Jack in the Box Inc. (JACK) has reported earnings above the Zacks Consensus Estimate for the last three quarters, including a 50% earnings surprise and stupendous year-over-year profit growth of 269% in the second quarter. Earnings estimates have since ramped higher, making this fast food restaurant chain operator a Zacks #1 Rank (Strong Buy).
Solid Second Quarter Results
On May 16, Jack in the Box reported second quarter 2012 earnings of 48 cents per share, comfortably ahead of the Zacks Consensus Estimate of 32 cents and the previous year's 13 cents. Total revenue inched up 0.3% year over year to $506.6 million and was also above the Zacks Consensus Estimate of $499.0 million.
Comparable store sales (comps) increased 4.2%, driven by a 5.6% upside at company-owned restaurants and a 3.6% rise at franchised restaurants. Comps also improved 410 basis points (bps) from last year's level of 0.1%.
Moreover, same-store sales at Qdoba's restaurant were up 3.0%, driven by a 3.8% upside at company-owned restaurants and a 2.2% rise at franchised restaurants. However, same-store sales growth was lower than the year-ago growth of 6.0%.
Consolidated restaurant operating margin spiked 320 bps to 15.5%. The expansion in margin was based on an 80 bps cut in food and packaging costs, a 120 bps reduction in payroll and employee benefits costs and a 130 bps decline in occupancy and other costs.
Outlook for 2012 Raised
After reporting solid second quarter results, Jack in the Box raised its earnings outlook for 2012 to between $1.28 and $1.50 from $1.15 to $1.43. Excluding gains from refranchising, the earnings projection was lifted to between $1.00 and $1.15 from 95 cents to $1.10.
Over the last 60 days, the Zacks Consensus Estimate has increased by 3.0% for both fiscal 2012 and fiscal 2013 to $1.43 and $1.59, respectively. The year-over-year estimated growth for 2013 is 10.86%.
Jack in the Box's valuation looks attractive. The stock currently trades at a trailing twelve months P/E of 17.14x, versus the peer group average of 18.49x. Moreover, on a P/B basis, shares currently trade at 2.76x, well below the peer group average of 3.83x. On a P/S basis, shares are trading at 0.56x versus 0.83x for the peer group average.
Chart Reveals Strength
Technical indicators show that Jack in the Box has risen above its 200-day moving average since Dec 30, 2011. Moreover, after the announcement of the company's second quarter earnings, the stock also started trading above its 50-day moving average.
Volume is fairly strong, averaging roughly 440K daily. The year-to-date return for the stock is 32.8%, compared with the S&P 500's return of 8.42%.
San Diego, California-based Jack in the Box is a fast food restaurant chain operator that was incorporated in 1951. The company operates and franchises Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants. As of April 15, 2012, the company had a total of 2,242 Jack in the Box and 605 Qdoba restaurants in its systems of which 1641 and 605 were franchised, respectively. With a market capitalization of $1.23 billion, Jack in the Box primarily competes with Cosi Inc. (COSI) and Sonic Corp. (SONC).
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