Jack In The Box Could Surprise Investors

By Glenn Curtis | May 26, 2008 AAA

With the economy in a slump, it's logical that consumers will favor fast food over fine dining. That is one reason why I think California-based Jack in the Box (NYSE:JBX) deserves attention. The latest quarter was a bit lackluster, with a slight decline in same-store-sales, but the company's full-year guidance gives me hope that Jack in the Box can still outperform its peers.

Comps Lack Beef
In the period ended April 13 Jack in the Box's bottom line came in at $26.4 million (44 cents per share). That compares with the $27.2 million (40 cents per diluted share) it earned in the comparable period last year. The good news was that its EPS number was north of the 43 cents per share analysts had expected. (Learn to set your own expectations, in our related article Do-It-Yourself Analyst Predictions.)

However, I think that a more important metric is same-store-sales (comps). In the quarter, Jack in the Box company restaurants reported a comps decrease of 0.1%. That's hardly the end of the world. but it's a negative for two reasons. First, it's below the positive 1-2% increase the company had forecast back in February in conjunction with its first quarter numbers. Second, some will benchmark its comps against those of McDonald's (NYSE:MCD), Burger King (NYSE:BKC) and Yum Brands (NYSE:YUM), and they don't stack up well.

In its first quarter, McDonald's saw its global comps increase 7.4%. Meanwhile, Burger King saw its third quarter worldwide comps increase 5.8%. Finally, Yum Brands posted worldwide comps of 4% in its first quarter.

To be fair, Jack in the Box was up against a fairly difficult number. In last year's quarter it reported positive same-store-sales growth of 6.4%. It should also be noted that same-store results at the company's Qdoba Mexican Grill concept rose 2.4% in the quarter. However, according to its 10-Q the concept only accounts for about 3.7% of revenue.

The Good News
In conjunction with its earnings the company provided updated earnings guidance for the full year. Jack in the Box is calling for earnings of $1.98-2.08 per share. That is consistent with guidance it issued back in February along with its first quarter results. It puts my mind at ease to see that the company stuck to its original forecast. This also tells me Jack in the Box expects new products like its BBQ Bacon Sirloin Burger and Cinnamon Roll to fare well. (For further reading, be sure to check out Can Earnings Guidance Accurately Predict The Future?)

Finally, the company trades at about 11.6-times management's guidance for the year. That's not too shabby. It's also interesting given that McDonald's trades at about 18-times the current 2008 estimate, Burger King trades at roughly 22.4-times the current year estimate and Yum trades at approximately 21.6-times the current year estimate.

Bottom Line
Although Jack in the Box's comps leave a bit to be desired, its expected EPS number is attractive. On a forward PE basis, I think it's also quite attractive relative to the other major chains.

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