Stock Wars: Jack In The Box Vs. Wingstop

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two companies in the quick-service food trade: Jack in the Box Inc. JACK and Wingstop Inc. WING.

The Case For Jack In The Box: This company can trace its roots to Topsy's Drive-In, a San Diego eatery that opened in 1941. Founder Robert Peterson converted the venue to Jack in the Box in 1951 and pioneered the use of a two-way intercom system to accommodate drive-in customers.

Today, Jack in the Box covers approximately 2,200 restaurants in 21 states and Guam. The company has been publicly traded since 1987.

Among its recent corporate developments, the company signed seven development agreements to open 47 new restaurants, including an expansion into the Salt Lake City and Louisville markets. Jack in the Box also partnered with Impossible Foods to serve plant-based hamburgers at several of its Phoenix locations while bringing back its celebrated Monster Taco on a limited-edition basis during October.

During the course of the year, the company underwent a C-suite transformation with new executives being brought in to oversee its marketing, investor relations, human resources and technology endeavors.

In its most recent earnings report, the FY fourth-quarter data published on Nov. 23, Jack in the Box recorded revenues of $278.4 million, up from $255.4 million, with net earnings of $38.9 million, up from $37,8 million in the previous year. The company’s net earnings per share of $1.80 was higher than the previous year’s $1.64 and the 44-cent dividend for the quarter was four cents more than the dividend from one year earlier.

Looking forward, Jack in the Box is seeking to fund five new company-owned restaurants in 2022 and between seven and 15 in 2023.

“I am very proud of the execution and determination shown by our outstanding franchisees and corporate team members, continuing to deliver for our guests during a challenging operating environment,” said CEO Darin Harris. “We closed the year with strong comps on a two-year basis of +12.3% in Q4, leading us to another record-setting year of store-level profitability — a key element in driving results against our growth strategy in the near future.

“We continue to focus heavily on making significant progress on our strategic pillars, growth objectives, and unlocking substantial value for JACK shareholders,” Harris added.

Jack in the Box opened for trading on Wednesday at $82.60, closer to its 52-week low of $80.85 than its 52-week high of $124.53.

Related Link: The complete Stock Wars series

The Case For Wingstop: This company traces its origins to Garland, Texas, in 1994 when Antonio Swad opened an eatery with a pre-jet aviation décor. The first Wingstop franchise opened in 1997 and the company has been publicly traded since 2015.

Today, Wingstop boasts 1,673 Wingstop in 44 states and 10 countries. This included 1,493 U.S. restaurants, with all but 32 being franchised and 180 franchised restaurants overseas.

Among its recent corporate developments, the company announced plans to establish itself in the heart of New York City with a mix of 20 traditional locations and ghost kitchens opening between 2022 and 2025. The company theorized that ghost kitchens offer the opportunity to penetrate markets where real estate costs are conspicuously high.

In September, the company debuted Thighstop as a virtual brand. This came in response to the rising costs and supply chain disruptions to the supply of its trademark wings, whereas there was no similar shortage of chicken thighs available for sale.

Back in April, the company announced plans to extend into Canada through an agreement with JPK Capital to develop 100 Wingstop locations over the next 10 years with the first set to open in Toronto.

In its most recent earnings report, the third-quarter data released on Nov. 3, Wingstop recorded revenues of $65.7 million, up from $63.9 million one year earlier, and net income of $11.2 million, up from $10 million in the previous year. Wingstop’s latest earnings per share of 38 cents was a four-cent uptick from 12 months earlier.

Chairman and CEO Charlie Morrison noted that while “chicken prices remain high due to macro inflationary factors including a labor shortage, we were able to achieve another record quarter for new restaurant development with 49 net new restaurants. We also continued our strong top-line momentum and grew domestic same-store sales by 3.9%, or 29.3% on a two-year basis, which is on pace for our 18th consecutive year of positive same-store sales growth for the brand.”

Wingstop opened for trading on Wednesday at $160.60, closer to its 52-week high of $187.35 than its 52-week low of $112.49.

The Verdict: One has to show deep respect for restaurant operators during this time of supply chain disruptions, labor shortages and anything-but-transitory inflation that influences consumers to shy away from takeout and eating out — and we still have no idea what havoc the omicron variant of the coronavirus will have on the economy. At the risk of pessimistic, one has to believe that both companies will have a rough road ahead for the next several quarters.

That being said, Wingspan has the more ambitious game plan of the two — and maybe the more curious. New York City’s restaurant scene is extremely challenging and the pandemic made a rough situation even worse. The ghost kitchen concept makes sense, but unless there is a massive marketing push to attract the attention of New Yorkers who have no shortage of dining choices — and for whom the Wingspan brand rings no bells — this endeavor will not be as easy as a walk in Central Park.

On the other hand, Jack in the Box’s shares are trading much too close to their 52-week low. For a chain with a long and mostly positive history, this recent stock performance is discouraging to witness. Also, the company's plans for future locations are a little too modest. Conservative growth is one thing, but why are there only five new restaurants planned for 2022?

In view of what these companies are working with, perhaps this Stock Wars duel should end with a wait-and-see result.

After the current economic hiccups fade away and a less chaotic economic situation takes shape, it would be a good idea to track how Jack in the Box and Wingstop emerge — and at that point, one can determine which is the stronger for portfolio inclusion.

Photo: PXHhere

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