Jack In The Box's (JACK) Q2 Earnings: A Beat In The Cards?

We expect Jack in the Box Inc. (NASDAQ:JACK) to beat expectations when it reports second-quarter fiscal 2017 numbers on May 16, after market close.

Last quarter, Jack in the Box posted a negative earnings surprise of 4.84%. But prior to that, the company had posted positive earnings surprise in each of the three trailing quarters, bringing the average positive surprise in the last four quarters to 14.16%.

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

Why a Likely Positive Surprise?

Our proven model shows that Jack in the Box is likely to beat on earnings because it has the perfect combination of the two key ingredients.

Zacks ESP: Jack in the Box has an Earnings ESP of +1.10%, because the Most Accurate estimate is 92 cents, while the Zacks Consensus Estimate is pegged at 91 cents. A favorable Zacks ESP serves as a meaningful indicator of a likely positive earnings surprise. 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 #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Jack in the Box‘s favorable Zacks Rank and positive ESP makes us reasonably confident of an earnings beat this quarter.

What is Driving the Better-than-Expected Earnings?

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 to-be-reported 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 second quarter. 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 to-be-reported 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.

Notably, in the fiscal second quarter, the company projects comps growth to remain flat to down 2% compared with the year-ago flat comps at the Jack in the Box restaurants. For the Qdoba restaurants, same-store sales are projected to be down in the range of 1-3% compared to the year-ago quarter comps growth of 3.1%.

Stocks to Consider

Jack in the Box is not the only company looking up this earnings season. Here are some other companies to consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

Best Buy Co., Inc. (NYSE:BBY) has an Earnings ESP of +12.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fred’s, Inc. (NASDAQ:FRED) has an Earnings ESP of +16.67% and a Zacks Rank #3.

DSW Inc. (NYSE:DSW) has an Earnings ESP of +2.94% and a Zacks Rank #3.

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