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

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Aug. 17 2017, Updated 9:06 a.m. ET

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%.

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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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