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Jack In The Box (JACK) Down 2.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Jack In The Box (JACK). Shares have lost about 2.8% 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 Q1 Earnings & Revenues Surpass Estimates

Jack in the Box reported first-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

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Adjusted earnings from continuing operations came in at $1.35 per share, which exceeded the Zacks Consensus Estimate of $1.30 and increased 9.8% on a year-over-year basis. Also, total revenues of $290.8 million outpaced the consensus mark of $286 million but decreased 1.2% year over year.

Comps Discussion

Comps at Jack in the Box’s stores inched up 0.5% compared with the prior-year quarter’s 0.2% growth. Average check growth of 3.8%, partially offset by a 3.3% decline in transactions led to the improvement. In fourth-quarter fiscal 2018, the company had reported comps growth of 0.8%.

Same-store sales at franchised stores declined 0.1% compared with a 0.3% decline in the prior-year quarter. In the last reported quarter, the metric rose 0.4%. System-wide same-store sales decreased 0.1% compared to a 0.2% decline in the prior-year quarter. In fourth-quarter fiscal 2018, system-wide same-store sales increased 0.5%.

Operating Highlights

Jack in the Box’s consolidated restaurant operating margin was 22.8%, up 60 basis points (bps) year over year.

Restaurant-level EBITDA increased 20 bps from the year-ago quarter to 26.2%. The upside was driven by benefits from refranchising, partially offset by wage inflation as well as an increase in repairs and maintenance costs. Meanwhile, franchise EBITDA was 42.9% compared with 60.9% in the prior-year quarter. Rise in costs in the current quarter resulted in the downside.

Balance Sheet

As of Jan 20, 2019, cash totaled $4.3 million compared with $3.8 million as of Jan 21, 2017. Inventories in the quarter under review amounted to $2.1 million, up from $1.9 million at the end of Sep 30, 2018.

Long-term debt summed $1,013.7 million as of Jan 20, 2019, compared with $1,037.9 million at the end of Sep 30, 2018. Cash flows from operating activities declined to $37.6 million in the first quarter from $53.7 million at the prior-year quarter end.

The company did not repurchase any shares in the first quarter. Currently, it has $101 million left under the current authorization.

2019 Outlook

Jack in the Box reiterated its fiscal 2019 guidance. Comps at the company’s system restaurants are envisioned to be in the range of flat to up 2%. 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 range of $30-$35 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Jack In The Box has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, 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. 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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