Jack In The Box Fears Are Overdone, Says Oppenheimer

Despite widespread fears of a severe guidance cut, Jack in the Box Inc. JACK maintained its FY16 EPS guidance of $3.50–$3.63.

Oppenheimer’s Brian Bittner reiterated an Outperform rating on the company, with a price target of $86.

Beat Results

“While headline sales are sluggish to start 3Q, recent flooding in Houston and weather in Denver are transitory culprits. We think "core" trends remain ok ahead of major comparison easing while most peers now face toughening laps,” Bittner mentioned.

Jack in the Box reported its EPS ahead of the consensus, driven by company-owned Qdoba and franchise profits, lower SG&A and share count, as well as a lower tax rate.

Related Link: Jack In The Box Sales Show Some Progress

Comps And Guidance

However, comps declined 1 percent at co-owned units, with the company guiding to 2 percent down to flat comps for 3Q, including the impact of the Houston flooding.

Qdoba comps, on the other hand, rose 3.1 percent, beating the consensus expectations of 1.5 percent growth.

Jack in the Box guided to 3Q comps of -1 to +1 percent, with management expecting comps to re-accelerate, given that the bad weather in Denver has subsided and fresh promotions have been rolled out.

Restaurant margins also bear consensus, driven by improvements in labor and other expenses.

The EPS estimates for FY16 and FY17 have been marginally raised. The analyst believes that the guidance could prove to be conservative, given the line item guidance.