Jack in the Box's Revenue and Sales Are Down. Here Are 3 Key Takeaways From Its Latest Earnings.

Jack in the Box (NASDAQ: JACK) stock has plummeted about 17% since the company released fiscal first-quarter earnings on Feb. 18.

It was a difficult quarter for the fast-food restaurant chain as revenue fell 6% year over year and it had a $2.5 million net loss, which was in part due to costs associated with the sale of its Del Taco chain. But even on an adjusted basis, earnings were off 46% to $1 per share.

Here are three major takeaways from the earnings report, including one that offers a glimmer of hope.

Image source: Getty Images.

1. Same-store sales plummet

Earnings results can be somewhat misleading, as they take into account divestments, like the Del Taco brand, as well as new store openings and closings.

Same-store sales is typically a better gauge of how a chain is operating because it looks directly at how the existing portfolio of restaurants did year over year.

The Q1 results were not good, as same-store sales dropped 6.7% in the quarter. That was due to a combination of lower store traffic and higher prices. It is the third straight quarter of steep declines, as the previous two quarters saw same-store declines of 7.4% and 7.1%, respectively.

2. Shrinking margins

The other alarming trend is the margin compression that Jack in the Box is seeing.

Restaurant-level margins dropped to 16.1% in Q1 from 23.2% in the same quarter a year ago. This essentially represents how much Jack in the Box restaurants make in profit after accounting for all expenses.

The sharp decline is due to a confluence of negative factors, including higher labor costs; a 7.1% increase in commodity prices, led by a surge in beef prices; and lower sales. It has resulted in food and packaging costs that represent roughly 30% of sales. That's up from about 26% in the same quarter a year ago.

The franchise-level margins are down too, meaning the profits that it gets from partners that own the restaurants but pay fees for using the Jack in the Box franchise. The franchise margin dropped to 38.6% from 40.9% a year ago due to lower sales, which translates to lower fees and rents, and a net reduction of seven stores as part of the chain's effort to close underperforming stores.

3. Guidance was unchanged

In the most recent quarter, Jack in the Box reiterated its guidance for 2026, which may not sound like a big deal, but considering the recent struggles, it's a positive step.

The company anticipates same-store sales to be between -1% and +1% compared to fiscal 2025, which offers some hope that things will at least stabilize. That may be due to beef prices stabilizing a bit, particularly in the back half of the year.

It is also planning to open some 20 new restaurants with higher growth potential and close 50 to 100 of the poor-performing locations, which should help over the longer term.

One thing Jack in the Box has going for it is its valuation, which is dirt cheap. It has a P/E ratio of 9 and a forward P/E of just 4. Analysts are mixed on the stock, but it has a median price target of $23 per share, which would be a 25% upside.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.