Motley Fool Hidden Gems Pay Dirt pick Jack in the Box (NYSE: JBX), owner of the namesake burger chain and Qdoba Mexican Grill, is set to report second-quarter results tomorrow. It has been a trying time for many restaurateurs, what with inflationary trends squeezing operators with rising raw-materials costs and pushing usually loyal patrons away. We'll know tomorrow whether this fast-food joint can buck the trend.
What analysts say:
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Buy, sell, or waffle? Ten analysts follow Jack. Five are bullish on the stock, and five others have hold ratings. The Motley Fool CAPS community has given Jack in the Box a three-star rating (out of five stars).
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Revenue. Analysts project $685.9 million in third-quarter sales for mediocre 3.8% year-over-year growth.
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Earnings. Analysts expect quarterly earnings of $0.43, or 7.5% above the $0.40 reported in last year's quarter.
What management says:
Back in March, when Jack in the Box released first-quarter results, management said to expect second-quarter same-store sales growth of 1% to 2% (compared with a 6.4% increase in the year-ago quarter) at namesake stores and 3% to 5% comps growth at Qdoba. At the time, management also projected full-year earnings of $1.98 to $2.08. Also, the company rolled out several new products in the second quarter, including the Sirloin Steak Melt and the Cherry Chip Bliss ice cream shake, so we'll get a glimpse of the initial results from them.
What management does:
Margins have decreased over the past couple of quarters, given the macro challenges. However, management has been selling company-owned stores to franchisees, which should help improve margins. Furthermore, the company has been using the excess capital to repurchase shares, which will additionally benefit existing shareholders.
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Margins
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11/06
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01/07
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04/07
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07/07
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09/07
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01/08
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Gross
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16.2%
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16.6%
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16.7%
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16.6%
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16.5%
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16.1%
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Operating
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5.3%
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5.8%
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6.2%
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6.4%
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6.3%
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6.1%
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Net
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4%
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4.3%
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4.5%
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4.7%
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4.4%
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4.3%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Jack in the Box, Sonic (Nasdaq: SONC), and Chipotle (NYSE: CMG) (NYSE: CMG-B) represent a tasty trifecta of fast-food operators because of their growth prospects. Each chain has yet to fully blanket the U.S., so they should outgrow competitors such as Wendy's (NYSE: WEN), McDonald's (NYSE: MCD), and Burger King (NYSE: BKC), relying on new store growth to supplement more unpredictable organic growth during these slow times.
As seen with Sonic, management expects a drop in same-store sales for the rest of the year as rising food and energy prices take a toll on consumers. I wouldn't be surprised to see Jack in the Box announce lower-than-expected comps. But to a contrarian, disappointing results could send the stock price lower, which could present an even more appealing buy-in price for a company with favorable prospects over the long haul.
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