Jack in the Box (JACK 112.00, +10.11) has spiked 9.9% in pre-market after beating earnings estimates. The company lowered its guidance for the fiscal year, but also revealed that it is exploring strategic alternatives with respect to its Qdoba brand, which follows a different model than its core business. This has invited speculation that a spin-off may be on the way.
The fast food chain reported above-consensus second quarter earnings of $0.98 per share on a 2.3% year-over-year increase in revenue to $369.40 million, which matched expectations.
System-wide same-store sales at Jack in the Box declined 0.8% year-over-year while Qdoba system-wide sales fell 3.2%. Company-owned locations fared worse than franchisees in both segments. Jack in the Box sales at company-owned stores declined 2.4% while sales at company-owned Qdoba locations fell 5.9% year-over-year. Jack in the Box franchisees reported a 0.4% decline in same-store sales while sales at franchised Qdoba locations ticked down 0.3%.
Consolidated restaurant operating margin fell 240 basis points to 17.5%. Jack in the Box restaurant operating margin fell 100 basis point to 19.7% due to higher labor costs, higher repairs and maintenance costs, and sales deleverage. These negatives were partially offset by lower food & packaging costs.
Qdoba restaurant operating margin fell 480 basis points to 13.5% due to sales deleverage, impact of new restaurant openings, higher food & packaging costs, and wage inflation.
Franchise margin grew 60 basis points to 54.4% thanks to higher franchise fees resulting from the sale of 60 company-owned Jack in the Box restaurants to franchisees. Lower depreciation and lower franchise support costs also contributed to the improvement.
Looking ahead, the company expects that the change in Jack in the Box same-store sales during the third quarter will be between -1.0% and +1.0% after 1.1% growth was recorded one year ago. Same-store sales at Qdoba are also expected between -1.0% and +1.0% after growing 1.0% one year ago.
For the fiscal year, Jack in the Box lowered its earnings guidance range to $4.10 - $4.30 per share, down from $4.25 - $4.45 per share. Same-store sales growth at Jack in the Box is expected to hit 1.0%, down from a previous forecast for 2.0% growth. Qdoba same-store sales are expected to decline between 1.0% and 2.0%. The company does not expect significant changes in commodity prices and is targeting a consolidated restaurant operating margin of 19.0%.