Jack in the Box Inc. ( JACK Quick Quote JACK - Free Report) is likely to benefit from Del Taco Restaurants’ business, reimaging program and digital initiatives. Also, the emphasis on expansion efforts bodes well. However, commodity inflation is a concern. Let us discuss the factors that highlight why investors should retain the stock for the time being. Growth Catalysts
Jack in the Box emphasizes on the Del Taco Restaurants acquisition to drive growth. During first-quarter fiscal 2023, same-store sales rose 3%, comprising franchise same-store sales growth of 2.8% and company-operated same-store sales growth of 3.1%. During the quarter, the company reported two franchise openings and one company-owned closure. It also announced development agreements for 16 new Del Taco restaurants (in California) and 10 new restaurants in North Tampa and Palm Beach, Florida. Given the unit expansion efforts coupled with an emphasis on Del Yeah! Rewards program, the company anticipates the initiatives to better target guests and drive average spend and frequency in the upcoming periods.
Emphasis on the reimaging program bodes well. As of fiscal first quarter, the company stated that franchise owners submitted 589 reimaged forms submitted by franchise owners and that 47 are in the design and permitting stage. During the fiscal first quarter, the company reported traffic-led sales gains at reimaging locations. In terms of recent remodel performance, the company reported a 14% increase in average net sales from pre to post-remodel. With solid participation from its franchisees, the company anticipates the program to be a driving factor of sales in the upcoming periods.
Jack in the Box is focused on its digital platforms for enhancing overall guest experiences and customer satisfaction. During the fiscal fourth quarter, the company stated benefits from the digital-focused business, courtesy of its growing loyalty platform, newly updated e-commerce app and new mobile website. In first-quarter fiscal 2023, the company reported digital sales with contributions of more than $500 million from Jack and Del Taco digital. The company continues to integrate its POS systems with third-party vendors to enhance restaurant operations. Also, it emphasized on technological investments covering applications, software and tools (like digital menu boards), AI and personalized in-store ordering. The company anticipates the enhanced operational capabilities to drive guest experience and higher store-level margins in the upcoming periods.
The company focuses on repairing its franchisee relationship, mapping markets and rebuilding its store pipeline to drive growth. During fourth-quarter fiscal 2021, the company mentioned expansion plans with the involvement of veteran multi-unit franchisees like David Beshay (one of the brand’s largest operators). The franchisee expects to open at least 30 additional locations within the next five to eight years. As of the first quarter of fiscal 2023, the company awarded 72 development agreements to open 303 new restaurants of which 25 have already opened and 278 are in pipeline for future development. The company also announced the addition of Arkansas and Florida markets. Given the substantial progress in terms of the franchise development program, the company anticipates achieving a long-term net unit growth goal of 4% by 2025. Image Source: Zacks Investment Research
In the past three months, shares of Jack in the Box have gained 17.4% compared with the
industry’s 0.7% growth. Concerns
The company is persistently shouldering higher expenses, which have been detrimental to margins. During the fiscal first quarter, the company reported a rise in food and packaging costs, wage inflation of 9.9% and higher utilities and maintenance and repair costs. During the quarter, food and packaging costs (as a percentage of company restaurant sales) came in at 32.8% compared with 31.3% reported in the prior-year quarter. Commodity costs during the quarter increased 15.5% year over year. The upside can be attributed to a rise in the price of sauce and potatoes. The company stated concerns of a challenging inflationary environment in 2023. For fiscal 2023, the company expects commodity cost inflation to be up 9% to 11% compared with fiscal 2022.
Zacks Rank & Key Picks
Jack in the Box currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Some better-ranked stocks in the same space include Chuy's Holdings, Inc. ( CHUY Quick Quote CHUY - Free Report) , Arcos Dorados Holdings Inc. ( ARCO Quick Quote ARCO - Free Report) and Bloomin' Brands, Inc. ( BLMN Quick Quote BLMN - Free Report) . Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 23.9% in the past year. The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels. Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth of 11.6%. Shares of the company have increased 7.4% in the past year. The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests growth of 8.1% and 4.2%, respectively, from the year-ago period’s levels. Bloomin' Brands carries a Zacks Rank #2. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 10.8% in the past year. The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.1% and 4.4%, respectively, from the year-ago period’s reported levels.