Jack in the Box Inc. JACK posted better-than-expected third-quarter fiscal 2015 results with both earnings and revenues surpassing the respective Zacks Consensus Estimate.
Adjusted earnings of 75 cents per share beat the Zacks Consensus Estimate of 73 cents and increased from the year-ago quarter figure of 65 cents. The company gained from improved revenues and better margins.
Behind the Headline Numbers
During the quarter, total revenue increased 3.2% year over year to $359.5 million. The improvement was attributable to a 2.4% increase in company restaurant sales and a 5.7% rise in franchise revenues. Total revenue marginally beat the Zacks Consensus Estimate of $359 million by 0.1%.
Comparable store sales (comps) at Jack in the Box climbed 7.3%, driven by 5.5% upside at company-owned restaurants and 7.9% increase at franchised restaurants. Comps growth in the third quarter was substantially better than the system-wide comps growth of 2.4% in the year-ago period. Transactions drove comps growth, and sales were strong across all day-parts, especially breakfast and dinner.
Same-store sales at Qdoba’s restaurants increased 7.7%, better than 7.5% improvement in the year-earlier quarter. A 6.6% upside at the company-owned restaurants and 9% rise at franchised restaurants aided the comps growth at Qdoba. Simplified menu pricing structure drove the average check growth at Qdoba. Further, comps benefitted from another quarter of double-digit growth in catering sales.
The company’s consolidated restaurant operating margin was 21.8% of total sales, up 270 basis points (bps) year over year. Restaurant operating margin increased for both the Jack in the Box company restaurants as well as Qdoba company restaurants. The improvement was due primarily to sales leverage, lower food and packaging costs, and the benefit of refranchising. The improvement was, however, partially offset by increase in labor expenses, higher credit card fees and costs associated with a new catering call center at Qdoba.
SG&A expense for the quarter was 14.2% of revenues, up 60 bps from the prior-year quarter. The increase reflects a rise in pension expense, partly offset by decrease in Qdoba’s advertising costs.
Fourth-Quarter Guidance
In fiscal fourth quarter, the company expects same-store sales increase of approximately 3.5% to 5.5% at Jack in the Box company restaurants. In the Qdoba company restaurants, same-store sales are projected to increase 5% to 7%.
Guidance for Fiscal 2015
Earnings per share, excluding restructuring charges and gains or losses from refranchising, is expected to range within $2.97 to $3.03 in fiscal 2015, up from $2.90 to $3.00 expected earlier. This guidance, however, includes the expected 6-cent charge related to the replacement of beverage equipment.
The company increased the lower end of its same-store sale guidance at company restaurants which is now projected within 5–5.5% as against the earlier outlook of 4.5% to 5.5%. Same-store sales are expected to increase approximately 8% to 8.5% at Qdoba company restaurants, up from 7.5% to 9.5% expected previously.
Overall commodity cost inflation is expected to be roughly 1.5–2% for the full year. Consolidated restaurant operating margin is expected to be about 20%.
The company expects to open 15 to 20 Jack in the Box restaurants system-wide. Further, roughly 40 to 45 Qdoba restaurants are likely to be opened.
Jack in the Box sports a Zacks Rank #1 (Strong Buy). Other well-ranked stocks in the same industry are BJ's Restaurants, Inc. BJRI, Carrols Restaurant Group, Inc. TAST and Ruby Tuesday, Inc. RT. All these stocks sport the same Zacks Rank as Jack in the Box.
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