Investors following resurgent fast-food chain operator Jack in the Box (NYSE:JBX) probably weren't thrilled with its Thursday night announcement. The company decided to change some of its accounting practices, which will have the effect of reducing reported net income for 2002, 2003, and 2004, as well as trim future net incomes because of the way it accounts for depreciation and amortization expense with regard to its leased property.
The impetus to do this, it seems, came after the company read a recent filing from Hardee's operator CKE Restaurants (NYSE:CKR). After consulting its auditors, Jack in the Box made the change. (Depreciation and amortization expense is a non-cash item that shows up on the cash flow statement: You add it, along with a host of other things, back to net income to get a reckoning of a company's operating cash flows. But since "Jack" is already lowering net income by the same amount, the cash flow effect will be zip-ola.)
Jack's management deserves credit for crafting a detailed press release that should help most investors -- at least those who aren't scared to death of financial statements -- understand what's going on without taking night courses. And so while investors may not be thrilled with the idea of depressed net incomes, they can at least find some relief in the fact that this depression is a function of math and accounting, rather than operations.
It's the rapid upswing in operations at Jack in the Box, long an also-ran for investor attention in the world dominated by McDonald's (NYSE:MCD), and well-populated by Wendy's (NYSE:WEN), Hardee's, Burger King, and a countless number of local and regional competitors. In the approximately 15 months since I first wrote about it on these pages back in September, the company's shares have crushed the S&P 500.
The company is doing the big things -- like delivering strong results and identifying promising growth avenues as Jeff Hwang noted in November -- and the little, like the recent announcement of a "cash card" program that, while perhaps not poised to set the world on fire, is a relatively low-effort way to build loyalty through the old "cash that isn't cash" trick.
Despite the impacts of the accounting change, it's a company I'm watching and would certainly consider owning -- if only investors would hand me some shares just a bit cheaper than they are now. They're currently trading at about 15 times next year's (new) projected earnings, which are seen growing at about 15% year-over-year. That's not bad, but I'd like even more of a discount to entice me to enter such a competitive arena.
Fool contributor and investing cheapskate Dave Marino-Nachison doesn't own any of the companies in this story.
