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Why Is Jack In The Box (JACK) Down 4.2% 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 4.2% 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 drivers.

Jack in the Box Q4 Earnings Meet, Revenues Miss Mark

Jack in the Box reported fourth-quarter fiscal 2019 results, wherein earnings came in line with the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings from continuing operations came in at 95 cents per share, in line with the Zacks Consensus Estimate and increased 23.4% on a year-over-year basis. However, total revenues of $221.2 million marginally missed the consensus mark of $221.8 million but improved 24.7% year over year.

Comps Discussion

Comps at Jack in the Box’s stores rose 3.5% compared with the prior-year quarter’s 0.8% growth. This uptick can be attributed to average check and transactions growth of 2.8% and 0.7%, respectively. In third-quarter fiscal 2019, the company had reported 2.8% comps growth.

Same-store sales at franchised stores increased 3% compared with a 0.4% gain in the prior-year quarter. In the last reported quarter, the metric was up 2.7%. Meanwhile, system-wide same-store sales improved 3% compared with a 0.5% increase in the year-ago quarter. In third-quarter fiscal 2019, system-wide same-store sales rose 2.7%.

Operating Highlights

Restaurant-level adjusted margin contracted 190 bps in the fourth quarter from the year-ago quarter to 24.2%. 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 30 basis points owing to higher ingredient costs. Franchise level margin was 41.1% compared with 58.6% in the prior-year quarter.
Balance Sheet

As of Sep 29, 2019, cash totaled $125.5 million compared with $2.7 million as of Sep 30, 2018. Inventories in the quarter under review amounted to $1.8 million. Long-term debt summed $1,274.4 million as of Sep 29, 2019, compared with $1,037.9 million at the end of Sep 30, 2018. Cash flows from operating activities increased to $168.4 million in the fourth quarter from $104 million at the prior-year quarter end.

Jack in the Box repurchased 1.4 million shares worth $125.3 million in the fourth quarter. Currently, it has $109 million left under the current authorization. Moreover, on Nov 15, 2019, the company announced an additional $100 million share repurchase program, which will expire in November 2021.

2020 Outlook

For fiscal 2020, comps at Jack in the Box’s system restaurants are envisioned to increase nearly 1.5-3%. Meanwhile, the company expect Restaurant-Level margin of nearly 25%.

Adjusted EBITDA is anticipated between approximately $265 million and $275 million. Capital expenditures are estimated roughly in the $45-$55 million range.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -8.23% due to these changes.

VGM Scores

Currently, Jack In The Box has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 C. 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. It's no surprise Jack In The Box has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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