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JACK Stock Soars after Company’s Operational Update

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On Wednesday, Jack in the Box (NASDAQ:JACK) provided an update on its preliminary performance for the second quarter of fiscal 2020, which ended on April 12. The company stated that its SSSG in the first seven weeks of the quarter could increase by 5.2%. However, the SSSG for the last five weeks could decline by 17%, which would drag its SSSG for the quarter to negative 4.2%. Amid the social distancing guidelines, the company is operating all of its restaurants in an off-premise capacity.

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JACK’s management expects its company-owned restaurants to report an SSSG of 4.1%, while franchised restaurants could report an SSSG of 4.2%. Despite COVID-19, management stated that Jack in the Box witnessed minimal temporary closures during the second quarter. On any given day, the company had at least 99% of its restaurants open.

JACK to support franchisees

To support franchisees amid the COVID-19 outbreak, JACK will reduce its marketing fees for April from 5% of the gross sales to 4%. Also, the company postponed the collection of this month’s marketing fees. JACK will collect the fee over 24 months from a date that will be determined by the company in the future. The company has postponed the collection of 40% of the April rental payment from its franchisees. The franchisees can pay the deferred amount over three months starting in July. Jack in the Box added that it was negotiating with landlords about the payment terms where the company is a primary lessee. The company will pass on any benefits to franchisees that it will be able to procure. Also, JACK will delay all franchise development agreements for fiscal 2020 by six months.

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JACK withdrew fiscal 2020 guidance

Amid uncertainty due to COVID-19, JACK has withdrawn its guidance for fiscal 2020, which end on September 27, 2020. The company also stopped its share repurchase program. JACK hasn’t repurchased any shares in the second quarter. The company expects to close the second quarter with cash of $165 million.

Analysts’ recommendations

Analysts’ reactions were mixed after Jack in the Box reported its preliminary performance for the second quarter. BTIG upgraded the stock from “neutral” to “buy.” Wedbush increased its target price from $67 to $70, while SunTrust Robinson raised its target price from $49 to $66. Wells Fargo cut its target price from $105 to $72, while Oppenheimer lowered its target price from $96 to $70. Overall, analysts’ consensus price is $61.18, which represents a 12-month return potential of 41.2% from the closing price of $43.34 on April 15. Meanwhile, Wall Street prefers a “hold” rating for JACK. Among the 19 analysts, 47.4% recommend a “hold” rating, 42.1% recommend a “buy” rating, and 10.5% recommend a “sell” rating.

Stock performance

At 10:20 AM ET today, JACK was trading 15.5% higher. Investors expected a worse performance from the company in the second quarter. The announcement of the second-quarter preliminary results led to a rise in the company’s stock price. So far in 2020, the stock has lost 44.5% of its value as of April 15. Jack in the Box has underperformed McDonald’s (NYSE:MCD), Wendy’s (NASDAQ:WEN), and Starbucks (NASDAQ:SBUX). During the same period, McDonald’s, Wendy’s, and Starbucks have fallen by 10.0%, 24.6%, and 17.5%, respectively. Investors thought that JACK moved into “oversold” territory. Investors bought the stock, which could have led to an increase in the stock price. Recently, McDonald’s and Starbucks provided an update on their performance in the comparable quarter. Read McDonald’s Reports Q1 Comparable Sales, Withdraws 2020 Guidance and Is Starbucks Stock a ‘Sell’ after Its Business Update? to learn more.

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