The analyst raised the company’s same-store sales Q4 estimate above consensus based on quick service peers’ experience and industry checks that suggest a solid sales environment.
He also models adjusted EBITDA below consensus in Q4 based on sustained restaurant margin challenges, particularly COGS.
Charles prefers to remain below consensus on Q4 Jack margins given quick service industry store level COGS & labor headwinds.
He also maintains his Street-high Q4 33.8% Jack COGS estimate versus 32.6% CM based on industry quick service checks around stubbornly high food costs that he believes challenge implied 13.5% commodity inflation guidance.
Similar to Q4, despite the higher sales estimate, Charles maintains his 2023 Jack restaurant margins of 17.4% given cost inflation challenges he expects to persist through 1H23.
He noted while anticipated re-franchisings for 3 out of the 4 Evolving Markets will be a tailwind to margins in 1H23, labor costs will be a drag as minimum wage increased from $15/hour to $16.04/hour effective 7/1/22 in the high-volume, company-owned LA market.
Price Action: JACK shares are trading lower by 0.84% at $84.68 on the last check Friday.
