Jack in the Box Misses Estimate - Analyst Blog
August 11 2011 - 7:00AM
Zacks
Jack in the Box
Inc. (JACK) has recently posted third quarter 2011
earnings of 38 cents per share, which fell short of the Zacks
Consensus Estimate of 40 cents and deteriorated from the year-ago
quarter earnings of 44 cents.
Quarter
Performance
During the quarter, total revenue
dipped 0.8% year over year to $519.3 million. The revenue declined
as restaurant sales plunged 13.3% to $326.0 million mainly due to
the company’s strategy of selling company-owned restaurants to
franchisees. However, distribution revenue and franchised
restaurant revenue increased 33.7% to $125.7 million and 27.1% to
$67.5 million, respectively.
Jack in the Box comparable-store
sales (comps) increased 3.2%, driven by a 4.7% upside at
company-owned restaurants and a 2.4% rise at franchised
restaurants. Comps saw a drastic improvement from a decline of 9.5%
in the year-ago quarter. Higher customer visitation arising from
the company’s continued focus on efficiency including improving the
quality of food and service is attributed to this growth.
Additionally, to enhance guests’ dining experience, the company
plans to complete its restaurant re-imaging program by 2011.
Moreover, same-store sales at Qdoba’s restaurant were up 5.1%,
driven by transaction growth and higher catering sales. In the
year-earlier quarter, comps grew 4.6%.
Jack in the Box’s restaurant
operating margin declined 170 basis points (bps) to 6.3%. The
margin contraction was due to higher food and packaging costs (up
210 bps), occupancy and other costs (up 50 bps) and franchise costs
(up 200 bps). Overall commodity costs were approximately 6.5%
higher in the quarter, owing to higher costs for beef, cheese,
dairy and eggs.
Store Update
During the quarter, the company
opened 11 new company-owned and 10 franchised Jack in the Box
restaurants. The company also refranchised 226 restaurants and
closed 7 units among which 6 were company operated. The company
also closed 8 Qdoba restaurants during the quarter and opened 47
Qdoba restaurants, of which 30 were franchised.
Financial
Position
At quarter end, Jack in the Box had
cash and cash equivalents of $12.0 million and long-term debt of
$426.4 million.
During the quarter, Jack in the Box
repurchased shares worth $2.99 million, at an average price of
$21.65. The company currently has $60 million remaining under its
existing $100 million share repurchase program, which expires in
November 2012.
Guidance
For the fourth quarter of 2011, the
company expects same-store sales at Jack in the Box restaurants and
Qboda restaurants to increase in the range of 1%–3% and 3%–5%,
respectively. The company also foresees cost inflation of 7% given
higher costs for most commodities but poultry.
For fiscal 2011, the company
forecasts same-store sales to grow 2% to 3% (previously 1% to 3%)
at Jack in the Box restaurants and 5% to 6% (previously 4% to 6%)
at Qdoba restaurants. Overall commodity costs are expected to
increase 5% for 2011. Earnings per share are estimated in the range
of $1.46 and $1.60 (previously $1.40 and $1.65).
The company plans to open 30 to 35
new Jack in the Box restaurants and 60 to 70 new Qdoba outlets in
2011. The company expects to incur capital expenditure of $120
million to $125 million.
Our Take
San Diego-based Jack in the Box
continues to struggle due to its ongoing restructuring and rising
cost inflation. However, we expect the scenario to improve
gradually with unit growth, closure of underperforming restaurants
and completion of the refranchising program. Management anticipates
gains from refranchising to contribute from 71 cents to 78 cents to
earnings per share in 2011 compared with 65 cents realized in 2010.
Additionally, the share repurchase program should bode well for the
investors.
One of Jack in the Box’s primary
competitors, Buffalo Wild Wings Inc. (BWLD),
posted second quarter 2011 earnings of 58 cents per share, which
also missed our estimate.
Jack in the Box currently retains a
Zacks #3 Rank, which translates into a short-term Hold rating. We
are also maintaining our long-term Neutral recommendation on the
stock.
BUFFALO WLD WNG (BWLD): Free Stock Analysis Report
JACK IN THE BOX (JACK): Free Stock Analysis Report
Zacks Investment Research
Buffalo Wild Wings, Inc. (delisted) (NASDAQ:BWLD)
Historical Stock Chart
From Jun 2024 to Jul 2024
Buffalo Wild Wings, Inc. (delisted) (NASDAQ:BWLD)
Historical Stock Chart
From Jul 2023 to Jul 2024