Jack In The Box's Sales Building Initiatives To Drive Growth

Jack in the Box Inc.’s (NASDAQ:JACK) regular menu innovations, robust delivery channel and various sales boosting initiatives bode well for the company. However, challenging industry conditions are dampening comps growth and increasing costs. Let’s delve deeper.

Hidden Catalysts

Jack in the Box is the nation’s one of the largest hamburger chains. The company makes regular menu innovations and also provides limited period offers (LPO) at both its flagship restaurants to drive long-term customer loyalty. Backed by the consistent menu inventions around premium products like Buttery Jack Burgers, sauced & Loaded Fries, munchie mash-ups and teriyaki bowls, the company is delivering comps growth. Evidently, Jack in the Box witnessed comps growth of 0.6% in the fiscal second quarter, following a 0.5% gain in the preceding quarter.

These apart, Jack in the Box increasingly focusing on delivery channels. Given the high demand for delivery services, the company has undertaken third-party delivery channels to boost transactions and sales. At the end of second-quarter fiscal 2019, approximately 90% of Jack in the Box’s system was served by at least one delivery service.

Furthermore, the company partnered with DoorDash, Postmates and Grubhub. Recently, it also added Uber (NYSE:UBER) Eats to its portfolio. DoorDash delivery continued to generate an incremental lift in sales in the fiscal first quarter, with sales growing additional 30 basis points. Jack in the Box is also expanding its mobile application in a few markets that support order-ahead functionality and payment. Management is reaping benefits in terms of higher ticket from mobile orders.

Additionally, Jack in the Box restaurants are largely franchised. At the end of fiscal 2018, the company had 94% franchised restaurants, up from 79% at the end of fiscal 2013. In fiscal 2019, the company plans to open 25-35 units. We believe franchising a large chunk of its system will lower its general and administrative expenses and thereby boost earnings.

Concerns

For fiscal 2019, comps at Jack in the Box’s system restaurants are envisioned to be in the range of flat to up 1% compared with flat to up 2% guided earlier. Moreover, the company’s total revenues have missed the Zacks Consensus Estimate in second-quarter fiscal 2019. Total revenues of $215.7 million marginally lagged the consensus mark of $217 million but improved 2.8% year over year.

Jack in the Box operates in the retail restaurant space that is highly competitive. Moreover, American dining brands are keen on expanding in the fast-growing emerging markets, which is worrisome. While several other restaurateurs including Yum! Brands (NYSE:YUM) , McDonald’s (NYSE:MCD) and Domino’s (NYSE:DPZ) have opened their outlets in emerging markets, Jack in the Box seems to be lagging on this front. The company’s limited international presence might be a big disadvantage and hurt its competitive position.

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