Solid Comps Growth Aid Jack in the Box (JACK), High Costs Ail
Shares of Jack in the Box Inc. JACK have gained 21% so far this year, outperforming the Zacks Retail - Restaurants industry’s 6.2% growth. The upside is backed by solid comps growth, franchising initiatives and strong Del Taco performance. Also, menu innovation initiatives bode well.
However, commodity and labor inflation, and increased operating costs are major concerns for this restaurant company.
Let us delve deeper into the factors.
Factors That Boost Growth
Jack in the Box recently reported its third-quarter fiscal 2023 results wherein earnings and revenues topped the Zacks Consensus Estimate by 9% and 0.9%, respectively. Moreover, the bottom line grew year over year as well. This uptrend was driven by rise in average checks and traffic, reflecting year-over-year comps growth. Additionally, increased menu pricing, favorable menu item mix, sales leverage and a change in the mix of restaurants in connection with refranchising transactions backed the results.
Image Source: Zacks Investment Research
Jack in the Box restaurants are largely franchised with about 94% of its restaurant being franchised, as of the fiscal third quarter of 2023. As of the quarter, the company was awarded 77 development agreements to open 340 new restaurants, of which 32 have already opened and 308 are in the pipeline for future development. The opening of the very first company’s restaurant in Salt Lake City resulted in record-setting sales upon opening. This boosted the confidence of the company as it expects to open three new restaurants in the city area by fiscal 2023 end. The company is considering improving its operating environment to increase the possibilities of earnings franchise profitability in fiscal 2023.
Moreover, JACK’s reimaging program is backing its growth trend. In the third quarter, the company completed two franchise reimages, with 81 restaurants currently in the design and permitting stage. With solid participation from its franchisees, the company anticipates the program to be a driving factor of sales in the upcoming periods.
The acquisition of Del Taco has been a boost to Jack in the Box’s business growth. In the quarter, the company refranchised 50 Del Taco restaurants, bringing the number to 66 refranchised restaurants. For fiscal 2023, the company now expects to refranchise 90-120 Del Taco restaurants, up from the prior expectation of 65-85 restaurants. As of third-quarter fiscal 2023, Del Taco signed 20 development agreements for a total of 153 restaurants. Also, its refurbished Del Yeah! Rewards program bodes well.
Factors Impeding Growth
Jack in the Box is witnessing the pressures of the ongoing inflation and economic challenges since the last few quarters. The company expects to witness these challenges for the remaining fiscal 2023 as well.
In the third quarter of fiscal 2023, the company’s performance was impacted by a rise in commodity inflation, advertising cost, wage inflation of 4.2% and higher utilities and other operating costs. Commodity costs during the reporting quarter and year to date increased 5.2% and 10%, respectively, year over year, driven by a rise in the price across nearly all categories. The major impact was seen in sauces, potatoes, beverages and produce. It expects commodity cost inflation to be up 8% to 10% year over year in fiscal 2023.
Zacks Rank
Jack in the Box currently carries a Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks from the Retail-Wholesale sector are Domino's Pizza, Inc. DPZ, BJ's Restaurants, Inc. BJRI and Builders FirstSource, Inc. BLDR.
Domino's currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DPZ delivered a trailing four-quarter earnings surprise of 4.8%, on average. Shares of the company have gained 12.8% in the year-to-date period. The Zacks Consensus Estimate for DPZ’s 2023 sales indicates decline of 0.1% while earnings per share (EPS) indicates growth of 9.6%, from the previous year’s reported levels.
BJ's Restaurants currently sports a Zacks Rank of 1. BJRI delivered a trailing four-quarter earnings surprise of 121.2%, on average. Shares of the company have gained 23.6% in the year-to-date period.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates growth of 5.6% and 423.5%, respectively, from the previous year’s reported levels.
Builders FirstSource currently sports a Zacks Rank of 1. BLDR has a trailing four-quarter earnings surprise of 52.2%, on average. Shares of the company have rallied 126.8% in the year-to-date period.
The Zacks Consensus Estimate for BLDR’s 2023 sales and EPS indicates decline of 23.2% and 32.3%, respectively, from the previous year’s reported levels.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
Janus Henderson Sustainable & Impact Core Bond ETF (JACK) : Free Stock Analysis Report
Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
