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Jack In The Box (JACK) Up 8.6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
JB Hunt (JBHT) delivered earnings and revenue surprises of 1.48% and -0.63%, respectively, for the quarter ended June 2019. Do the numbers hold clues to what lies ahead for the stock?

A month has gone by since the last earnings report for Jack In The Box (JACK). Shares have added about 8.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Jack In The Box due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Jack in the Box Q2 Earnings Top, Revenues Lag Estimates

Jack in the Box reported second-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues marginally fell short of the same. Following the quarterly results, shares of the company witnessed a marginal increase of 0.5% in after-hours trading on May 15. However, the stock has lost 1.3% against the industry’s 11.4% growth in the past six months.

Adjusted earnings from continuing operations came in at 99 cents per share, which exceeded the Zacks Consensus Estimate of 92 cents and also increased 20% on a year-over-year basis. Total revenues of $215.7 million marginally missed the consensus mark of $217 million but improved 2.8% year over year.

Comps Discussion

Comps at Jack in the Box’s stores inched up 0.6% compared with the prior-year quarter’s 0.9% growth. Average check growth of 2.8%, partially offset by a 2.2% decline in transactions, led to the uptick. In first-quarter fiscal 2019, the company had reported comps growth of 0.5%.

Same-store sales at franchised stores inched up 0.1% compared to a 0.2% decline in the prior-year quarter. In the last reported quarter, the metric declined 0.1%. Meanwhile, system-wide same-store sales increased 0.2% compared to a 0.1% decline in the year-ago quarter. In first-quarter fiscal 2019, system-wide same-store sales decraesed 0.1%.

Operating Highlights

Restaurant-level adjusted margin expanded 120 bps from the year-ago quarter to 27.6%. The upside was driven by benefits from refranchising and decline in maintenance as well as repairs expenses, partially offset by wage and commodity inflation. Franchise level margin was 41.7% compared with 59.8% in the prior-year quarter.

Balance Sheet

As of Apr 14, 2019, cash totaled $1.6 million compared with $2.7 million as of Sep 30, 2018. Inventories in the quarter under review amounted to $1.9 million.

Long-term debt summed $1,014.9 million as of Apr 14, 2019, compared with $1,037.9 million at the end of Sep 30, 2018. Cash flows from operating activities increased to $60.9 million in the second quarter from $29.3 million at the prior-year quarter end.

The company did not repurchase any shares in the second quarter. Currently, it has $101 million left under the current authorization.

2019 Outlook

For fiscal 2019, comps at Jack in the Box’s system restaurants are envisioned to be in the range of flat to up 1% compared with prior guided range of flat to up 2%. Meanwhile, the company continues to expect Restaurant-Level EBITDA within the 26-27% band.

Adjusted EBITDA is anticipated between approximately $260 million and $270 million. Capital expenditures are estimated roughly in the $30-$35 million range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Jack In The Box has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Jack In The Box has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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