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Jack in the Box Beats, Margins Up

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Jack in the Box Inc. (JACK - Free Report) recently posted first quarter fiscal 2013 adjusted earnings of 54 cents per share. The results were significantly above the Zacks Consensus Estimate of 39 cents and the year-ago quarter’s earnings of 25 cents. The company’s business has gained from its improved business strategy.

On a reported basis, including gains from refranchising and restructuring charges, earnings per share came in at 54 cents compared with 27 cents in the year-ago period.

Behind the Headline Number

During the quarter, total revenues increased 1.7% year over year to $465.5 million. Total revenues surpassed the Zacks Consensus Estimate of $458.0 million. The rise in revenues was attributable to a 12.4% surge in franchised restaurant sales to $105.4 million. However, the company restaurant revenues dipped 1.1% year over year to $360.1 million.

Comparable store sales (comps) at Jack in the Box climbed 1.9%, driven by a 2.1% upside at the company-owned restaurants and a 1.8% rise at franchised restaurants. In the year-earlier quarter, system-wide comps grew by 3.6%.

However, same-store sales at Qdoba’s restaurant slackened to 1.0% from 3.8% recorded in the year-earlier quarter. A 1.5% upside at the company-owned restaurants and 0.5% rise at franchised restaurants retarded comps growth at Qdoba.

The company’s consolidated restaurant operating margin was 15.7%, up 220 basis points (bps) year over year. The expansion in margins was due to a 130 bps plunge in food and packaging costs, a 40 bps dip in payroll and employee benefits costs and a 50 bps fall in occupancy and other costs.

Store Update

At quarter end, the company had a total of 2,891 units in its system, of which 2,255 belonged to Jack in the Box while 636 restaurants were Qdoba’s. Out of the total number of units, 2,015 were franchised.


At quarter end, Jack in the Box had cash and cash equivalents of $9.5 million and long-term debt of $374.9 million.

Share Repurchase

The company bought back 985,000 shares worth $26.9 million during the first quarter. Currently, $50.0 million and $100 million shares have remained under the existing share repurchase programs expiring in November, 2013, and November, 2014, respectively.


For the second quarter of 2013, the company projects same-store sales to be consistent at the Jack in the Box company restaurants whereas comps at the Qdoba company-owned restaurants will be flat to down 2%.

For fiscal 2013, the company reduced its same-store sales guidance to 1.5%-2.5% from 2%-3% at the Jack in the Box restaurants. Qdoba company restaurants’ comps will be within 1%-2%. The company has reiterated its guidance for overall commodity costs to 2% -3%. Restaurants operating margin is estimated in the range of 15.5% -16.0%.

Capital expenditures are projected to be wtihin $95 and $105 million. Earnings per share (restructuring charges and gains from refranchising excluded) are estimated in the range of $1.48-$1.63. The company plans to unveil 20-25 new Jack in the Box restaurants and 70-85 Qdoba outlets in fiscal 2013.

Our Take

San Diego-based Jack in the Box outperformed on both counts in the first quarter. Further, Jack in the Box is in a restructuring mode. We expect the company to perform better on the back of significant refranchising activities and the transformation of ownership at the higher-margined Qdoba units, from franchised to the company level.

However, lower comps growth both at Jack in the Box and Qdoba restaurants is a huge matter of concern.

Jack in the Box retains a Zacks Rank #2 (Buy). Another restaurateur AFC Enterprises Inc. recently declared its preliminary fourth quarter and full year 2012 results. The company projects its adjusted earnings per share for the full year of 2012 to be within $1.23-$1.24, up from 99 cents in 2011. AFC also provided an optimistic outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Other restaurateurs, which are expected to perform well moving ahead, include Krispy Kreme Doughnuts, Inc. and Burger King Worldwide, Inc. . Both carry a Zacks Rank #2 (Buy).

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