Good move on management's part to close these underperforming units. That's why the stock is up the last couple days. Investors look to the future, not the past. JACK is a very profitable company, and return-on-equity is at the top of the category. Which means a disciplined operation and wise use of funds. The ignorant don't understand this corporate strategy to enhance profitability down the line. The company intends to run a tight ship during the recovery of the next several years. Once we get a slight uptick in comps it is off to the races for JACK. Big J in L.A.
How many times do I have to repeat the equation at work with the sale of company owned units to franchisees? Please pay attention. The estimate by Morgan Stanley Smith Barney is that they will raise as much as $390 million from the sale of these units over the next three years. These funds in turn will be used to buy back shares as they are currently doing. The estimate is that as much as 1/3 of their present outstanding shares will be bought back over that time period. That will enhance the EPS number accordingly. Wall Street understands this and that is why the stock is hanging in there so splendidly. The closing of units as announced today is also a plus; it shows this management team is a no nonsense group, on top of things, not afraid to make the right moves to enhance the bottom line. Again, that is why the stock is firm at present. Please print this out and paste it up on your wall. Then watch the stock perform over the next three years. You will be in for a very pleasant surprise. Big J in L.A.
Midpoint guidance for the year calls for $1.70 EPS. Deducting gains from franchise sales of about $1.16, leaves only $.54 net from actual operations. Even if they bought back a third of their shares (which I think is unlikely), EPS would only increase to $.81. That puts the multiple still over 26X. Why pay that much for JACK?