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Why Is Jack In The Box (JACK) Down 5.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Jack In The Box (JACK). Shares have lost about 5.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Jack in the Box Q4 Earnings Top, Revenues Lag Estimates

Jack in the Box reported mixed fourth-quarter fiscal 2021 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same. While the bottom line surpassed the consensus mark for the sixth straight quarter, the top line missed the same after beating in the preceding seven quarters.

Earnings & Revenue Details

During the fiscal fourth quarter, adjusted earnings from continuing operations was $1.80 per share, which beat the Zacks Consensus Estimate of $1.74. The bottom line improved 9.8% year over year.

Quarterly revenues of $278.5 million missed the Zacks Consensus Estimate of $288 million. However, the top line increased 9% on a year-over-year basis. Franchise rental revenues increased 7.3% year over year to $84.4 million. Franchise royalties and other revenues climbed 9.8% year over year to $49.3 million owing to rise in franchise same-store sales. Meanwhile, franchise contributions to advertising and other services revenues advanced 9% year over year to $49.2 million. Company restaurant sales increased to $95.6 million from $86.8 million.

Comps Discussion

Comps at Jack in the Box’s stores decreased 4.4% in the fiscal fourth quarter against growth of 9.6% in the prior-year quarter. Decline in comps was primarily due to dismal traffic, which was partially offset by increase in average check.

Same-store sales at franchised stores increased 0.6% year over year compared with 12.4% growth in the prior-year quarter. Meanwhile, system-wide same-store sales increased 0.1% year over year compared with 12.2% gain reported in the year-ago quarter.

Operating Highlights

During the fiscal fourth quarter, restaurant-level adjusted margin came in at 20.1%, compared with 27% reported in the prior-year quarter. The was due to the take-back of lower-volume franchise restaurants, higher food and packaging costs, wage inflation of 9.8%, and a rise in utilities and maintenance and repair costs. The decline was offset by lower incentive compensation and menu price increases.

Food and packaging costs (as a percentage of company restaurant sales) rose 140 bps to 31% year over year. Commodity costs during the quarter increased 11.8% year over year. The increase was due to a rise in pork, beef and beverages costs.

Franchise level margin was 41.4% in the fiscal fourth quarter compared with 41.3% in the prior-year quarter.

During the quarter, selling, general and administrative expenses accounted for 7.7% of total revenues compared with 5.8% in the prior-year quarter.

Balance Sheet

As of Oct 3, 2021, cash (inclusive of restricted cash) totaled $55.3 million compared with $199.7 million as of Sep 27, 2020. Inventories during the quarter amounted to $2.3 million compared with $1.8 million as on Sep 27, 2020. Long-term debt (net of current maturities) totaled $1,273.4 million as of Oct 3 compared with $1,376.9 million at the end of Sep 27, 2020.

During the fiscal fourth quarter, the company repurchased 0.7 million shares of its common stock for $70 million. On Nov 19, 2021, the company’s board of directors announced an additional $200 million stock buy-back program that expires on Nov 20, 2023.

The company declared a cash dividend of 44 cents per share. The dividend will be paid out on Dec 23, 2021 to shareholders on record as of Dec 9, 2021.

Fiscal 2022 Outlook

General and administrative expenses are anticipated to be $92-97 million in 2022. For fiscal 2022, company-owned wage rate guidance is expected to be up 8-10% compared to 2021. For fiscal 2022, commodity guidance is estimated to be up 6-7% compared to 2021. Restaurant Level Margin is anticipated to be 20-21%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.96% due to these changes.

VGM Scores

At this time, Jack In The Box has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 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 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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