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Here's Why You Should Retain JACK Stock in Your Portfolio

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Jack in the Box Inc. (JACK - Free Report) is likely to benefit from menu innovation, digital efforts and unit expansion efforts. Also, the focus on the re-image program bodes well. However, dismal comps and elevated labor costs are concerns.

Let us discuss the factors that highlight why investors should retain the stock for now.

Growth Catalysts of JACK

Menu Innovation: Jack in the Box has adopted a dual approach to cater to both current market conditions and long-term goals. To attract value-oriented customers, the company has launched several initiatives, including the "Munchies Under $4" platform and "Jack's Big Deal Meal." These offerings are designed to increase transactions and enhance menu consistency across the system. The company's differentiated menu, featuring value offers like $5 meals, $10 Fan Favs Boxes and late-night Munchie Meals, positions it to meet diverse customer needs.

The brand's innovation efforts, such as introducing wings, Smash Jack burgers and French Toast Sticks as a permanent breakfast option, are paying off. These products have been well-received, indicating that Jack in the Box is effectively responding to evolving consumer preferences.

Digital Efforts: Increased focus on digital initiatives bodes well. The company aims to increase digital sales from 14% to 20% by enhancing its first-party capabilities. It intends to launch a redesigned Jack app, enabling personalization and targeted loyalty offerings. Moreover, Jack in the Box is upgrading its point-of-sale system, with nearly 100 restaurants already equipped and a target of 450 by the end of 2024. This system will enhance its customer experience and enable operational innovations, such as better inventory and labor management.

Expansion Into New Markets: Jack in the Box is making significant strides in market expansion. The company recently opened its second restaurant in Mexico, with new locations in Salt Lake City and Louisville performing exceptionally well. Plans are underway to enter the Chicago market with up to 10 new locations in 2025 and expand into Florida. The new market entries present substantial growth opportunities for the brand.

Additionally, the company's re-image program, supported by a $50 million commitment, is expected to boost same-store sales and improve brand perception. With requests to remodel more than 1,000 restaurants, this initiative could drive significant growth in the coming years.

Concerns for Jack in the Box

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In the past year, Jack in the Box’s shares have lost 39.9% against the industry’s 2.6% growth. Dismal comp and elevated labor expenses caused the downside.

Soft Comps: In the fiscal third quarter, systemwide same-store sales fell 2.2% year over year against the 7.9% growth reported in the year-ago quarter. Reduced transactions and an unfavorable mix shift caused the downside. Same-store sales at franchised stores declined 2.4% year over year against the growth of 8% reported in the prior-year quarter. The company remains cautious of the uncertain macroenvironment.

High Expenses: The company has been bearing the brunt of high expenses for some time. In third-quarter fiscal 2024, the restaurant level margin contracted 80 basis points (bps) year over year to 21%, due to increased labor, utilities and technology support costs. Labor (as a percentage of sales) in the reporting quarter increased 200 bps year over year to 32.4%. The increase was driven by wage increases to comply with California's new minimum wage law.

Occupancy and other operating expenses rose 60 bps year over year to 19.4%, driven by higher utility and technological costs. The company anticipates the inflationary pressures to continue for some time.

Conclusion

While Jack in the Box faces challenges such as declining same-store sales and rising labor costs, its strategic initiatives in menu innovation, digital transformation and market expansion offer significant growth potential. The company's commitment to enhancing its brand through re-imaging efforts and targeting new markets positions JACK well for long-term success. Although the short-term outlook is clouded by economic uncertainties, the ongoing investments in customer experience and operational efficiencies make Jack in the Box a stock worth retaining in your portfolio.

Zacks Rank & Key Picks

Jack in the Box currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Retail-Wholesale sector include:

Texas Roadhouse, Inc. (TXRH - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

It has a trailing four-quarter earnings surprise of 0.4%, on average. TXRH’s shares have risen 61.1% in the past year. The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.2% growth, respectively, from the year-earlier actuals.

Potbelly Corporation (PBPB - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 77.5%, on average. The stock has declined 23.5% so far this year. The Zacks Consensus Estimate for PBPB’s 2025 sales and EPS implies a rise of 4.2% and 30%, respectively, from the year-ago levels.

El Pollo Loco Holdings, Inc. (LOCO - Free Report) presently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 21.6%, on average. LOCO’s shares have risen 44.5% in the past year. The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 2% and 12.7% growth, respectively, from the prior-year figures.

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