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Here's Why You Should Invest In Jack in the Box (JACK) Now

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Jack in the Box Inc. JACK is poised to benefit from various initiatives like regular menu innovation and increased focus on catering, delivery and marketing. Also, the timely rewarding of shareholders is encouraging. Shares of Jack in the Box have gained 23.1% over the past year compared with the Zacks Retail - Restaurants industry’s 21.2% growth.

Earnings estimates for the fiscal fourth quarter and fiscal 2021 have moved up 2.9% and 6%, respectively, over the past 60 days. This signifies bullish analyst sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. Moreover, Jack in the Box’s performance was backed by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in 10 out of the trailing 15 quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Driving Growth

Continuous Menu Innovation: Jack in the Box is one of the largest hamburger chains in the nation. Menu innovation is one of its primary characters. The company is continuously working on maintaining the uniqueness of its brand, menu and premium food offerings. During the third quarter of fiscal 2021, the company observed average check growth, mainly on premium menu items. Also, the company’s robust performance during second-quarter fiscal 2021 reflects the power of the Jack in the Box brand, iconic differentiated all-day menu and continuous product innovation. Notably, the company’s newly-launched clock chicken sandwich and improved chicken strips witnessed a positive response in markets. Notably, the company started the promotion of popcorn chicken during third-quarter fiscal 2021, which witnessed huge initial demand.

Meanwhile, the previously introduced biscuit sandwich maintained sales growth during the quarter. Moreover, the company is shifting focus to travel-indulgent food that offers excellent overall value. Thus, increased focus on food packaging and portability will likely enhance customer experience in the upcoming periods.

Robust Franchising Driving Growth: Jack in the Box restaurants are largely franchised. During third-quarter fiscal 2021, franchise-level margin, as a percentage of total franchise revenues, was 43.3%, up from 41.5% in the year-ago quarter. It can be said that franchising a large chunk of its system will reduce its general and administrative expenses and thereby boost earnings. Also, in the long term, it would generate a higher return on equity by lowering capital requirements. During the third quarter, Franchise rental revenues climbed 6% year over year to $80.6 million. Franchise royalties and other revenues increased 12.4% year over year to $48.6 million owing to a rise in franchise same-store sales. Also, franchise contributions to advertising and other services revenues surged 19.3% year over year to $48.4 million. The company is optimistic about its franchise business and believes that most of Jack in the Box’s new unit growth will be through franchise restaurants.

Solid Comps Growth: In spite of coronavirus pandemic, Jack in the Box is witnessing a robust comp growth. During the third quarter of fiscal 2021, comps at Jack in the Box’s stores increased 9% in the fiscal third quarter compared to 4.1% reported in the prior-year quarter. Average check growth and transactions mainly drove the upside. Same-store sales at franchised stores grew 10.3% year over year compared with 6.9% reported in the prior-year quarter. Meanwhile, system-wide same-store sales increased 10.2% year over year versus 6.6% reported in the year-ago quarter.

Focus on Strong Delivery Channel: To respond to the high demand for its services, Jack in the Box is increasingly focusing on its delivery channels. The company has undertaken third-party delivery channels to bolster transactions and sales by partnering with DoorDash, Postmates, Grubhub and Uber Eats. It is expanding its mobile application in a few markets that support order-ahead functionality and payment. Notably, delivery sales have more than doubled in the quarter on the back of high mobile application usage. The company continues to integrate its POS systems with third-party vendors to enhance restaurant operations.

Meanwhile, Jack in the Box plans to invest in drive-thrus, which derive more than 70% of total sales. Further, the implementation of digital menu board and menu board canopies is part of the company’s developmental plans. The company is investing aggressively in store improvements and new store build, innovating via digital operations. Moreover, the company is using its digital platforms to enhance overall guest experiences and customer satisfaction.

Continuous Rewards to Shareholders: Jack in the Box has continuously enhanced shareholders’ returns through share repurchases and dividends. During the fiscal third quarter, the company repurchased 0.6 million shares of its common stock for $65 million. As of Jul 4, 2021, the company had $70 million left under the share repurchase authorization, which will expire in November 2022. Notably, on Jul 30, 2021, the board of directors announced a cash dividend of 44 cents per share.

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Other Key Picks From Retail - Restaurants Space

A few other top-ranked stocks in the same industry space include The ONE Group Hospitality, Inc. STKS, Chipotle Mexican Grill, Inc. CMG and The Wendy's Company WEN, each sporting a Zacks Rank #2.

The ONE Group Hospitality, Chipotle Mexican and Wendy's’ earnings for 2021 are expected to rise 261.4%, 137.3% and 43.9%, respectively.


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