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Jack in the Box Stock Falls on Weak Fiscal Q2 Earnings

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May. 17 2018, Published 7:15 a.m. ET

Stock performance

Jack in the Box (JACK) posted its fiscal second-quarter earnings after the market closed on May 16. Its adjusted EPS (earnings per share) came in at $0.80 on revenues of $209.8 million. Analysts were expecting adjusted EPS of $0.85 on revenues of $211.4 million.

Its SSSG (same-store sales growth) declined 0.1% during the quarter against analysts’ estimate of positive 0.1%. The lower-than-expected SSSG, revenue, and EPS led to a fall in the stock. Jack in the Box was trading 3% lower in after-market hours on May 16.

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Revenue growth

Year-over-year, Jack in the Box’s revenue declined 21.1% due to the refranchising of company-owned restaurants. There were 188 company-owned restaurants compared to 371 in the corresponding quarter of the previous year. However, some of the declines were offset by SSSG of 0.9% in company-owned restaurants and an increase of franchised restaurants by 168 units. The company refranchised 63 restaurants in the second quarter.

EPS growth

During the quarter, Jack in the Box’s EPS declined 7% to $0.80 from $0.86 in the corresponding quarter of the previous year. The decline in revenue and operating margin offset the positive effects of a lower effective tax rate and share repurchases to post a decline in EPS.

The company’s operating margin declined from 22.5% to 22.3% due to a contraction in its franchise margin, higher SG&A (selling, general, and administrative) expenses, and higher D&A (depreciation and amortization) expenses. Those were partially offset by a higher operating margin for its company-owned restaurants. During the quarter, the company repurchased 1.1 million shares for approximately $100 million and had approximately $281 million available under its share repurchase program.

Outlook

For fiscal 2018, Jack in the Box’s management has set its SSSG guidance at flat to 1%. It also expects to open 25 new restaurants during this fiscal year.

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