Jack In The Box
) looks like it could be a profitable turnaround/value story, but I'd like another quarterly report or so to answer some nagging questions. For now this goes on my watch list
What's interesting about Jack in the Box is that the company actually operates two very different restaurant chains. There's the namesake hamburger chain, with about 2,200 restaurants, and the Qdoba Mexican Grill with 600 restaurants.
The company has been converting its hamburger restaurants to franchises in order to raise margins and reduce capital demands for the refreshes necessary to keep up with McDonald's
) these days. Some 72% of the company’s Jack in the Box restaurants are now franchised versus 57% in 2010.
At the same time, Jack in the Box has been aggressively opening new Qdoba Grills. These Mexican restaurants have a not-so-coincidental resemblance to Chipotle Mexican Grill
) with an emphasis on hand-crafted preparation, display cooking environment and innovative flavors. The Qdoba Grills show an average check of $9.74 versus the $6.25 average check at a Jack in the Box. The company believes it can open 2,000 Qdoba restaurants in the United States and grow the number of units at 15% to 20% a year.
The total goal is 25% compound annual growth in EBITDA (earnings before interest, taxes, depreciation, and amortization from 2011 through 2015. Jack in the Box has set a target of $2 a share in operating earnings by 2015.
So what do I learn from the company’s next quarterly numbers, scheduled for release on Aug. 8? Well, I'd like a little better assurance that Jack in the Box can actually deliver on those plans -- especially at Qdoba.
Results for the second quarter of fiscal 2012 announced on May 12 raised doubts in exactly that critical area. The company’s guidance for comparable store sales for fiscal 2012 fell to 3.5% to 4% from the prior 4% to 5%. And the company reduced its projections for how many new Qdoba units it would open in fiscal 2012 to 60-70 from the earlier 70-90. The company’s explanation was that it was slowing growth to study opportunities in recently opened franchise markets. That often means that a company is trying to determine how densely it can pack restaurants without hurting existing franchise operators. But it seems early in Qdoba's growth for that kind of caution.
I'd like to make sure that I'm buying a real growth story here rather than merely shares in a company looking for some of the patina of the Chipotle Grill story. That $412-dollar stock (as of May 31) trades at a price to earnings ratio of 56 times trailing 12-month earnings versus a price to earnings ratio of 20 for Jack in the Box. Shares of Chipotle are up 43% in the last year versus a very respectable gain of 17% for Jack in the Box.
Jack in the Box is due to report earnings next on Aug. 8.
At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of McDonald’s as of the end of December but did not own shares of Jack in the Box at the end of that period. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.