Jack Is Back, Bigger than Ever

Jack in the Box (NASDAQ: JACK  ) is hitting all-time highs following results that showed negative same-store sales. Dig a little deeper beyond the initial numbers, and you will find a solid turnaround story on par with The Wendy's Company (NASDAQ: WEN  ) and in contrast to McDonald's (NYSE: MCD  ) .

Results
Jack in the Box reported its fiscal fourth-quarter results on Nov. 20. Earnings from continuing operations were up 26% to $24.1 million. Earnings per share from the same was up 29% because stock buybacks lowered the company's share count.

Same-store sales for its company-owned Jack in the Box concept were down 0.2%. For Qdoba, they were up 1.3%. This compares to a forecast of "slightly positive" for Jack in the Box and a 1% gain for Qdoba. It was a tiny miss on the bigger concept and a tiny beat on the smaller one. Neither metric is very exciting on the face of it.

Now the exciting stuff
CEO Linda Lang pointed out that although same-store sales for Jack in the Box were negative, sales were positive and accelerating every week for the last six weeks of the quarter. The sales growth didn't stop there. During the seven weeks after the end of the quarter on Sept. 29, sales continued to climb compared to a year ago.

While the 12 week period ending Sept. 29 was a bit weak, the past 13 weeks to date have been strong and getting stronger. Jack in the Box expects same-store sales across all concepts to be up 1.5%-2.5%. The company laid out its goal of improving annual same-store sales at the Jack in the Box by 2%-3% and at Qdoba by 3%-4% all the way through at least 2017.

The reason for Jack in the Box returning to growth mode may have to do with its new late-night menu that was launched toward the end of the quarter. In the previous conference call, Lang noted, "Breakfast and late-night were again our strongest day-parts posting the largest year-over-year increases." It appears that Jack in the Box is exploiting this late-night niche and using it to grow bigger than ever.

More confidence
Jack in the Box spent $48.0 million buying back shares last quarter--it bought back 1,198,000 shares at an average price of $40.04. This is a return of capital at an annualized rate of over 11%. This speaks to the company's confidence in its future. Jack in the Box still has $136.8 million left in authorized buybacks.

Competitors
While Jack in the Box has been seeing more growth in recent weeks, McDonald's has seen the opposite. McDonald's reported that its October same-store sales in the U.S. only grew by 0.2%, compared to 0.7% in the quarter prior. McDonald's blamed it on "ongoing competitive activity." Jack in the Box may be successfully taking a bite out of McDonald's market share.

The Wendy's Company, on the other hand, reported 3.2% growth in same-store sales. This followed Wendy's launches of the Pretzel Bacon Cheeseburger and the October Pretzel Pub Chicken sandwich. It goes to show you that economy won't stop fast food restaurants from growing as long as the guests are enticed with something new and exciting. Wendy's forecast more sales growth in the months ahead.

Foolish final thoughts
Jack is back, bigger than ever. Look for new unit openings, same-store sales, and buybacks to keep on coming. In order for Jack in the Box to continue to succeed, it appears that it needs to keep enticing its customers with something new and fresh. Keep an eye on more announcements of new menu items or change-ups. Also, with the economy still in the skids, look for Jack in the Box to do even better if and when the economy improves. A restaurant chain that is able to do well despite tough times tends to really stand out during better times.

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