Jack In The Box Tanks As McDonald's All-Day Breakfast Crimps Sales

Shares of fast food operator Jack in the Box (JACK) are falling after reporting quarterly results that missed expectations.

WHAT'S NEW: After the close on Wednesday, the fast food restaurant chain reported first quarter earnings per share of 93c, missing analysts' expectations of $1.03. The company also reported quarterly revenue of $470.8M, below the $475.49M that was expected. Jack in the Box operates and franchises Jack in the Box quick-service restaurants and Qdoba Mexican Eats fast-casual restaurants primarily in the United States. Jack in the Box Chief Executive Officer Lenny Comma attributed the soft sales in the quarter to increased promotional activity from several competitors. According to the CEO, the company's decision to push out promotional activity to the second quarter also contributed to "weakness at breakfast and lunch throughout the quarter." Comma also referred to a competitor's promotion about its launch of all-day breakfast that had some impact on its results. It should be noted that McDonald's (MCD) launched its all-day breakfast towards the end of 2015. Qdoba's profitability for the quarter was impacted by a number of items, including advertising costs which were 3c per share higher than last year due to timing, higher pre-opening costs of about 2c per share related to a greater number of openings, and costs of about 2c per share for new uniforms and a brand-wide conference.

GUIDANCE: The company is anticipating Q2 same-store sales ranging from approximately down 3% to flat at Jack in the Box company restaurants versus a 7.4% increase in the year-ago quarter. The low end of the sales guidance for Q2 reflects trends through the first four weeks as compared to the same period of the prior year when sales growth exceeded 10%. Additionally, the company is anticipating same-store sales ranging from approximately flat to up 3% at Qdoba company restaurants versus a 7% increase in the year-ago quarter. For 2016 the company sees a same-store sales increase of approximately 1%-2% at Jack in the Box company restaurants and a same-store sales increase of approximately 2%-3% at Qdoba company restaurants. The company said it sees FY16 EPS $3.50-$3.63 compared to analysts' estimates of $3.63.

WHAT'S NOTABLE: On its quarterly earnings conference call, the company noted that it is contemplating various levers to enhance shareholder value, including its decision to increase Jack in the Box franchise ownership to at least 90% and reduce general and administrative expenses to approximately 3% of consolidated system-wide sales. Company executives also noted that in the short term they will get more aggressive on promotions.

ANALYST TAKE: In a note to investors this morning, research firm Oppenheimer said Jack in the Box should be bought on weakness. Oppenheimer said the 19% decline in Jack in the Box's stock following its results is an overreaction, as the firm thinks that analysts' 2016 EPS estimates for the company will only fall 2%. The firm noted that Jack's comp sales dropped 3% in the first four weeks of the quarter, but says it faced a tough comp and noted that the period only included one week of a menu change. Oppenheimer kept an $86 price target and Outperform rating on shares.

PRICE ACTION: Shares of Jack in the Box are down over 15.6% to $64.86 per share in midday trading.

OTHERS TO WATCH: Shares of McDonald's are fractionally lower in midday trading, while shares Restaurant Brands International (QSR), which owns and operates quick service restaurants Burger King and Tim Horton's, is down over 3%.