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Jack in the Box (JACK) Q2 Earnings: What's in the Cards?

Jack in the Box Inc. JACK is set to report second-quarter fiscal 2016 results on May 11, after the market closes.

Last quarter, the company posted a negative earnings surprise of 2.78%. In fact, the company has missed earnings estimates in two out of the trailing four quarters, with an average negative earnings surprise of 1.76%. Let's see what’s in store for this quarter.

Factors to Consider

Jack in the Box’s system-wide same-store sales have been outperforming the industry consistently over the past several quarters. Menu innovation backed by a sound pricing strategy and double-digit growth in catering sales remain the key growth drivers. Its Qdoba brand has been witnessing comps growth and the trend is likely to continue in this quarter supported by the new pricing structure and the company’s focus on menu innovation.

The company also started testing a digital platform, which should boost sales and traffic in the upcoming quarter. Moreover, it has successfully driven sales during the late-night day parts over the past few quarters.

However, intense competition in the breakfast segment would hurt the company’s top line. Further, high labor costs, promotional and advertising expenses and costs related to re-training the workforce in hospitality lessons would keep profits under pressure. The company has also been moving away from value and discount oriented deals, which could hurt traffic to a certain extent.

Earnings Whispers

Our proven model does not conclusively show that Jack in the Box is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Jack in the Box’s Earnings ESP stands at -2.78%. This is because the Most Accurate estimate stands at 70 cents while the Zacks Consensus Estimate is pegged at 72 cents.

Zacks Rank: Jack in the Box carries a Zacks Rank #3, which increases the predictive power of the ESP. However, we need to have a positive ESP to be sure of an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement.

Stocks to Consider

Here are some stocks in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Texas Roadhouse, Inc. TXRH, with an Earnings ESP of +4.76% and a Zacks Rank #3.

The Wendy's Company WEN, with an Earnings ESP of +16.67% and a Zacks Rank #1.

Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +0.91% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
WENDYS CO/THE (WEN): Free Stock Analysis Report
 
JACK IN THE BOX (JACK): Free Stock Analysis Report
 
TEXAS ROADHOUSE (TXRH): Free Stock Analysis Report
 
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