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Jack in the Box (JACK) Tumbles on Q1 Earnings Miss, View Cut

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Shares of Jack in the Box Inc. (JACK - Free Report) declined nearly 10% in afterhours trading on Feb 22, after the company reported lower-than-expected first-quarter fiscal 2017 results.

Earnings and Revenue Discussion

Adjusted earnings of $1.18 per share lagged the Zacks Consensus Estimate of $1.24 by 4.8%. However, the bottom line surged nearly 27% year over year on reduced SG&A expenses.

Sales of $487.9 million missed the Zacks Consensus Estimate of $498.5 million by over 2%. However, the top line grew 3.6% on a year-over-year basis.
 

 

Behind the Headline Numbers

Comparable-store sales (comps) at the Jack in the Box company stores inched up 0.6%, compared with the gain of 0.5% in the prior-year quarter. Same store sales at franchised stores were up 3.9% higher than the gain of 1.8% in the year-ago quarter. System stores increased 3.1% as against a gain of 1.4% in the comparable period last year.

Comps at company-owned Qdoba restaurants were down 1.4% reflecting a 2.5% decrease in transactions, partially offset by growth in average check and catering sales. However, comps had increased 1.5% in the year-ago period. Comps at franchised restaurants saw 0.5% dip during the quarter compared with a gain of 2.1% reported a year ago. Also, system same-store sales were down 1.0% compared with a gain of 1.8% in the year-ago quarter.

The company’s consolidated restaurant operating margin was 18.6% of total sales, down 90 basis points (bps) year over year. Restaurant operating margin expanded 70 bps for the Jack in the Box company restaurants backed by favorable food and packaging costs. However, operating margin contracted 350 bps at the Qdoba restaurants. For Qdoba, costs associated with new restaurant openings, higher promotional activity, elevated labor expenses and sales deleverage resulted in the deterioration in operating margin.

SG&A expenses for the fiscal first quarter, as a percentage of revenues, were 11.4%. This was down 260 bps from the prior-year quarter. The decrease reflects the impact of the company's restructuring activities, a decline in pension and postretirement benefits and lower incentive compensation.

Jack In The Box Inc. Price, Consensus and EPS Surprise

Fiscal Second-Quarter 2017 Comps Guidance

For the second quarter of fiscal 2017, the company expects same-store sales to remain flat to down 2% compared with the year-ago flat comps at the Jack in the Box restaurants.

For the Qdoba restaurants, same-store sales are projected to be down in the range of 1-3%, compared with the year-ago quarter comps growth of 3.1%.

Fiscal 2017 Guidance

Earnings per share, excluding restructuring charges and gains or losses from refranchising, are expected to be in the range of $4.25 to $4.45 in fiscal 2017. This is lower than the previous guidance of $4.55 to $4.75 per share. The Zacks Consensus Estimate of $4.73 per share is higher than the company’s expectation.

The company expects comps to grow approximately 2% at Jack in the Box system restaurants and to remain flat y/y at Qdoba company restaurants.

Consolidated restaurant operating margin is expected to be roughly in the band of 19.5% to 20% as compared with the previous expectation in the range of 20% to 21%.

The company also anticipates to open approximately 20 to 25 new Jack in the Box restaurants system-wide, the majority of which will be franchise locations. In addition, approximately 50 to 60 new Qdoba restaurants are expected to be opened, of which about 30 are likely to be company locations.

Zacks Rank & Stocks to Consider

Jack in the Box currently has a Zacks Rank #2 (Buy). Other favorably ranked restaurant stocks include:

Potbelly Corporation (PBPB - Free Report) sports a Zacks Rank #1 (Strong Buy). Also, its long-term growth estimate is pegged at 20% compared with the industry average of 15.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) is a Zacks Rank #2 company. It has a positive record of earnings surprises, recording an average beat of 37.81% in the last four quarters.

Wingstop, Inc.’s (WING - Free Report) currently carries a Zacks Rank #2. Its full-year 2016 earnings growth estimate is pegged at 21.3% compared with the industry average of 7.5%.

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