Jack In The Box Serves Up A Tasty Report
I am not going to lie. Earnings at Jack In The Box (NASDAQ:JACK) are likely going to fall in fiscal 2020. Other than that, there is not one thing in the fiscal Q3/calendar Q2 report not to like. The company beat on all metrics and says its strength is still accelerating. Although the company did not provide any guidance for the coming quarter, the current year or even next year, it doesn’t matter. Jack In The Box did something that proves the fast-food rebound is real, the company has traction, and growth isn’t a question. It reinstated the dividend.
“This strong performance accelerated throughout the third quarter and has continued thus far into the fourth quarter. I am excited about taking the learnings from this uncertain time and using them to fuel the remaining part of 2020 as well as our strategy into 2021." says CEO Darin Harris.
Jack In The Box Rises After Raising Its Dividend
Jack In The Box was one of the very first restaurant stocks to suspend its dividend payments way back in February. The move was a preemptive effort to control cash burn and maintain company health during the time of trouble. Now, with the company emerging from the pandemic stronger than before (and with a new CEO, in office now about 6 weeks) the company is well-capitalized and in position to resume payments. The $0.40 distribution declared is in-line with the previous payment, worth about 1.90% with shares trading near $87.
Looking at the balance sheet and dividend statistics there is still some debt to worry about, the company is highly leveraged, but cash on hand and forward outlook support the board’s decision. The payout ratio for this year is running under 45% (based on consensus, more on that in a bit) and then drops to 35% in fiscal 2021 (starts in the 4th quarter of calendar 2020).
“The dividend is payable on September 3, 2020, to shareholders of record at the close of business on August 18, 2020. The reinstatement of the dividend reflects the strong financial health of the company and continued commitment to shareholders … As of the end of the third quarter, the company had approximately $196.9 million in cash, of which $159.5 million was unrestricted cash.”
Better Than Expected Results From Jack In The Box
Jack In The Box not only beat on the top and the bottom line but it also delivered 9.0% YOY revenue growth. The $242.28 million the company reported is more than 100 basis points above the consensus and driven by strong comps. Comps rose 6.6% across the system and 4.1% for company-owned stores versus the 5.7% and 3.5% consensus. The strength was driven by a 20.2% increase in average ticket amount offset by a 16.1% decline in ticket counts. The salient point, though, is that ticket averages remain high while ticket counts are accelerating.
Margins shrank by 160 basis points but that isn’t bad considering the costs related to COVID-19 mitigation. The upshot is that 25.4% margin reported is well above the 23.6% expected by the analysts. The company also experienced an increase in food costs but once again the takeaway is positive; rising food costs were offset by a successful price pass-through.
The bottom line is where things really get good. Adjusted and GAAP EPS beat consensus by wide margins, in the 30% range, putting the company firmly on track to beat both in the 4th quarter and the full year. What this means is the analyst’s targets are too low and likely to be revised higher as is the case with so many other companies reporting this quarter. The average analysts’ rating is bullish but the bulk of them are neutral, I am sure the Q2 report will get a few of them off the fence.
Jack In The Box Technical Outlook: Bullish But Wait For The Break Out
The Jack In The Box earnings report has shares up 4% to 5% in early trading and the outlook is bullish but I would hold off on buying for a bit. The price action is pushing right up against the pre-COVID high were resistance may be strong. Resistance is near the $90 level, about 4% above the pre-market action, and may spark a round of selling. If price action is not able to move above the $90 level there may be a pullback in prices, if it is able to move the $90 level I’d take that as a signal to buy this fast-food stock.
