21 Nov

Why Analysts Expect Jack in the Box’s Revenue to Fall in 4Q17

WRITTEN BY Rajiv Nanjapla

Revenue estimates

Analysts are expecting Jack in the Box (JACK) to post revenues of $341.7 million in fiscal 4Q17, which represents a fall of 14.2% compared to $398.4 million in fiscal 4Q16. Analysts are expecting the refranchising of the Jack in the Box brand’s company-owned restaurants and negative SSSG (same-store sales growth) in both brands to lower the company’s revenue in fiscal 4Q17.

Why Analysts Expect Jack in the Box’s Revenue to Fall in 4Q17

Jack in the Box brand

With an intent to lower the ownership of company-owned restaurants to less than 10% of the total unit count, the Jack in the Box brand has been refranchising its company-owned restaurants. At the end of fiscal 3Q17, the company operated 340 company-owned restaurants compared to 417 at the end of fiscal 4Q16. Management expects SSSG of the brand to be flat to -2%.

Some of the fall in revenue is expected to be offset by an increase in the unit count of franchised restaurants. At the end of 3Q17, the brand operated 1,915 franchised restaurants compared to 1,838 at the end of 4Q16.

Jack in the Box brand’s SSSG is expected to be driven by the expansion of delivery service to more restaurants, the introduction of new menu items, and value offerings. At the end of fiscal 3Q17, 37% of the restaurants provided delivery service, which is expected to be expanded to more restaurants in fiscal 4Q17. During fiscal 4Q17, the company has been advertising and promoting the Smoky Jack Burger combo, the Really Big Chicken Sandwich combo, and the $3 Munchie Mash-Ups, which are expected to contribute to the brand’s SSSG.

Qdoba Mexican Grill

Revenue for the quarter for Qdoba Mexican Grill is expected to rise due to the addition of both company-owned and franchised restaurants. Compared to fiscal 4Q16, the brand operated 14 more company-owned restaurants and seven more franchised restaurants at the end of fiscal 3Q17. These new restaurants along with restaurants opened in fiscal 4Q17 are expected to drive the company’s revenue.

However, some decline in revenue was offset by negative SSSG. Management expects the brand’s SSSG to be flat to -2% during fiscal 4Q17. SSSG is expected to be driven by the introduction of new menu items such as tortilla soup and smoked brisket and the expansion of delivery services. The brand introduced the Fire-Roasted Shrimp menu item in June 2017, which is expected to contribute to the brand’s SSSG.

Peer comparisons

During the same period, Restaurant Brands International (QSR) posted revenue growth of 12.4%, while revenues for Wendy’s (WEN) and McDonald’s (MCD) fell 15.4% and 10.4%, respectively.

Outlook

For the next four quarters, from fiscal 4Q17 to fiscal 3Q18, analysts are expecting Jack in the Box to post revenue of $1.45 billion, which represents a decline of 10.3% from $1.61 billion in the corresponding four quarters of the previous year. The refranchising of its company-owned restaurants is expected to lower its revenue.

Next, we’ll look at analysts’ estimated EBIT (earnings before interest and tax) margins for fiscal 4Q17.

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