Jack in the Box Inc. is Jumping Out of the Box

Jack in the Box  (NASDAQ: JACK  ) can't be kept inside a box anymore. The San Diego-based company released its 2014 results after the market close on May 14 and, at first blush, its numbers were impressive. Jack reported $18.3 million in earnings from continuing operations this quarter, or $0.43 per diluted share. That's up from $15.1 million, or $0.33 per diluted share, in the year-ago period. Investors took notice as Jack's stock rose 2.2% on May 15, opening at $53.45 per share and closing at $55.20. With its share price popping up, clearly Jack in the Box can't be contained anymore. 

What's happening at Jack in the Box? What is driving its business, and how does it look going forward? Does Taco Bell, the subsidiary of Yum! Brands  (NYSE: YUM  ) , keep Jack up at night?

What's in the box?
While its namesake restaurant performed impressively, Jack's best results came from its Mexican restaurant, Qdoba. Same-store sales, a measure of how stores open more than a year are performing relative to a previous period , grew 0.7% for the quarter at Jack in the Box restaurants, compared to 0.1% for the year-ago period. At its Qdoba restaurants, same-store sales grew an impressive 7% for the quarter, compared to a decrease of 1.3% for the year-ago period.

Furthermore, the company's foreseeable future looks promising. Jack's guidance for the rest of fiscal year 2014 expects a same-store sales increase of 1.5-2.5% at its namesake stores, while it expects Qdoba restaurants to be up 3-4%. It plans to open ten new Jack in the Box restaurants and fifty Qdoba restaurants by the end of the fiscal year. It now expects operating earnings per share of $2.25-$2.35 for this fiscal year, compared to operating EPS of $1.82 for fiscal 2013.

To show that Jack in the Box has confidence in its business going forward, the company's board of directors also approved an initial quarterly dividend of $0.20 per share. Chairman and Chief Executive Officer Lenny Comma explained this decision by saying, "The transformation of our business model for the Jack in the Box® brand is nearly complete, resulting in more stable and predictable cash flows."

Qdoba vs. Taco Bell?
One of Qdoba's direct competitors is Taco Bell. This year, Taco Bell aggressively promoted its breakfast menu, which also competes with Jack in the Box's breakfast services. Even with the publicity surrounding Taco Bell's breakfast, Jack in the Box did not appear concerned. On the May earnings call, Comma noted:

 [W]e did not see a negative impact to our breakfast day part with the launch of the Taco Bell breakfast. In fact, late night and breakfast continue to drive the improvement in our comps. In addition to that, as we progressed into the beginning of the quarter, we've seen acceleration in both breakfast and late-night...

And then as far as the impact that Taco Bell is having on the industry, I would just emphasize that our breakfast has always been 24 hours. At the end which I think it's a huge equity and then we also do serve a very freshly prepared breakfast with fresh cracked egg. Not everybody does that, we think it's a differentiator and it does change the execution of that product....So I can only assume that the folks that are selling more heat and eat and sort of not freshly prepared foods are getting affected by Taco Bell more so than the ones who are giving more freshly prepared foods.

Box it up in a bow?
So what does the future hold for Jack? The outlook seems bright for investors, and this reflects in Jack in the Box's price; its P/E is 38.20, which is a bit pricey compared to the industry-average P/E of 23.50. If its Qdoba restaurants continue to perform well, as expected, and Taco Bell and its breakfast do not have a concerning impact on it, then Jack should be an attractive place for investors.

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