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Jack in the Box Stock Rose after Its Third Fiscal Quarter Results

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Jack in the Box’s performance

Jack in the Box (JACK) posted its third fiscal quarter earnings after the market closed on August 8. The company posted an adjusted EPS of $1.0 on revenues of $188.0 million, which outperformed analysts’ EPS expectation of $0.88 and revenues estimate of $184.5 million. The strong third fiscal quarter earnings appear to have increased investors’ confidence, which led to a rise in the company’s stock price. Jack in the Box was trading ~7.6% higher in the after-trading hours on August 8.

The company posted SSSG (same-store sales growth) of 0.5% for the quarter. Jack in the Box’s company-owned restaurants recorded 0.6% growth. Company-owned restaurants’ SSSG was driven by a 2.6% increase in the average check size and partially offset by a 2.0% decline in transactions.

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Revenue growth

Jack in the Box’s revenues have declined 23.6% year-over-year due to refranchising company-owned restaurants. The revenues from company-operated restaurants fell 44.5% due to the decline in company-owned restaurants to 146 from 340 in the same quarter last year. During the quarter, the company refranchised 42 company-owned restaurants, which increased the number of restaurants operated by franchisees to 93%.

However, the revenues from franchised restaurants increased by a net addition of 180 franchised restaurants in the last four quarters and positive SSSG of 0.5%.

EPS growth

Compared to $0.99 in the third fiscal quarter of 2017, Jack in the Box’s EPS has increased 1.0% to $1.0. The EPS growth was driven by the expansion of its adjusted EBITDA margin, a lower effective tax rate, and share repurchases. The EPS growth was partially offset by a decline in the company’s revenues.

Jack in the Box’s adjusted EBITDA margin improved from 25.4% to 34.3% due to refranchising company-owned restaurants, lower food and beverage costs, and lower selling, general, and administrative expenses. The improvement was partially offset by wage inflation and higher maintenance and repair costs. The company’s effective tax rate fell from 32.1% in the same quarter of 2017 to 26.5%.

In the last four quarters, Jack in the Box repurchased 2.3 million shares for ~$200 million. Share repurchases drive the company’s EPS by lowering the number of shares outstanding.

Outlook

After posting its third fiscal quarter earnings, Jack in the Box’s management reiterated its fiscal 2018 guidance. The company expects its SSSG to be flat to 0.5%. Management also expects to add 15–20 new restaurants in fiscal 2018, while its adjusted EBITDA is expected to be $260 million–$270 million.

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