Fast-food restaurant Jack in the Box (NYSE:JBX) started its new fiscal year with a bang, with the market bidding its shares up 10%. Was the run-up in share price warranted?
For the first quarter, revenues increased 5% to $856.7 million. Operating income soared 44% to $63.5 million. Net profit was $37.4 million, or $1.03 per diluted share. The growth rate for the per-share figure came in at 47%.
That, my Foolish friends, was a sizzling quarter. A couple things, however, helped the bottom line. A lower tax rate and a beneficial timing issue relating to the rollout of new employee uniforms contributed eight cents to earnings. Nevertheless, the income appreciation was robust.
What went right for the company? Well, restaurant cost of sales and operating costs went down slightly, and selling, general, and administrative costs were kept in check. Even though the total operating costs were higher versus last quarter, the company was able to take advantage of the revenue increase by improving its margins.
Quarterly comps for the Jack in the Box brand increased 5.6%, about the same as the increase observed last year. Qdoba Mexican Grill saw its same-store sales rise 4.1% this year versus nearly 8% last year, which is pretty good, considering the competition from Chipotle (NYSE:CMG).
The company introduced several new products during the first quarter, including a chocolate Oreo cookie shake and a breakfast bacon sandwich. Jack in the Box believes in keeping its menu fresh to prevent boredom on the part of patrons, a strategy I emphatically concur with -- come to think of it, who's against variety?
The company also wants to drive sales via transactions involving credit and gift cards. I am extremely bullish on the promotion of cashless payment systems -- they make the point of sale more efficient and they tend to encourage higher spending. Contactless payment is also being explored with major credit cards such as MasterCard (NYSE:MA) and its PayPass system -- this involves waving a credit card in front of a terminal to transmit payment information.
As for guidance, Jack in the Box is looking to earn somewhere between $3.27 and $3.33 per diluted share for the fiscal year. If management hits the low end of guidance at $3.27, then the P/E ratio becomes 21.7 based on yesterday's close of $71.02. According to current analyst estimates at Yahoo! Finance, Jack in the Box might grow at 12% per year for the next five years; the company itself believes it can do between 12% and 15% per year long term. That would imply the shares are, at a minimum, fairly valued.
With yesterday's 10% run-up in the shares, I'd be hard-pressed to make a case for jumping into Jack in the Box right now. I think it's a great fast-food concern, and I believe it operates effectively in an arena that is full of strong competitors such as McDonald's (NYSE:MCD), Wendy's (NYSE:WEN), Yum! Brands (NYSE:YUM), and Chipotle. In short, the quarter was solid, it beat Wall Street expectations, and Jack in the Box is, as Stephen Ellis pointed out, a nice investment idea. I just can't get behind the price right now. I'd put this one on a watch list for a strong pullback.
More Takes on Jack in the Box:
- Will Jack's Repurchase Add Value?
- Nice: Jack in the Box Rocks
- Jumping Jack in the Box: Fool by Numbers
Chipotle is both a Hidden Gems and a Rule Breakers recommendation. Hidden Gems recommends the Class B shares. 30-day free trials are available for both newsletters simply by clicking on the links.
Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 13,491 out of 23,138 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
