Jack in the Box Inc. JACK continues to focus on delivery channels, menu innovation and franchisee businesses to revive its top line. In the past three months, shares of the company have surged 140.5% compared with the industry’s 33.9% growth. However, decline in restaurant-level margin due to wage and commodity inflation along with coronavirus-related woes pose concerns.
Let us discuss the factors that are currently impacting this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Jack in the Box is increasingly focusing on delivery channels. Given the high demand for this service, the company has undertaken third-party delivery channels to bolster transactions and sales. At the end of the fiscal second quarter, more than 95% of Jack in the Box’s system was served by at least one delivery service. The company partnered with DoorDash, Postmates, Grubhub and Uber Eats for the same.
Apart from this, the company is expanding its mobile application in a few markets that support order-ahead functionality and payment. Management is reaping benefits in terms of higher ticket from mobile orders. Markedly, delivery sales have more than doubled during the second quarter due to high mobile application usage. Jack in the Box makes regular menu innovation and provides limited period offers (LPO) at its flagship restaurants to drive long-term customer loyalty. With alterations around premium products like Buttery Jack Burgers, sauced & loaded fries, munchie mash-ups, teriyaki bowls and Tiny Tacos, it is likely to drive comps in the upcoming period as well.
On Jun 10, 2020, the company provided an operational update whereby, same-store sales through the first eight weeks (ended Jun 7, 2020) grew 5% from the corresponding period of 2019. Notably, it is optimistic about third-quarter fiscal 2020 results as system same-store sales have accelerated in the quarter, following comps decline of 4.1% in the preceding quarter.
The company is also shifting focus to travel indulgent food that offers great overall value. Thus, increased focus on food packaging and portability is likely to boost customer confidence in the times ahead.
The coronavirus outbreak has rattled the Retail - Restaurants industry, and Jack in the Box has also taken a hit. Owing to the unprecedented nature of the crisis, the company has withdrawn its 2020 guidance. Moreover, it has suspended its stock buyback program to preserve cash and maintain ample liquidity amid a possible recession due to the outbreak. Moreover, increased labor, food and packaging costs as well as expenses related to marketing initiatives, unit expansion and opening of call centers for catering services are expected to keep profits under pressure. Meanwhile, unlike Yum! Brands YUM, McDonald’s MCD and Domino’s DPZ, Jack in the Box has limited international presence that might be a big disadvantage. Moreover, its high debt level makes it difficult for the company to tide over the ongoing crisis.
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