Jack in the Box (JACK)

Fast-food chain Jack in the Box (NASDAQ:JACK) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 7.8% year on year to $336.7 million. Its non-GAAP profit of $1.20 per share was 4.2% above analysts’ consensus estimates.

Company Overview

Delighting customers since its inception in 1951, Jack in the Box (NASDAQ:JACK) is a distinctive fast-food chain known for its bold flavors, innovative menu items, and quirky marketing.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Fast-food competitors include Burger King and Popeyes (owned by Restaurant Brands, NYSE:QSR), McDonald’s (NYSE:MCD), Wendy’s (NASDAQ:WEN), and Taco Bell and KFC (owned by Yum! Brands, NYSE:YUM).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $1.52 billion in revenue over the past 12 months, Jack in the Box is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Jack in the Box’s sales grew at a decent 8.2% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) despite closing restaurants.

This quarter, Jack in the Box missed Wall Street’s estimates and reported a rather uninspiring 7.8% year-on-year revenue decline, generating $336.7 million of revenue.

Looking ahead, sell-side analysts expect revenue to decline by 1.9% over the next 12 months, a deceleration versus the last six years. This projection doesn't excite us and implies its menu offerings will see some demand headwinds.

Number of Restaurants

A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.

Jack in the Box operated 2,183 locations in the latest quarter, and over the last two years, has kept its restaurant count flat while other restaurant businesses have opted for growth.

When a chain doesn’t open many new restaurants, it usually means there’s stable demand for its meals and it’s focused on improving operational efficiency to increase profitability.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Jack in the Box’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and we’d be skeptical if Jack in the Box starts opening new restaurants to artificially boost revenue growth.

In the latest quarter, Jack in the Box’s same-store sales fell by 4.4% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Gross profit margins are an important measure of a restaurant’s pricing power and differentiation, whether it be the dining experience or quality and taste of food.

Jack in the Box has good unit economics for a restaurant company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 31.6% gross margin over the last two years. Said differently, Jack in the Box paid its suppliers $68.40 for every $100 in revenue.

In Q1, Jack in the Box produced a 47.3% gross profit margin, up 17 percentage points year on year. Jack in the Box’s full-year margin has also been trending up over the past 12 months, increasing by 3.6 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as ingredients and transportation expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Jack in the Box was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.7% was weak for a restaurant business. This result is surprising given its high gross margin as a starting point.

Looking at the trend in its profitability, Jack in the Box’s operating margin decreased by 24.2 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Jack in the Box’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Jack in the Box generated an operating profit margin of negative 46.7%, down 61.5 percentage points year on year. Conversely, its gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like marketing, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Jack in the Box has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.8%, subpar for a restaurant business.

Taking a step back, an encouraging sign is that Jack in the Box’s margin expanded by 1.7 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Jack in the Box burned through $49.44 million of cash in Q1, equivalent to a negative 14.7% margin. The company’s cash burn increased from $5.59 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Jack in the Box’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 8.5%, slightly better than typical restaurant business.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Jack in the Box’s $3.15 billion of debt exceeds the $15.78 million of cash on its balance sheet. Furthermore, its 10× net-debt-to-EBITDA ratio (based on its EBITDA of $308.1 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Jack in the Box could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Jack in the Box can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was tough to see JACK's revenue and same-store sales fall slightly short of Wall Street’s estimates. On the bright side, its EPS and EBITDA beat. Still, this was a softer quarter. The stock remained flat at $25.70 immediately after reporting.

Updated: July 9, 2025 at 10:40 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Jack in the Box, we’re out. Although its revenue growth was decent over the last six years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s gross margins indicate a healthy starting point for the overall profitability of the business, the downside is its poor same-store sales performance has been a headwind.

Jack in the Box’s P/E ratio based on the next 12 months is 4.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $29.94 on the company (compared to the current share price of $22.08).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.