Tickers in this Article: JACK, MCD, WEN, CMG, SONC
Fast food operator Jack in the Box (Nasdaq:JACK) closed out its fiscal year on a high note, as trends at existing stores came in ahead of management's expectations during the fourth quarter. Its investment appeal looks more dubious based on the current valuation and compared to a number of archrivals. Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Full Year Recap
Total sales fell 4.5% to $2.2 billion. Sales at company-owned restaurants fell 17.3% to $1.4 billion, or 63% of total sales and included the sale of 332 locations to franchisees. This left the franchised locations at 72% of the total store base, or at the low end of the 70 to 80% goal management has targeted over the past six years. It relayed that it reached its goals two years ahead of plan, and has completed the sale of 1,000 locations. It has plans to sell off another 150 to 200 stores to bring the total percentage to 80% within the next couple of years. It ended the year with 2,221 namesake stores and 583 Qdoba locations. Qdoba competes with the likes of Chipotle Mexican Grill (NYSE:CMG) in the fast, casual Mexican food market.

Same-store sales growth was positive at 3.1% for the company-owned locations, up significantly from a decline of 8.6% last year. Franchised locations reported more modest comps of 1.3%, bringing total system-wide comps down to 1.8%. Total Qdoba comps remained healthy and increased 5.3%.

Reported operating income advanced 17% to $142.6 million and included $61.1 million in gains from the refranchising of stores, which served to reduce restaurant costs. Reported net income advanced 14.8% to $80.6 million while diluted earnings per share jumped 27.8% to $1.61 as management repurchased $193.1 million shares. Gains from selling off stores accounted for about 78 cents of the bottom line, meaning earnings from core operations totaled about 83 cents. (To know more about earning per share, read: The 5 Types Of Earnings Per Share.)

Analysts currently project a sales decline of 5% for the coming year, and total sales of nearly $2.2 billion. Management said to expect diluted earnings between $1.10 and $1.43 per diluted share, which includes 20 to 33 cents from selling off stores. As a result, operating profits will be in a range of 90 cents to $1.10 per diluted share.

The Bottom Line
On a forward basis, Jack in the Box trades at a price-earnings ratio (P/E) of 14, if it hits the high end of its guidance. Backing out the store sale proceeds, the forward P/E is roughly 18.3. Free cash flow has been negative in each of the last two years as the company has spent more in capital expenditures than it has generated from its operations, though proceeds from selling stores has covered a large proportion of capital expenditure. (To know more about free cash flow, read: Free Cash Flow: Free, But Not Always Easy.)

Jack in the Box looks like a safer bet than Wendy's (NYSE:WEN), which is struggling to post positive profits. Given the minimal earnings, the forward P/E looks stratospheric at 34. Sonic (Nasdaq:SONC) looks more reasonable at a forward P/E of 13, though it is also looking to turnaround from a couple of challenging years since the credit crisis. McDonald's (NYSE:MCD) trades at a more lofty 17.7, though its results have been as consistent as any firm in any industry since the recession, caused by the credit debacle.

In terms of investment appeal, Jack in the Box looks expensive when looking at the profit-generating capabilities of its core store operations. Comparing it to the competition, it lies somewhere in the middle of the industry. It is farther ahead in terms of recovering from the recession of 2008, though it is nowhere near as consistent as McDonald's. There is some potential upside should the firm decide to jettison Qdoba, as McDonald's did with Chipotle back in 2005 .

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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