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Why Jack in the Box Stock Rose after Fiscal 3Q17 Earnings

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Part 6
Why Jack in the Box Stock Rose after Fiscal 3Q17 Earnings PART 6 OF 9

Why Jack in the Box’s Earnings Margins Declined in Fiscal 3Q17

Fiscal 3Q17 performance

In fiscal 3Q17, Jack in the Box (JACK) has posted an EBIT (earnings before interest and tax) of $55.5 million, which represents an EBIT margins of 15.5%. Comparatively, in fiscal 3Q16, the company had posted an EBIT margins of 17.1%.

Why Jack in the Box&#8217;s Earnings Margins Declined in Fiscal 3Q17

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Factors that lowered the company’s margins

Compared to fiscal 3Q16, food and paper expenses rose from 29.3% to 30.3% of the total revenue due to inflation in commodity prices of 5% at Jack in the Box restaurants and 2.5% at Qdoba restaurants. Year-over-year, beef prices rose 17%. Labor expenses rose from 27.6% to 28.3% due to wage inflation of 6%. Occupancy and other expenses also rose from 21.2% to 23.3% due to an increase in maintenance and repair expenditures and sales deleveraging from negative same-store sales growth.

However, some of the declines were offset by lower SG&A (selling, general, and administrative) expenses and a decline in franchise support and other costs. SG&A expenses fell from 11.6% to 10.7% due to restructuring initiatives.

Peer comparisons

During the same quarter, Wendy’s (WEN), McDonald’s (MCD), and Restaurant Brands International (QSR) have posted EBIT margins of 26.5%, 34.1%, and 42.1%, respectively.

Outlook

For the next four quarters, analysts are expecting the company to post EBIT margins of 18.6%, compared to 15.6% in the corresponding quarters of the previous year. The refranchising of company-owned restaurants and initiatives to lower SG&A expenses is expected to drive the company’s EBIT margins.

Next, we’ll look at Jack in the Box’s earnings per share.

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