Jack in the Box Inc. (JACK, Financial) operates and franchises Jack in the Box restaurants. Jack in the Box restaurants are being listed among the largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. JACK also franchises in Qdoba Mexican Grill.
As the first major hamburger chain to develop and expand the concept of drive-through dining, Jack in the Box has always emphasized on-the-go convenience, with approximately 85% of the half-billion guests served annually buying food at the drive-through or for take-out. In addition to drive-through windows, most restaurants have indoor dining areas and are open 18-24 hours a day.
It pioneered a number of firsts in the quick-serve industry, including menu items that are now staples on most fast-food menu boards, like the breakfast sandwich and portable salads. Today, Jack in the Box offers a selection of distinctive, innovative products targeted at the fast-food consumer, including hamburgers, specialty sandwiches, salads and real ice cream shakes. Hamburgers represent the core of the menu, including the signature jumbo Jack, sourdough Jack, ultimate cheeseburger and the 100% sirloin burger. And, because value is important to fast-food customers, the company also offers value-priced products on “Jack’s Value Menu,” including tacos, chicken nuggets, a chicken sandwich and the breakfast Jack.
In addition to offering high-quality products, Jack in the Box recognizes that an increasing number of quick-serve customers also want the ability to customize their meals. Whether that means forgoing the bun and sauce in favor of a low-carb burger, or substituting ingredients to create the exact mix of flavors to suit an individual's personal tastes, customers have that flexibility at Jack in the Box.
Qdoba Mexican Grill (a leader in the casual dining industry), which was acquired by Jack in the Box Inc. in January 2003, is a leader in fast-casual dining –Â with more than 600 restaurants in 47 states as well as the District of Columbia and Canada. Qdoba is a Mexican kitchen where anyone can go to enjoy a fresh, handcrafted meal prepared right in front of them. Each Qdoba restaurant showcases food that celebrates a passion for ingredients, a menu full of innovative flavours, handcrafted preparation and inviting service.
Financials
Earnings from Continuing Operations during the second quarter of 2015 were $23.4 million, or $0.61 per diluted share (which was $18.3 million, or $0.43 per diluted share in the prior year period).
Operating Earnings per Share, a non-GAAP measure which the company defines as diluted earnings per share from continuing operations on a GAAP basis excluding restructuring charges and gains or losses from refranchising, were $0.69 in the second quarter of fiscal 2015 (which was $0.51 in the prior year quarter).
Same Store System Sales during the second quarter of 2015 increased by 8.9% (best performance since 1999). Company same-store sales increased by 7.4%.
Consolidated restaurant operating margin increased by 210 basis points to 20.6% of sales in the second quarter of 2015 (which was 18.5% of sales in the prior year period).
Restaurant operating margin for Jack in the Box company restaurants increased 280 basis points to 21.4% of sales.
Restaurant operating margin for Qdoba company restaurants increased 50 basis points to 18.8% of sales, due primarily to sales leverage, including the benefit of the new menu pricing structure, which was partially offset by commodity inflation of approximately 2.0%, an increase in labor staffing and higher credit card fees.
Franchise costs during the second quarter of 2015 decreased to 48.3% of franchise revenues (it was 50.5% in the prior year quarter).
SG&A Expense during the second quarter of 2015 was 14.7% of revenues (it increased by $3.8 million in the current quarter from the second quarter of 2014). It was 14.7% of revenues in the prior year quarter.
Losses from refranchising were $5.0 million in the second quarter of 2015, or approximately $0.08 per diluted share, relating to the refranchising of 20 Jack in the Box restaurants in one market (there was a gain of $1.8 million, or approximately $0.03 per diluted share, in the prior year quarter).
Share repurchases
The company approximately repurchased 777,000 shares of its common stock in the second quarter of 2015 at an average price of $96.53 per share for an aggregate cost of $75.0 million.
Year to date through the second quarter, the company has repurchased approximately 2,084,000 shares at an average price of $84.72 per share, for an aggregate cost of $176.6 million. This leaves $40.5 million remaining under a $100 million stock-buyback program authorized by the company’s board of directors, which expires in November 2016. In May 2015, the company’s board of directors authorized an additional $100 million stock buyback program that also expires in November 2016.
Cash dividend
The board of directors of the company on May 7, 2015, announced a quarterly cash dividend of $0.30 per share on the company’s common stock.
Guidance for third quarter
The company expects the following for the fiscal 2015 third quarter:
1. Capex to be around $90-$100 million.
2. Tax rate to be at 37%.
3. A 2% overall commodity cost inflation for the full year.
4. Around 15-20 new restaurants to be opened systemwide.
5. 50 to 60 new Qdoba restaurants.
6. About 20% consolidated restaurant operating margin.
7. Impairment and other charges as a percentage of revenue of approximately 90 basis points, excluding restructuring charges.
8. Qdoba: Same-store sales increase of approximately 6.0 to 8.0.
9. Jack in the Box Company: Same-store sales increase of approximately 4.0 to 6.0%.
Emphasis
The company is currently concentrating on the following:
1. Driving same-store sales.
2. Improving restaurant margins.
3. Growing both the brands.
4. Returning capital to shareholders.
New launch
JACK has recently rolled out a new product – black pepper cheeseburger – a 100% beef patty, creamy peppercorn mayo, black pepper cheese, fried onion rings and crispy bacon, all layered on a gourmet signature bun. It is added to the already yummy menu of burgers offered by the company. The company is already known for innovating quality products.
In addition to the new burger, Jack in the Box also welcomes two new menu items. For breakfast, Jack’s new steak and egg breakfast burrito, this features flame-grilled steak, hash browns and creamy Sriracha sauce. For guests looking for a refreshing cool-down, Jack’s new fruit coolers are available in two tasty flavors – Loco Lime and Twisted Strawberry.
Positive attributes
- Consumer research-driven brands.
- Growing free cash flows.
- Two strong brands with high AUVs, margins and returns.
- Catalysts in place to drive same-store sales.
- Annuity-like cash flows from rental income streams and royalty.
A peek into the restaurant industry
Eating out has become a fashion now and perceptions have changed. There is a constant rise in the disposable income of people around the world, and eating out is comforting, too. There is an improvement in the economy.
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this was the strongest three-month period). Consumer behavior has changed and so the restaurants have come up with different marketing strategies –Â loyalty programs, ordering, etc. According to a market research firm NPD Group, restaurant traffic will increase 1% in 2015, an improvement over a flat 2014 guest count.
As per a report submitted by National Research Association, restaurant industry will reach some landmark numbers in 2015 – more than $709 billion in sales, one million locations and 14 million employees.
On a concluding note
This San Diego-based company has two of the strong brands with high margins and returns. Qdoba is the second-largest fast-casual Mexican concept. Jack in the Box is the second-largest QSR (Quick Service Restaurant) burger chain in most of its major markets.
With fatter dividend and increased traffic, this company is poised to grow. Is raking in higher sales and perceptions have changed in the way people eat out now. This stock has plenty of opportunities. It is one of the best performers in the restaurant industry. I would recommend this stock a buy.
JACK is a popular name in the restaurant industry and is growing fast. It has distinguished itself from its peers and has been able to carve a niche for itself. It is making continuous efforts to reposition itself in this fast-food industry. It is expected to create shareholder returns. Investors may consider adding this restaurant stock to their portfolio.
(Source: Company's Website)
