Jack in the Box Inc.’s (JACK) share price was up 5.9% to $47.35 on Nov 21, 2013 from $44.70 as of Nov 20, 2013, following soft fiscal fourth quarter 2013 results. Adjusted earnings for the quarter were 45 cents per share, up 45.2% year over year from 31 cents per share. Adjusted earnings also beat the Zacks Consensus Estimate of 39 cents by 15.4%.
The results reflect the cost control initiatives undertaken by the company. The company is continuously making efforts to curtail its cost structure while improving profitability across both brands, Jack in the Box and Qdoba Mexican Grill.
Including one-time charges and gains of approximately 10 cents per share, reported earnings stood at 54 cents per share, up 28.6% year over year.
Revenue Discussion
Jack in the Box’s quarterly revenues were $338 million, down 3.1% year over year. The top line marginally missed the Zacks Consensus Estimate by 0.6%. The year-over-year decline was due to weak company restaurant sales, partially offset by an improvement in Franchise revenues.
During the quarter under review, comps at Jack in the Box declined 1.4% year over year, while those at Qdoba Mexican Grill grew 2.0%.
Operational Highlights
Operating costs and expenses were 301.3 million, down 5.2% year over year. The year-over-year decline reflects a 5.5% drop in total company restaurant costs and a 7.9% decrease in selling, general and administrative expenses, partially offset by a 4.3% increase in Franchise costs.
The decline in revenues was more than offset by the decline in operating expenses, resulting in an operating income growth of18.0% to$36.7 million in the quarter.
During fiscal fourth quarter 2013, total restaurant operating margin declined 10 basis points (bps) to 16.1%. Restaurant operating margin for Jack in the Box restaurants increased 80 bps to 15.7% driven by the benefit of refranchising, partially mitigated by higher food and packaging costs and sales deleverage. However, operating margin at Qdoba restaurants plummeted 130 bps to 17.2% due to increased rent and staffing related to new restaurant openings, higher credit card fees, product mix changes, and commodity inflation.
Annual Discussion
Fiscal 2013 earnings went up 38.9% year over year to $1.82 per share, surpassing the Zacks Consensus Estimate of $1.47 by 23.8%.
However, fiscal 2013 revenues declined 1.29% year over year to $1,489.9 million and missed the Zacks Consensus Estimate of $1,517.0 million by 1.8%.
Restaurants Update
During fiscal 2013, the company refranchised 78 Jack in the Box restaurants, including 56 during the reported quarter. The company stated that it was very close to its goal of franchise ownership in the range of 80.0% to 85.0%.
In Jun 2013, the company announced its decision to close 67 of its company-operated Qdoba restaurants, of which 62 were closed in the third quarter itself. In the fourth quarter, the company sold 3 restaurants to an existing franchisee and closed one unit when its lease expired. The remaining unit is expected to be closed within the calendar year following the expiry of its lease.
Financial Condition
As of Sep 29, 2013, cash and cash equivalents were $9.7 million, up from $8.5 million as of Sep 30, 2012. Long-term debt, net of current maturities was $349.4 million, down from $405.3 million as of Sep 30, 2012.
During the reported quarter, the company repurchased 1.2 million shares at an average price of $40.04 per share. During fiscal year 2013, the company repurchased approximately 4.0 million shares at an average price of $35.29 per share. Currently, the company is authorized to repurchase shares worth $36.8 million under a $100 million buyback program that expires in Nov 2014 and an additional $100 million shares under a program ending Nov 2015.
Guidance
For the first quarter of fiscal 2014, the company expects comp sales to increase in the range of 1.5% to 2.5% both at Jack in the Box and Qdoba.
For fiscal 2014, comps are expected to increase in the range of 1.5% to 2.5% at Jack in the Box to and 2.0% to 3.0% at Qdoba. Restaurant operating margin is expected in the range of approximately 17.7% to 18.1%. Adjusted earnings per share are likely to be in the range of $2.15 to $2.30 per share.
The company expects to open 10 Jack in the Box restaurants and 60 to 70 Qdoba restaurants in fiscal 2014. The company expects capital expenditure in the range of $80.0 million to $90.0 million.
Long-term Targets
For fiscal 2015 to 2017, the company expects comps growth in the range of 2.0% to 3.0% at Jack in the Box and 3.0% to 4.0% at Qdoba restaurants. Restaurant operating margin is expected in the band of 18.5% to 19.5%.
Other Stocks to Consider
Jack in the Box Inc. currently has a Zacks Rank #3 (Hold). However, some better-ranked restaurant industry stocks include Papa John's International Inc. (PZZA), Krispy Kreme Doughnuts, Inc. (KKD) and Red Robin Gourmet Burgers Inc. (RRGB). All these stocks hold a Zacks Rank #2 (Buy).
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