We expect Jack in the Box Inc. JACK to beat expectations in the third quarter of fiscal 2015 to be reported on Aug 6, after the market closes. Last quarter, the company posted a positive earnings surprise of 4.55%.
Jack in the Box has surpassed earnings estimates in all the trailing four quarters with an average positive earnings surprise of 6.85%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Jack in the Box is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.74%. This is meaningful and indicates a likely earnings surprise.
Zacks Rank: Jack in the Box has a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings.
Meanwhile, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Jack in the Box’s Zacks Rank #1 and +2.74% ESP makes us confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
Jack in the Box’s system-wide same-store sales have been outperforming the industry consistently over the past several quarters. Menu innovation backed by correct pricing strategy and double-digit growth in catering sales are the driving factors. Despite inclement weather in the last quarter, Qdoba posted comps growth, and the trend is expected to continue in the third quarter in view of the new pricing structure and intensified menu innovation.
Meanwhile, the company has done a great job of driving sales during the breakfast and late-night day parts over the past few quarters. These factors are expected to aid comps in the to-be-reported quarter as well.
However, commodity cost inflation, promotional and advertising expenses and costs related to re-training its workforce in hospitality lessons would further keep profits under pressure.
Other Stocks to Consider
Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +2.63% and a Zacks Rank #1.
Jamba, Inc. JMBA, with an Earnings ESP of +5.00% and a Zacks Rank #3.
Shake Shack Inc. SHAK, with an Earnings ESP of +33.33% and a Zacks Rank #3.
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