Jack in the Box Inc.
) third-quarter fiscal 2013 adjusted earnings of 41 cents per
share, beat the Zacks Consensus Estimate of 38 cents by 7.9% and
comparable year-ago quarter's earnings by 5.1%. Earnings in the
quarter received a boost from the company's margin expansion at
Jack in the Box restaurants.
Quarterly revenues fell 1.1% year over year to $350.3 million
and also missed the Zacks Consensus Estimate of $366 million by
4.3%. Revenues in the quarter were under pressure due to
muted comparable restaurant sales (comps) growth.
Behind the Headline Number
Jack in the Box operates through its quick-service restaurant
chain, Jack in the Box, and fast-casual restaurants, Qdoba
System-wide comps at Jack in the Box restaurants were 0.1%,
with a 1.2% upside at the company-owned restaurants, offset by a
0.3% decline at franchised restaurants. Comps in the quarter were
much lower than the year-ago comps of 2.8%. System-wide comps
were adversely affected by the adverse weather and slowdown in
System-wide comps at Qdoba's restaurant increased 1.3%,
gaining from 0.5% and 2.1% rise comps at company-owned and
franchised restaurants, respectively. The company's set of
sales-driving initiatives boosted the comps during the
The company's consolidated restaurant operating margin
expanded 40 basis points (bps) year over year to 17.9%, led by an
80 bps dip in payroll and employee benefits costs and better menu
pricing, offset by a 40 bps rise in food and packaging
Restaurant operating margin at Jack in the Box were up 110 bps
to 16.9%, driven by comps growth and refranchising activities.
However, Qdoba's restaurant operating margin was down 270 bps to
20.6% resulting from lower top line, higher commodity costs and
unfavorable impact of product mix.
During the quarter, three Jack in the Box and 11 Qdoba
restaurants were unveiled. The company has also acquired 12 Qdoba
restaurants from its franchisee while closing down 63 Qdoba
At the end of the quarter, the company had 2,255 Jack in the
Box restaurants and 592 Qdoba units, of which 1,729 were
franchised. The company plans to unveil 20 Jack in the Box
restaurants and 65-70 Qdoba outlets in fiscal 2013.
At the end of the quarter, cash and cash equivalent was $9.8
million versus $10.2 million in the second quarter. Long-term
debt, net of current maturities was $359.5 million versus $369.7
million in the previous quarter.
The company bought back 1.4 million shares worth $50.8 million
during the second quarter. Currently, $84.7 million worth of
shares remain under the existing $100 million share repurchase
programs. Jack in the Box has also approved an additional share
repurchase program worth $100 million in Aug 2013.
Jack in the Box's company restaurants are expected to post
positive comps growth for the fourth quarter of fiscal 2013.
Comps at the Qdoba restaurants are expected to be up 1% as
compared with 1.1% in the year-ago quarter.
The company has increased its earnings guidance for fiscal
2013. Adjusted earnings per share are estimated to be within
$1.72 to $1.78, up from the previous range of $1.55-$1.65.
Earnings in the quarter are expected to get a boost from the
company's higher margin and closure of Qdoba units.
The company has reduced its guidance for overall commodity
costs to 2% from 2%-2.5%. The restaurants operating margin is
estimated to be 17.0%-17.5%, higher than the previous estimate of
16.0%. Lower commodity costs and refranchising strategy is
expected to boost margin in fiscal 2013.
However, the company has slightly lowered its comps guidance
for Jack in the Box restaurants due to sluggish industry sales
trend. The company expects comps to grow by 1% at these
restaurants, lower than the previous estimate of 1.5%-2.5%.
However, the company continues to expect that Qdoba company
restaurants' comps will be flat to up 1% in fiscal 2013.
After a weak quarter, Jack in the Box has succeeded to post
earnings growth thanks to its cost-effective strategy and the
trend is expected to continue ahead. Further, this Zacks Rank #1
(Strong Buy) company is trying effortlessly to improve its sales
through a series of initiatives. We expect the company to perform
better benefiting from its refranchising activities and the
transformation of ownership at the higher-margined Qdoba units
from franchised to the company level.
Some other players in the restaurant industry which are
expected to perform well, going ahead, include
Burger King Worldwide, Inc.
Buffalo Wild Wings Inc.
Cracker Barrel Old Country Store, Inc.
). All these companies carry a Zacks Rank #2 (Buy).
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