Jack in the Box Earnings, the Envy of McDonald's

You probably saw the news that McDonald’s Corporation (NYSE: MCD) saw negative same-store sales growth early Wednesday morning.  Frankly, the 1.6% drop ought to be considered a success when you consider that shares were down over 3% earlier on that bad news.  Well, it turns out that the far smaller Jack in the Box Inc. (NASDAQ: JACK) may be part of the problem for McDonald’s.  This may seem to be a bit of the “tail wagging the dog” but there is same-store sales growth happening here versus contraction at McDonald’s.

Jack in the Box has now shown that its earnings came to $11.6 million, or $0.26 per share, in its third quarter of 2012.  While this is compared to net earnings of $18.7 million, or $0.38 per share, a year ago, the company said that gains from refranchising contributed approximately $0.05 per diluted share.  Jack’s operating earnings were $0.37 per diluted share compared with $0.25 per diluted share in the prior year’s quarter. Thomson Reuters had estimates of $0.35 per share.

Chairman and CEO Linda A. Lang said, “Jack in the Box company same-store sales increased 3.4 percent in the third quarter, driven by a combination of traffic growth and an increase in average check.”

Revenues were lower by more than $17 million in the quarter to $501.8 million but that appears to be from the company’s changes in franchise and store-owned locations. The Thomson Reuters consensus was $509.8 million.  If that was due to a change in the store mix, then missing that revenue figure may not be anything to worry about.

Here is why we say that Jack is now the envy of Mickey-D’s.  Lang also said, “Four weeks into the fourth quarter, our same-store sales are tracking above our third quarter results.”  Those gains are attributed to “enhancing the entire guest experience at the Jack in the Box brand.”  With a new CEO at McDonald’s sounding extremely cautious when he reported U.S. same store sales were down by -0.1% in July, there are not too many reasons to not draw cause and effect here even if there is at least some tongue-in-cheek being used.

Guidance for same-store sales for Jack’s fourth quarter are as follows: 2 to 3 percent at Jack in the Box company restaurants versus a 5.8 percent increase in the year-ago quarter; approximately 1 to 2 percent at Qdoba system restaurants versus a 3.7 percent increase in the year-ago quarter. Jack’s 2012 earnings are expected to range from $1.48 to $1.58 per share outside of restructuring charges, above the $1.43 per share estimate from Thomson Reuters.   Keep in mind that this is tiny when you consider that McDonald’s is running closer to $7 billion per quarter in sales now.

Jack shares closed down almost 2% at $26.06 today due in part to the weakness of McDonald’s.  If McD’s is bad, logic might say that the weakness is poor in all fast food. Jack shares were initially up after the report but the stock is flattish in the after-hours session and the 52-week range is $18.25 to $28.44.

Arcos Dorados Holdings Inc. (NYSE: ARCO), the Latin American play on McDonald’s, fell 6% to $14.30 on the day based upon the disappointment from McDonald’s. Burger King Worldwide, Inc. (NYSE: BKW) closed down almost 1% at $15.01 on the day.

JON C. OGG