Earnings Cheat Sheet: Jack in the Box Suffers, Qdoba Remains Strong

Nov.29.10 | About: Jack In (JACK)

By David Gibbs

Jack in the Box Inc. (NASDAQ:JACK) operates 2,700 combined Jack in the Box and Qdoba Mexican Grill locations across 18 states, approximately half of which are company operated, the rest being franchised out. JACK carries a $1.1 billion market cap and has beaten analyst estimates in six of the past eleven quarters.

Earnings: 4Q profits of $4 million ($0.07/share) versus 4Q09 profits of $40.6 million ($0.70/share). The latest quarter included $0.33/share in restructuring charges resulting from store closures and an extra week of business that boosted results by $0.03/share.

Revenue: Up 4.2% YOY to $563.2 million.

Actual Versus Wall St. Expectations: JACK beat the street in terms of adjusted EPS, as investors sought 4Q profits of $0.36/share. The company also beat Street expectations of $543 million in revenue.

Notable Stats:

  • JACK predicted fiscal 2011 EPS of $1.41-$1.68, analysts had been expecting $2.03.
  • Same-store sales fell 3.3% at Jack in the Box but grew 5.6% at JACK-owned Qdoba Mexican Grill.
  • Management had predicted that sales at Jack in the Box would be down 4.5%-5.5% YOY and that those of Qdoba would rise 3%-4%
  • Operating margins fell to 12.5% from 15.8%.

Did You Hear That? Analysts at Morningstar noted:

JACK’s fourth-quarter results reflected pervasive quick-service restaurant headwinds… but we remain optimistic about the firm’s ability to improve unit productivity over the next few years through reimaging efforts, new product platforms, and a gradual improvement in unemployment.

Although management has its work cut out for it with respect to a turnaround at its namesake Jack in the Box locations, we believe Qdoba’s growth opportunities have been underappreciated by a market that has rewarded other fast-casual operators with lofty valuations.

Technicals: After putting together a nice string of higher highs and lower lows beginning this past August, JACK looked poised to potentially take out it’s April highs. However, as fate would have it, shares churned for a bit before getting knocked down on high volume following Monday night’s report. Shares gapped down 6.4% at the open on Tuesday and closed down 10.4%, near the lows of the day.

JACK’s 20- and 50-day moving averages have turned downward and it’s 200-day appears prepared to follow suit. Shares’ next technical objective to the downside is support in the $18.50-$18.70 range. If support is maintained, it may be indicative of a potential trading opportunity to the upside.

Commentary: Things were finally on the up-and-up for JACK for a little while there. Shares had rose as high as 30% above their August lows of $18.71, but gave almost all of it back last week. Volume was extraordinarily high while overall NYSE volume was quite pitifully low. Those invested in JACK can hope that such a dynamic indicates a capitulation bottom, but those who may be thinking of dipping their toes in the water would likely be most prudent to wait for a test of aforementioned support.

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Disclosure: No position