JACK included the kitchen sink in its expenses during the 3rd quarter. It does play into their hands as they bought no shares in the quarter, I suspect pending this lower number based on a number of unusual and extraordianry charges, a chunk of which is a noncash item. Now watch them buy shares, given that the three year authorization will expire in November.
These writeoffs and unusual charges will pretty much clean the deck, together with the 4th quarter writeoffs, in looking to next year. And, even with the recession still in force, they are generating significant cash flow during this tough period. By my calculation, their debt to equity ratio improved dramatically to 38%. They bought 18 Qdoba units from franchisees, a clear sign that something may well be up.
Bottom line, I think the company is extremely vulnerable now to a takeover, initially of a hostile sort. Their EPS in calendar 2011 should be a very comfortable $2.10 to $2.15 a share, with comps starting to show some year-over-year gains in the second half. The balance sheet will only improve going forward especially now that the reimaging program is so much nearer completion. I am joining with Blue Harbor and positioning more shares. It is inevitable, in my view, that JACK being a better value than ever, will have some courters in the wings.
Favorable? Seriously, are you joking? They missed. Same store sales at Jack declined 9.4%. They reduced full-year guidance. Also, and most troubling in my opinion, they are getting most of their earnings from selling restaurants, not from selling food (by my calculations, about $14.6 Million of their $24.2 Million in earnings were gains on sales of restaurants).
How is any of this good news? What will their earnings look like when they have no more gains on sales of restaurants to pad really poor restaurant operating earnings?
A fair criticism but uninformed. Check all the unusual charges this past quarter. Then consider the cash flow picture. And realize that they will be selling perhaps as much as $400 million worth of company-owned units to franchisees over the next 3-4 years. You will not recognize this company by 2012-2013. It will be even sounder financially and with a substanually reduced number of shares outstanding because of buybacks. But it is all a moot point, my friend. This company will be bought out long before then. This I would bet you anything. You name the wager amount. Best, Big J in L.A.