Shares of Jack in the Box Inc. JACK have declined 14.1% in the past year against the industry’s growth of 0.6%. The downside was primarily caused by inflationary pressures and staffing challenges.
This Zacks Rank #5 (Strong Sell) company reported fourth-quarter fiscal 2022 results, with earnings missing the Zacks Consensus Estimate. The company posted adjusted earnings per share (EPS) of $1.33, missing the Zacks Consensus Estimate of $1.35. In the year-ago quarter, JACK reported an adjusted EPS of $1.73.
In the past 60 days, earnings estimates for fiscal 2023 have gone down 17% to $5.48 per share. Let’s discuss the factors hurting the company’s performance.
Primary Concerns
Jack in the Box’s performance has been affected by double-digit commodity and labor inflation, aggressive competition around promotions and value and a challenging staffing environment.
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The company is persistently shouldering higher expenses, which have been detrimental to margins. During the fiscal fourth quarter, restaurant-level adjusted margin came in at 16.2% compared with 20.1% reported in the prior-year quarter. The downside was caused by higher food and packaging costs, wage inflation of 11.3% and higher utilities and maintenance and repair costs. Food and packaging costs (as a percentage of company restaurant sales) fell 10 bps year over year to 30.9%. Commodity costs during the quarter increased 14.9% year over year.
Although the company resorts to strategic price increases to mitigate the impact of inflationary costs, it expects inflationary pressures to persist in the near term. The decline in traffic from pre-pandemic levels is also a concern. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
High debt is a concern for the company. Long-term debt (net of current maturities) at the end of the fiscal fourth quarter came in at $1,799.5 million compared with $1,806 million reported in the previous quarter. The company ended the fiscal fourth quarter with cash and cash equivalent of $108.9 million compared with $65.9 million in the previous quarter.
Although the cash balance has improved sequentially, it may not be enough to manage the high debt level. The times-interest-earned ratio at the end of the fiscal fourth quarter came in at 2.9x compared with 4.3x reported in the previous quarter.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. TGLS, Wingstop Inc. WING and Domino's Pizza, Inc. DPZ.
Tecnoglass currently carries a Zacks Rank #2 (Buy). TGLS has a trailing four-quarter earnings surprise of 26.9%, on average. Shares of the company have gained 43.6% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Wingstop currently carries a Zacks Rank #2. WING has a long-term earnings growth rate of 12%. Shares of WING have lost 2.5% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.3%, respectively, from the year-ago period’s reported levels.
Domino's currently carries a Zacks Rank #2. DPZ has a long-term earnings growth rate of 12.6%. Shares of DPZ have declined 29.9% in the past year.
The Zacks Consensus Estimate for Domino's 2023 sales and EPS suggests growth of 3.8% and 17.2%, respectively, from the year-ago period’s reported levels.
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Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
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