Wow. While I had hopes that this quarter's results for Jack in the Box (NYSE:JBX) would exceed analyst expectations, I had no idea they would be this good. Expectations were for $0.66 in earnings per share; Jack delivered $0.77. Revenue growth looked to be 8.9%; it turned in 10.1%. Same-store sales at Jack in the Box stores improved by 2.9% and by 6% at the Qdoba chain.

Three years ago, Jack in the Box wrote in its quarterly report that the restaurant business was becoming tougher because of competition, menu development, and the emergence of a fast-casual segment. Add in economic changes and consumer tastes, and things become tough all over. So the company set upon a turnaround strategy to include new and healthier menu items, growth of the Qdoba chain, store renovations, and an increase in the number of franchised stores. A bit less than a year ago, the company announced plans to try becoming a national restaurant company, rather than staying mostly in the Southwest and West.

Over the past year, the company has been seeing the fruits of its labor. Same-store sales have been up, earnings have consistently beaten the Street's estimates, and free cash flow has been positive. One aspect of the growth is increasing the number of franchised stores, both by opening new ones and by selling company-owned locations to franchisees. This will improve the bottom line, since franchise revenue comes with higher margins. Currently, about 27% of all locations are franchise-operated. The company's goal is 35% within the next two years.

I usually define free cash flow (FCF) as net income plus or minus one-time charges, plus depreciation and amortization, minus capital expenditures, minus changes in non-cash working capital. This represents what is available to shareholders should the company decide to hold steady at the current level. Looking at the trailing 12 months, Jack has FCF of only $34 million, mostly because of negative FCF in Q4 of last fiscal year. However, if one takes the past three quarters and extends that to a full year (in other words, assume that the fourth quarter this year will be similar to the previous three), then the company would have about $101 million in FCF.

Using the latter number as a starting point and assuming a 12% discount rate, the current price for the company has about a 9% growth rate for the next five years baked in. Earnings growth is expected to be around 25% over the next five years. If Jack holds depreciation steady (as it has), gently increases capital expenditures for remodeling stores and addressing other needs, and begins to move working capital back toward positive territory, that rate of FCF growth should be achievable.

Whether that actually happens depends on how quickly the company moves to a heavier franchise model, how much it can grow revenue and earnings, and how it allocates capital expenditures and working capital. But the numbers are intriguing enough that potential investors might want to dig a bit further into the company.

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Fool contributor Jim Mueller used to live on the West Coast and enjoyed his stops at the chain. Although he hopes a franchise will open in his present home city in the near future, he does not own shares of the company. The Motley Fool has a disclosure policy.