Jack in the Box Pops On Tasty Results, Robust Outlook

Key Points

• Jack in the Box popped on strong results and outlook. 
• The company is entering a growth phase and offers value to investors. 
• Dividends are attractive and may grow in the future. 

Jack in the Box NASDAQ: JACK CEO Darrin Harris has this company wound up and ready to spring into growth. He has been rationalizing operations across the system, focusing on building the franchise network and growing into new markets. His efforts include menu choices and standardizations, a push into eCommerce, and plans to build on the momentum created in 2022. 

The takeaway is that business is solid in the fast-food world, results from McDonald’s NYSE: MCD and Wendy’s NASD: WEN testify to that, and this company is on pace to grow as fast or faster than the more prominent players. It doesn’t pay as big a dividend as Wendy’s but doesn’t trade at the same lofty valuation.

Jack in the Box is also a value compared to McDonald's and pays about the same. In either case, the stock lags well behind and is on track to make up some difference. 

"We are … enthusiastic about the momentum we are building for 2023 and our ongoing transformation story," said Darin Harris, Jack in the Box Chief Executive Officer. "We continue to see our marketing, operations and development strategies take hold which, along with outstanding execution … produced strong top-line performance, improved restaurant metrics, and an excellent start to the year. Traffic improvement and robust comps and anticipated growth positive net un position us to drive meaningful systemwide sales growth in 2023 and improve franchise profitability in a challenging operating environment."

Jack in the Box Has Strong Quarter, Pops Higher 

Jack in the Box had a good quarter on all counts. The company reported $527.1 million in revenue for a gain of 52.9% compared to last year. The bulk of the gain is due to the acquisition of Del Taco, but both the Jack and Del Taco segments also produced organic growth. The revenue beat the consensus by nearly 400 basis points due to the outperformance of company-owned compared to franchise-owned stores and Jack's growth compared to Del Taco Growth.

On a comp basis, Jack sales grew by 7.8% while Del Taco's grew by a slower 3%. In both cases, comps are up high-single-digits compared to 2 years ago, and margin improvement was logged. 

The company’s restaurant-level margin improved by 150 bps while the franchise-level margin grew by 280 bps, contrary to expectations for smaller gains or contractions. This drove a solid bottom-line performance that left adjusted EPS of $2.01 up compared to last year. That’s $0.27 better than expected and the outlook is robust. The company did not give formal guidance but is showing clear momentum and building a pipeline of new stores.

Execs signed 4 news deals for 36 more restaurants during the quarter. These deals bring the number to 72 for a total of 303 new restaurants since the start of the program. Many of these stores are yet to be built it is only a matter of time before they are. 

The Technical Outlook: Jack in the Box Launches Higher 

The Q1 results have shares of Jack up more than 8%, but this stock is not out of the woods yet. It must move above the $90 level to break nearer-term resistance and set it up for a complete reversal. In that scenario, this stock could return to the $105 to $125 range by the end of the year.