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Here's Why You Should Retain Jack in the Box (JACK) Stock

Jack in the Box Inc. JACK will likely benefit from digital initiatives, strong Del Taco Restaurants’ performance and franchising initiatives. Also, the emphasis on menu innovation bodes well. However, commodity and wage inflation are a concern.

Let us discuss the factors that highlight why investors should retain the stock for now.

Growth Catalysts

Jack in the Box focuses on its digital platforms to enhance overall guest experiences and customer satisfaction. In third-quarter fiscal 2023, the company stated progress concerning the selection of POS providers and emphasized implementation by first-quarter fiscal 2024. The POS rollout will pave a path for cost-saving opportunities with the help of enhanced back-office systems, automation and AI. It emphasized technological investments covering applications, software and tools (like digital menu boards), AI and personalized in-store ordering. The company anticipates the enhanced operational capabilities to drive guest experience and higher store-level margins in the upcoming periods.

Jack in the Box emphasizes the Del Taco Restaurants acquisition to drive growth. During the third quarter, same-store sales rose 1.7%, comprising franchise same-store sales growth of 1.8% and company-operated same-store sales growth of 1.7%. During the quarter, the company refranchised 50 Del Taco restaurants, bringing the number to 66 refranchised restaurants. As of third-quarter fiscal 2023, Del Taco signed 20 development agreements for 153 restaurants.

Given the unit expansion efforts coupled with an emphasis on Del Yeah! Rewards program, the company anticipates the initiatives to target guests better and drive average spend and frequency in the upcoming periods. For fiscal 2023, the company now expects to refranchise 90-120 Del Taco restaurants, up from the prior expectation of 65-85 restaurants.

The company focuses on menu innovation to drive growth. In third-quarter fiscal 2023, the company witnessed a boost in add-on purchases and tickets, driven by the return of the French toast and mozzarella sticks. Introducing the pineapple express shake and pineapple express Red Bull infusion notably drove the quarter’s sales. Also, the introduction of two new Ribeye Steakhouse Burgers bodes well. Going forward, the company emphasizes a barbell menu strategy to boost customer experience and drive strong value proposition.

The company focuses on repairing its franchisee relationship, mapping markets and rebuilding its store pipeline to drive growth. As of second-quarter fiscal 2023, 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 company’s restaurant in Salt Lake City resulted in record-setting sales. Backed by strong results, the company remains optimistic and intends 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.

Concerns

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Zacks Investment Research


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In the past six months, Jack in the Box’s shares have declined 15.3% compared with the industry’s 2.5% fall. The downside was mainly caused by commodity and wage inflation.

During the fiscal third quarter, Commodity costs increased 5.2% year over year. Commodity costs grew due to a rise in the prices across produce, sauces, potatoes and beverages. During the quarter, labor as a percentage of sales increased 110 basis points to 34% year over year. The increase was primarily due to labor inflation (of 4.8%).

The company stated concerns about a challenging inflationary environment in 2023. For fiscal 2023, the company expects commodity cost inflation to be up 8-10% and wage inflation to be up 3-6% on a year-over-year basis.

Zacks Rank & Key Picks

Jack in the Box currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Retail-Wholesale sector include:

Kura Sushi USA, Inc. KRUS sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 139.7% on average. Shares of KRUS have increased by 7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for KRUS’s 2023 sales and EPS indicates 33.4% and 300% growth, respectively, from the year-ago period’s levels.

BJ's Restaurants, Inc. BJRI sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have increased 1.9% in the past year.

The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates a 5.6% and a 447.1% growth, respectively, from the year-ago period’s levels.

Arcos Dorados Holdings Inc. ARCO currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 39.1% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.

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Zacks Investment Research