What's In Store For Jack In The Box's (JACK) Q4 Earnings?

Jack in the Box Inc. (NASDAQ:JACK) is set to report fourth-quarter fiscal 2017 results on Nov 29, after market close.

The company’s business initiatives including refranchising its company-owned restaurants and constant menu innovation have helped it gain traction in the highly competitive hamburger segment of the quick-serve restaurants industry. However, a challenging restaurant space in the United States has been hurting revenues.

Last quarter, this leading hamburger chain missed the Zacks Consensus Estimate for earnings by 5.71%. However, its earnings surpassed estimates in two of the trailing four quarters, with average earnings beat of 3.85%.

Revenue Scenario

Per the consensus estimate, Jack in the Box is expected to record revenues of $342.5 million in the fourth quarter, reflecting a year-over-year decline of 14%. Declining comps in the company-owned Jack in the Box stores and Qdoba restaurants have significantly affected the top line.

In the first nine months of fiscal 2017, comps at the Jack in the Box company-owned restaurants declined 0.9% as compared with a 0.2% decline in the year-ago level. The trend is expected to continue in fourth-quarter fiscal 2017 with the company expecting comps to be flat to down 1% as against the year-ago comps growth of 2%. The consensus estimate also projects comps decline of 1.8% in the to-be-reported quarter.

In the first nine months of fiscal 2017, comps at the company-owned Qdoba restaurants declined 2.7% as against a 1.8% increase in the first nine months of 2016. This quarter is also expected to maintain the trend. In fact, the company expects comps for the company-owned Qdoba brand to be flat to down 2% versus the year-ago quarter comps growth of 1.2%. Moreover, the consensus estimate calls for comps decline of 0.9% for the fiscal fourth quarter.

Earnings Expectations

In order to drive margins, the company’s Jack in the Box brand has been refranchising company-owned restaurants for quite some time now. Jack in the Box restaurants are currently 85% franchised and the company plans to increase it to around 90% by 2018. At the end of third-quarter fiscal 2017, the company operated 340 company-owned restaurants. For the to-be-reported quarter, the consensus estimate for company-owned restaurants is 304.

The refranchising will considerably lower the company’s general and administrative expenses and in turn boost earnings. Moreover, over the long term, such measures will generate a higher return on equity by lowering capital requirements. This will also boost free cash flow, thereby enhancing shareholders’ return. Notably, the company believes that majority of Jack in the Box new unit growth will be through franchise restaurants.

However, although refranchising has a considerable potential to boost the company’s margins, sales deleverage from negative comps, rise in labor wages and commodity inflation can affect the same.

In fact, the consensus estimate for earnings for the fiscal fourth quarter is pegged at 90 cents, reflecting a 12.2% year-over-year decline.

Estimates for the current quarter and year have also moved down 2.2% and 0.2%, respectively, raising doubts over the stock’s upside potential.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Jack in the Box this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as elaborated below.

Zacks ESP: Jack in the Box has an Earnings ESP of -1.61%. This is because the Most Accurate estimate is 89 cents per share, while the Zacks Consensus Estimate is pegged higher at 90 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Jack in the Box currently has a Zacks Rank #3.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Jack In The Box Inc. Price and EPS Surprise

Jack In The Box Inc. Price and EPS Surprise | Jack In The Box Inc. Quote

Stocks to Consider

Here are two companies in the Retail-Wholesale sector that investors may consider, as our model shows that they have the right combination of elements to post earnings beat this quarter:

American Eagle Outfitters, Inc. (NYSE:AEO) has an Earnings ESP of +1.04% and a Zacks Rank #2. The company is scheduled to release its quarterly numbers on Dec 6, before market opens. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corporation (NYSE:DG) has an Earnings ESP of +1.46% and Zacks Rank #2. The company’s quarterly numbers are scheduled to get released on Dec 7, before market opens.

RH (NYSE:RH) has an Earnings ESP of +2.36% and a Zacks Rank #2. The company is expected to release its quarterly numbers on Dec 14.

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