Jack in the Box:
James Hale submits: Nothing satisfies investors like profits. Jack in the Box (JBX) served up another filling meal with its fiscal fourth quarter results on Tuesday, giving shareholders a treat with better-than-expected earnings and guidance for more growth ahead.
Over the years, Jack in the Box has demonstrated a masterful touch with brand and promotion, which helps this quick serve food chain deliver results that have underpinned a stellar stock performance. JBX was at $19.26 when we wrote about it in May, 2003. The stock closed Tuesday at $61.39, up $2.82 on the day thanks to its strong Q4 results, favorable guidance, and plans to repurchase up to 5.5 million shares which would reduce shares outstanding by 15.5%.
Jack in the Box is a regional chain but through its aggressive expansion strategy it is quickly heading toward national brand status. It operates or franchises over 2,000 Jack in the Box restaurants in 17 states. Meanwhile its Qdoba Mexican Grill, offering fast casual dining, has grown to more than 300 locations in 40 states. Same store sales were up 5.9% in the fourth quarter, and operating margins increased to 17.8% from 17.3% a year earlier. For the fiscal year 2006, earnings surged to $3.04 from $2.48 a year earlier, though a net 29 cents per share were due to special factors. Revenue increased to $2.77 billion on the year from $2.50 billion in FY2005.
Jack in the Box also issued impressive long-term guidance including a stated goal of 12%-15% annual earnings growth on same-store sales growth of 2-4% at Jack in the Box locations and 3-5% at Qdoba restaurants. Jack in the Box is re-franchising many company operated stores with a goal of 35% franchise operated by 2008 from 29% currently, and it is exploring the franchising of entire markets. When we looked at JBX three years ago we noted a conservative valuation relative to its expected growth rate and its peers, but this stock isn’t the bargain it once was.
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