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Why Is Jack In The Box (JACK) Down 0.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Jack In The Box (JACK). Shares have lost about 0.2% in that time frame, underperforming the S&P 500.

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

Jack in the Box Q3 Earnings & Revenues Top Estimates

Jack in the Box reported third-quarter fiscal 2019 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Notably, this marked the company's third straight earnings beat.

Adjusted earnings from continuing operations came in at $1.07 per share, which exceeded the Zacks Consensus Estimate of 99 cents and increased 7% on a year-over-year basis. Total revenues of $222.4 million marginally beat the consensus mark of $219 million and improved 18.3% year over year.

Comps Discussion

Comps at Jack in the Box’s stores rose 2.8% compared with the prior-year quarter’s 0.6% growth. This uptick can be attributed to average check growth. Transactions improved to flat in the quarter. In second-quarter fiscal 2019, the company had reported comps growth of 0.6%.

Same-store sales at franchised stores increased 2.7% compared with a 0.5% gain in the prior-year quarter. In the last reported quarter, the metric inched up 0.1%. Meanwhile, system-wide same-store sales improved 2.7% compared with a 0.5% increase in the year-ago quarter. In second-quarter fiscal 2019, system-wide same-store sales rose 0.2%.

Operating Highlights

Restaurant-level adjusted margin contracted 50 bps in the third quarter from the year-ago quarter to 27%. The downside was primarily due to wage and commodity inflation, which benefits from refranchising and decline in maintenance as well as repair expenses. Also, food and packaging costs increased 90 basis points owing to higher ingredient costs. Franchise level margin was 42.6% compared with 60.2% in the prior-year quarter.

Balance Sheet

As of Jul 7, 2019, cash totaled $12.4 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 $971.8 million as of Jul 7, 2019, compared with $1,037.9 million at the end of Sep 30, 2018. Cash flows from operating activities increased to $116.8 million in the third quarter from $59.4 million at the prior-year quarter end.

Jack in the Box did not repurchase any shares in the third quarter. Currently, it has $101 million left under the current authorization. Moreover, on Aug 2, 2019, the company announced an additional $200 million share repurchase program, which will expire in November 2020.

2019 Outlook

For fiscal 2019, comps at Jack in the Box’s system restaurants are envisioned to increase at least 1% compared with the prior guided range of flat to up 1%. 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 an upward trend in estimates revision. The consensus estimate has shifted 5.89% due to these changes.

VGM Scores

At this time, Jack In The Box has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 upward for the stock, and the magnitude of these revisions looks promising. 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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