Bear of the Day: Jack in the Box (JACK)

Jack in the Box ( JACK ), a Zacks Rank # 5 (Strong Sell) is a restaurant company that operates and franchises Jack in the Box restaurants, one of the nation's largest hamburger chains, and Qdoba Mexican Eats, a leader in fast-casual dining. As the first major hamburger chain to develop and expand the concept of drive-thru dining, Jack in the Box has always emphasized on-the-go convenience, with approximately half-billion guests served annually buying food at the drive-thru or for take-out.

Recent Earnings Data

On November 30th, the company reported Q4 17 results that missed both the Zacks consensus earnings and revenue estimates for the second consecutive quarter. Further, this was their third miss of both top and bottom line expectations three out of the last four quarters. The company saw year over year declines in the following; earnings from continuing operations -7.1%, sales -14.8%, Jack in the Box same store sales -2.0%, and Qdoba same store sales -4.0%.

In May, management began to look into its options regarding Qdoba restaurants; which included selling the chain outright. Just before the last earnings report it was rumored that JACK had found a buyer, Apollo Global Management LLC, for a price of $300 million. But the poor earnings data, and management writing down the value of Qdoba, put the deal in limbo. Further, after the earnings announcement, management commented that that they would not give guidance for FY 18 until they figured out its plan for Qdoba. This created uncertainty for investors, which caused the stock price to drop.

Management's Take

According to Lenny Comma, Chairman and CEO, " Our fourth quarter operating results concluded a challenging year for both brands. Our key initiatives in 2018 will be focused on regaining momentum in a highly competitive environment. We continue to make significant progress on our Jack in the Box refranchising initiative, with the sale of 60 restaurants in the fourth quarter and 178 during the fiscal year. We currently have signed non-binding letters of intent with franchisees to sell 32 additional restaurants, and now anticipate the Jack in the Box franchise mix to approach the high end of our previous expected range ."

Price and Earnings Consensus Graph

As you can see in the chart below, the misses in three out of the last four quarters has muted the company's growth, and future earnings estimates have begun to fall.

Jack In The Box Inc. Price and Consensus

Jack In The Box Inc. Price and Consensus | Jack In The Box Inc. Quote

Detailed Earnings Estimates

Due to the decline in same store sales, continued issues with refranchising costs, and Qdoba future earnings estimates have been cut for Q1 18, Q2 18, FY 18 and FY 19 over the past 30 days; Q1 18 dropped from $1.40 to $1.25, Q2 18 fell from $1.11 to $1.04, FY 18 was decreased from $4.84 to $4.49, and FY 19 was reduced from $5.83 to $4.90. Investor Alert: Breakthroughs Pending

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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