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Meager Sales to Hurt Jack in the Box's (JACK) Q1 Earnings

Jack in the Box Inc. JACK is scheduled to report first-quarter fiscal 2018 results on Feb 21, after market close.

Soft consumer spending and lower foot traffic have been majorly hurting Jack in the Box. The company has been grappling with declining sales for quite some time, which is expected to have persisted in the first quarter. Also, sales deleverage from negative comps and higher costs might have weighed on profits as well.

The company’s shares have lost 5% in the last six months against the industry’s gain of 3%.

Let’s see how the company’s top and bottom line will shape up in the to-be-reported quarter.

Negative Comps to Hurt Top Line

The U.S. restaurant space has been plagued with declining sales due to lowered traffic. Consequently, Jack in the Box is facing soft demand which has affected its sales in the last few quarters.

Persistent decline in comps has dented Jack in the Box’s sales. In the fourth quarter of fiscal 2017, comps at the company-owned stores were down 2% comparing unfavorably with the prior-year quarter's fall of 0.5% and third quarter’s decline of 1.6%. The negative trend in comps is likely to continue in the to-be-reported quarter as well. Notably, the Zacks Consensus Estimate for company-operated Jack in the Box comps shows an 8% decline for the first quarter.

Moreover, the company recorded total revenues of $338.7 million in fourth-quarter fiscal 2017, a 15% decline on a year-over-year basis. This revenue decline is expected to have lingered in the first quarter of fiscal 2018 as well. Subsequently, the Zacks Consensus Estimate for revenues in the first quarter is pegged at $285.9 million, reflecting 41.4% a year-over-year decline.

Sales Deleverage & Other Expenses to Affect Earnings

In addition to the dented profit margins from sales deleverage, Jack in the Box is bearing the brunt of high costs. High capital expenditures and expenses related to new restaurant openings have been adding to the company’s woes. Moreover, increase in food and packaging costs, impact of wage inflation and rising prices of commodity have reduced the company’s restaurant operating margin by 390 basis points (bps) in fourth-quarter fiscal 2017.

The margin pressure is likely to reflect in the to-be-reported quarter’s earnings. The consensus estimate for earnings therefore stands at $1.1, suggesting a 10.2% decline from the year-ago quarter.

Our Quantitative Model Does Not Predict a Beat

Jack in the Box does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Jack in the Box carries a Zacks Rank #3.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Jack In The Box Inc. Price and EPS Surprise

Stocks to Consider

Here are a few other stocks from the restaurant space that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Domino’s DPZ has an Earnings ESP of +0.37% and a Zacks Rank #2 (Buy). The company is slated to report quarterly numbers on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cheesecake Factory CAKE has an Earnings ESP of +0.82% and a Zacks Rank #3. The company is slated to report quarterly results on Feb 21.

Zoe's Kitchen ZOES has an Earnings ESP of +13.16% and a Zacks Rank #3. The company is slated to report quarterly numbers on Feb 22.

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Domino's Pizza Inc (DPZ): Free Stock Analysis Report
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