Pop! goes Jack in the Box
Total sales increased 5%, as Jack's Mexican-food Qdoba Grill chain spiced up growth, posting 2.4% comps, while Jack in the Box stores reported a 0.1% drop in comps. Management tried to reduce costs with lower labor and other restaurant-related expenses, but that wasn't enough to offset higher food and packing costs. Accordingly, the operating margin slipped from 7.2% to 6.9%. And while the bottom line fell 2.9% from last year, share buybacks helped boost earnings per share by 10%.
Jack has another trick up his sleeve to help investors endure a challenging dining-out environment, which is squeezing operators due to higher commodity costs. In a similar fashion to rivals IHOP
Since management implemented its current remodeling program in 2006, the company has redone more than 500 establishments, redesigning the dining room and common areas, graphics, landscaping, and more. While this has required substantial capital, it will pay off in the long run; kitchen enhancements should increase the restaurant capacity, and new energy-efficient equipment will reduce utility expenses.
Ample cash generation, healthy growth prospects at the namesake stores, and even more exciting expansion opportunities at Qdoba make Jack in the Box an interesting play in the industry. I'd recommend sticking with those with plenty of real estate to expand into, such as Jack, Sonic
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