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:

  • 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).
  • Revenue. Analysts project $685.9 million in third-quarter sales for mediocre 3.8% year-over-year growth.
  • 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.

Margins

11/06

01/07

04/07

07/07

09/07

01/08

Gross

16.2%

16.6%

16.7%

16.6%

16.5%

16.1%

Operating

5.3%

5.8%

6.2%

6.4%

6.3%

6.1%

Net

4%

4.3%

4.5%

4.7%

4.4%

4.3%

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.

For more related Foolishness:

Chipotle Class B shares have been recommended in both Motley Fool Hidden Gems and Rule Breakers. Which of the two stock research services is right for you? Check either one out with a free 30-day trial.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.