Jack in the Box Inc. (JACK Quick QuoteJACK - Free Report) is expected to benefit from regular menu innovation, franchising efforts and timely focus on catering, delivery and marketing. Also, increased focus on food packaging and portability is likely to enhance customer experience in the upcoming periods.

Shares of Jack in the Box have gained 27% over the past year compared with the Zacks Retail - Restaurants industry’s 29.5% growth. Although the stock’s gains slightly lagged the industry’s growth, earnings estimates for the fiscal fourth quarter and fiscal year 2021 have moved up 4.2% and 2.4%, respectively, over the past 30 days. This positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Driving Growth

Regular Menu Innovation

Menu innovation is one of the primary characters of the company. The company is continuously working on maintaining uniqueness of its brand, menu and premium food offerings. During the third quarter of fiscal 2021, the company witnessed average check growth mainly on premium menu items. Also, the company’s newly-launched clock chicken sandwich and improved chicken strips witnessed positive response in the markets. Notably, the company started the promotion of popcorn chicken during third-quarter fiscal 2021, which witnessed huge initial demand. Meanwhile, the previously-introduced biscuit sandwich also maintained sales growth during the quarter.

Solid Franchising Efforts

Jack in the Box restaurants are largely franchised. During the quarter under review, the company had 91% of its restaurant franchised. During third-quarter fiscal 2021, franchise-level margin, as a percentage of total franchise revenues, was 43.3%, up from 41.5% in the year-ago quarter. We believe franchising a large chunk of its system will lower its general and administrative expenses and thereby boost earnings. Moreover, in the long term, it would generate a higher return on equity by lowering capital requirements. During the third quarter, Franchise rental revenues climbed 6% year over year to $80.6 million. Franchise royalties and other revenues increased 12.4% year over year to $48.6 million owing to a rise in franchise same-store sales. Also, franchise contributions to advertising and other services revenues surged 19.3% year over year to $48.4 million.

Strong Delivery Network

Jack in the Box is also increasingly focusing on delivery channels, which is a growing area for the industry. Given the high demand for deliveries, the company has undertaken third-party delivery channels to bolster transactions and sales. The company is in a very early stage of making digital strategies by connecting with guests and enabling one-to-one marketing. Also, it is witnessing tremendous growth from the digital side of business. The newest element of the Jack brand is digital accessibility. The company has taken up the latest strategy to accelerate restaurant growth through digital channels. It is investing aggressively in store improvements and new store build, innovating via digital operations. Moreover, the company is using its digital platforms for enhancing overall guest experiences and customer satisfaction. To date, the company’s digital database has grown 30% and it expects digital channel sales to hit the mark of 10% in the near term.

Robust Comps Growth

During the third quarter of fiscal 2021, the company impressed investors with robust comps. Comps at Jack in the Box’s stores increased 9% in the fiscal third quarter compared to 4.1% reported in the prior-year quarter. The upside can be attributed to average check growth and transactions. Same-store sales at franchised stores grew 10.3% year over year compared with 6.9% reported in the prior-year quarter. Meanwhile, system-wide same-store sales increased 10.2% year over year versus 6.6% reported in the year-ago quarter.
Continuous Rewards to Shareholders

Jack in the Box has been consistently enhancing shareholders’ return through share repurchases and dividends. During the fiscal third quarter, the company repurchased 0.6 million shares of its common stock for $65 million. As of Jul 4, 2021, the company had $70 million left under the share repurchase authorization, which will expire in November 2022. On Jul 30, 2021, the board of directors declared a cash dividend of 44 cents per share. The dividend is payable on Sep 3, 2021, to shareholders of record at the close of business as on Aug 18, 2021.

Image Source: Zacks Investment Research

Zacks Rank & Other Key Picks

Jack in the Box carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the same space include Brinker International, Inc. (EAT Quick QuoteEAT - Free Report) , The Wendy's Company (WEN Quick QuoteWEN - Free Report) and Yum! Brands, Inc. (YUM Quick QuoteYUM - Free Report) , each sporting a Zacks Rank #2.

Brinker’s earnings for fiscal 2021 are expected to surge 84.2%.

Wendy's and Yum! Brands’ earnings for 2021 are expected to rise 42.1% and 22.4%, respectively.