Let’s take a closer look at the numbers.

Earnings & Revenues Details

During the fiscal third quarter, adjusted earnings from continuing operations came in at $1.38 per share. The figure missed the Zacks Consensus Estimate of $1.43. The metric dropped 15.9% from $1.64 reported in the prior-year quarter.

Quarterly revenues of $398.3 million beat the Zacks Consensus Estimate of $394 million by 1.1%. The top line rallied 47.8% on a year-over-year basis. Franchise rental revenues fell 0.7% year over year to $80.1 million. Franchise royalties and other revenues increased 7.2% year over year to $52.1 million. Franchise contributions to advertising and other services revenues inched up 5.3% year over year to $50.9 million. Company restaurant sales increased to $215.2 million from $91.9 million reported in the prior-year quarter.

Comps Discussion

In the quarter under review, comps at Jack in the Box’s stores increased 3.5% year over year compared with 9% growth reported in the prior-year quarter. The upside in comps was primarily due to an increase in average checks partially offset by a decline in traffic.

Same-store sales at franchised stores fell 1% year over year against 10.3% growth reported in the prior-year quarter. System-wide same-store sales fell 0.6% year over year against a 10.2% gain reported in the year-ago quarter.

Del Taco Performance

During third-quarter 2022, same-store sales rose 3.5%, comprising of franchise same-store sales growth of 4.8% and company-operated same-store sales growth of 2.3%. During the quarter, the company closed five restaurants.

Operating Highlights

During the fiscal third quarter, restaurant-level adjusted margin came in at 15.8% compared with 25.4% reported in the prior-year quarter. The downside was driven by a rise in food and packaging costs, wage inflation of 13.2% and higher utilities and maintenance and repair costs.

Food and packaging costs (as a percentage of company restaurant sales) rose 120 bps year over year to 30.6%. Commodity costs during the quarter increased 16.8% year over year. The upside can be attributed to a rise in the price of proteins, sauces, oil and beverages.

The franchise level margin was 41.4% in the fiscal third quarter compared with 43.3% reported in the prior-year quarter.

During the quarter, selling, general and administrative expenses accounted for 10.1% of total revenues compared with 8.1% in the prior-year quarter.

Balance Sheet

As of July 10, 2022, cash totaled $65.9 million compared with $55.3 million as of Oct 3, 2021. Inventories during the quarter came in at $5.7 million compared with $2.3 million as of Oct 3, 2021. Long-term debt (net of current maturities) totaled $1,806.1 million as of Jul 10, 2022 compared with $1,273.4 million at the end of Oct 3, 2021.

During the fiscal third quarter, the company did not repurchase any shares but plans to complete $25 million in share repurchases during the fourth quarter of fiscal 2022.

The company declared a cash dividend of 44 cents per share. The dividend will be paid out on Sep 9, 2022, to shareholders on record as of Aug 24, 2022.

Fiscal 2022 Outlook

Company-wide CapEx and Other Investments (including Del Taco) in fiscal 2022 are expected in the range of $50-55 million compared with the earlier estimate of $75-80 million. Overall Restaurant Level Margin in fiscal 2022 is anticipated to be approximately 16% compared with the prior estimate of nearly 17%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Jack In The Box has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Jack In The Box has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Jack In The Box belongs to the Zacks Retail - Restaurants industry. Another stock from the same industry, Yum China Holdings (YUMC - Free Report) , has gained 2.6% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Yum China reported revenues of $2.13 billion in the last reported quarter, representing a year-over-year change of -13.2%. EPS of $0.20 for the same period compares with $0.42 a year ago.

Yum China is expected to post earnings of $0.34 per share for the current quarter, representing a year-over-year change of +54.6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Yum China. Also, the stock has a VGM Score of B.


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