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Jack In The Box (JACK) Down 5.8% Since Last Earnings Report: Can It Rebound?

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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 5.8% 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 drivers. <p style="text-align: justify;"><strong>Jack in the Box Q3 Earnings &amp; Sales Beat Estimates</strong></p><p style="text-align: justify;">Jack in the Box reported better-than-expected results in third-quarter fiscal 2018, after missing the Zacks Consensus Estimate in the last-reported quarter.</p><p style="text-align: justify;">Adjusted earnings from continuing operations came in at $1.00 per share, which surpassed the consensus mark of 88 cents. The bottom-line figure also increased 26.6% on a year-over-year basis. Total sales of $188 million exceeded the consensus mark of $184 million but decreased 23.6% year over year.</p><p style="text-align: justify;"><strong>Jack in the Box Comps Discussion</strong></p><p style="text-align: justify;">Comps at Jack in the Box&rsquo;s stores inched up 0.6% compared to the prior-year quarter&rsquo;s decline of 1.6%. The uptick was driven by average check growth of 2.6%, partially offset by a 2.0% decline in transactions. In second-quarter fiscal 2018, the company reported comps growth of 0.9%.</p><p style="text-align: justify;">Same-store sales at franchised stores rose 0.5% compared with a gain of 0.1% in the prior-year quarter. The metric declined 0.2% in the last-reported quarter. System-wide same-store sales were up 0.5% compared to a decline of 0.2% and 0.1% in the year-ago quarter and second-quarter fiscal 2018, respectively.</p><p style="text-align: justify;"><strong>Operating Highlights</strong></p><p style="text-align: justify;">Jack in the Box&rsquo;s consolidated restaurant operating margin was 23.9%, up 460 basis points (bps) year over year.</p><p style="text-align: justify;">Restaurant-level EBITDA increased 430 bps from the year-ago quarter to 27.5%. The upside was owing to benefits from refranchising, partially offset by wage inflation as well as higher repairs and maintenance costs.</p><p style="text-align: justify;">In the fiscal third quarter, franchise operating margin was 51.8%, down 90 bps year over year. Franchise EBITDA was 60.2%, reflecting a year-over-year decline of 80 bps. The downside can be attributed to rise in costs in the current quarter.</p><p style="text-align: justify;"><strong>Balance Sheet</strong></p><p style="text-align: justify;">As of Jul 2, 2018, cash totaled $0.1 million compared with $4.5 million as of Oct 1, 2017 (end of fourth-quarter and fiscal 2017). Inventories in the quarter under review amounted to $2.1 million, down from $3.4 million at the end of fiscal 2017.</p><p style="text-align: justify;">Long-term debt summed $953.4 million as of Jul 2, 2018, compared with $1,080 million at the end of fiscal 2017. Cash flows from operating activities declined to $59.4 million in the third quarter compared with $106.7 million at the prior-year quarter end.</p><p style="text-align: justify;">Additionally, Jack in the Box resumed share buyback program in the reported quarter and repurchased $100 million of stocks. The company also authorized $181 million of share repurchase program.</p><p style="text-align: justify;"><strong>Fiscal Fourth-Quarter Guidance</strong></p><p style="text-align: justify;">For the fiscal fourth quarter, comps are expected to increase in the range of 1-2% compared to a 1% decline in the year-ago quarter.</p><p style="text-align: justify;"><strong>2018 Outlook</strong></p><p style="text-align: justify;">Comps at Jack in the Box system restaurants are envisioned to be in the range of flat to up 0.5% compared with the prior projection of flat to up 1%. Meanwhile, the company continues to expect Restaurant-Level EBITDA within the 26-27% band.</p><p style="text-align: justify;">For fiscal 2018, adjusted EBITDA is anticipated between approximately $260 million and $270 million. Capital expenditures are estimated roughly in the range of $30-$35 million.</p><p style="text-align: justify;"><strong>Long-Term Guidance</strong></p><p style="text-align: justify;">Jack in the Box provided long-term guidance from fiscal 2019 through 2022. It anticipates system-wide sales to be nearly $4 billion in fiscal 2022, courtesy of low single-digit growth in both annual same-store sales and system-wide unit. Free cash flow is expected to increase to $175 million by 2022.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.84% due to these changes.

VGM Scores

Currently, Jack In The Box has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 indicates a downward shift. 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.



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