Jack in the Box (JACK) Up 31% in 6 Months: More Upside Left?

·5-min read

Jack in the Box Inc. JACK is likely to benefit from regular menu innovations and timely focus on catering, delivery and marketing. Also, increased focus on food packaging and portability is likely to enhance customer experience in the upcoming periods.

In the past six months, shares of Jack in the Box have gained 31.3% compared with the Zacks Retail - Restaurants industry’s 11.6% growth. Over the past 30 days, the Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 4.7% to $6.74 per share. Moreover, an upward revision in earnings estimates for fiscal 2021 reflects analysts’ optimism regarding the company’s growth potential.

However, dismissal traffic owing to the coronavirus pandemic and high costs remain a concern for the company.

Factors Driving Growth

Menu innovation is one of the primary characteristics of the company. Its robust performance during fiscal second-quarter 2021 reflects the power of the Jack in the Box brand, iconic differentiated all-day menu and continuous product innovation. Notably, sales in the fiscal second quarter were primarily driven by continued mix shift toward core premium menu items including Chicken Strips, the Bacon & Swiss Buttery Jack and Supreme Croissant. During the second quarter, Jack’s franchisees opened six new restaurants. The company expects to open 20 to 25 restaurants in 2021.

The company impressed investors with robust comps amid the coronavirus pandemic. Comps at Jack in the Box’s stores increased 14.5% in the fiscal second quarter against 4.1% decline reported in the prior-year quarter. The upside can be attributed to average check growth of 19.9%. However, transactions declined 5.4% in the quarter. Same-store sales at franchised stores grew 21.3% year over year against 4.2% decline reported in the prior-year quarter. Meanwhile, system-wide same-store sales increased 20.6% year over year against 4.2% decline reported in the year-ago quarter.

Jack in the Box is also increasingly focusing on delivery channels, which is a growing area for the industry. The company, in a very early stage of developing digital strategies, is connecting with guests and enabling one-to-one marketing. Also, it is witnessing tremendous growth in the digital side of the business. The newest element of the Jack brand is digital accessibility. The company has implemented a latest strategy to accelerate restaurant growth through digital channels.

The company has partnered with DoorDash, Postmates, Grubhub and Uber Eats. It is expanding its mobile application in a few markets that support order-ahead functionality and payment. Notably, delivery sales have more than doubled in the quarter on the back of high mobile application usage. Moreover, to serve the communities through delivery, drive-thru and the mobile app, the company launched #StayInTheBox campaign to promote shelter-in-place mandates. It also developed ads to communicate its dedication to safety protocols while delivering services.

Furthermore, Jack in the Box has been consistently enhancing shareholders’ returns through share repurchases and dividends. During the fiscal second quarter, the company repurchased 0.6 million shares of its common stock for $65 million. On May 7, 2021, the company declared a cash dividend of 44 cents per share. Notably, Jack in the Box raised its quarterly dividend by 10% from 40 cents declared in the previous quarter. The hiked dividend will be paid out on Jun 11, 2021 to shareholders on record as of May 26, 2021. The move underscores the company’s sound financial position and its commitment to reward shareholders.

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Concerns

The Retail - Restaurants industry is currently grappling with the coronavirus pandemic and Jack in the Box is no different. The company announced that it will evaluate the situation on a quarterly basis to evaluate the impacts of COVID-19. Moreover, the company expects the impact of COVID-19 to continue through 2021. Also, it is unsure whether restaurant traffic will return to pre-COVID-19 level.

Moreover, during the fiscal second quarter, the company’s business was negatively impacted by a rise in labor and commodity costs. Although, during the quarter, labor cost inflation improved 100 basis points (bps) year over year, it impacted the bottom line adversely. During the reported quarter, occupancy and other costs increased 6.2% year over year due to a rise in delivery fees. Meanwhile, commodity costs in the quarter increased approximately 1.7% year over year due to a rise in oil and pork costs.

Zacks Rank & Key Picks

Jack in the Box carries a Zacks Rank #3 (Hold). Some top-ranked stocks in the same space include BJ's Restaurants, Inc. BJRI, Dave & Buster's Entertainment, Inc. PLAY and Darden Restaurants, Inc. DRI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BJ's Restaurants’ earnings for 2021 are expected to surge 122.7% and Dave & Buster's earnings for fiscal 2021 are expected to rise 106.3%.

Darden Restaurants has a long-term expected earnings per share (three to five years) growth rate of 10%.

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