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Will Jack in the Box (JACK) Disappoint in Q3 Earnings?

Zacks

Jack in the Box Inc. JACK is set to report third-quarter fiscal 2017 results on Aug 9, after the market closes.

Last quarter, Jack in the Box pulled off a positive earnings surprise of 8.89%. In fact, its earnings surpassed the Zacks Consensus Estimate in three of the last four quarters, with average beat of 11.02%.

Let’s see how things are shaping up for this announcement.

Jack In The Box Inc. Price and EPS Surprise

Jack In The Box Inc. Price and EPS Surprise | Jack In The Box Inc. Quote


Factors Likely to Influence Q3 Results

The company expects regular menu innovations, increased focus on delivery channel and provision of limited period offers (LPO) at both its flagship restaurants to boost sales in the fiscal third quarter.

On one hand, Jack in the Box’s premium and value offerings along with increased focus on breakfast menu are expected to drive its comps in the to-be-reported quarter. Also, continual expansion of the Brunchfast platform is further likely to boost sales.

On the other hand, apart from menu innovation and remodeling efforts, the company anticipates catering and marketing initiatives to boost comps at the Qdoba brand. Moreover, Qdoba’s launch of its mobile app and re-designed affinity program is expected to result in incremental sales in the quarter.

However, costs associated with new restaurant openings, higher promotional activity and elevated labor expenses might continue to weigh on margins. Additionally, a soft consumer spending environment in the U.S. restaurant space might hurt traffic and in turn comps in the to-be-reported quarter. Particularly, poor restaurant level execution at the Qdoba brand along with a choppy sales environment might hamper the quarter’s results.

Notably, in the fiscal third quarter, the company projects comps to be up 1% to down 1% compared with the year-ago comps growth of 1.1% at the Jack in the Box restaurants. For the Qdoba restaurants, same-store sales are projected to be up 1% to down 1% compared with the year-ago quarter comps growth of 1%.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Jack in the Box this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as elaborated below.

Zacks ESP: Jack in the Box has an Earnings ESP of -0.94%. This is because the Most Accurate estimate is $1.05 per share, while the Zacks Consensus Estimate is pegged higher at $1.06. 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 currently has a Zacks Rank #4 (Sell).

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

Stocks to Consider

Here are some companies to consider in the broader Retail-Wholesale sector, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited BABA has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

J. C. Penney Company, Inc. JCP has an Earnings ESP of +42.86% and a Zacks Rank #3.

Nordstrom, Inc. JWN has an Earnings ESP of +3.28% and a Zacks Rank #3.

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