Restaurant stock of the year: Jack in the Box

The Jack in the Box store in Broomfield, Colorado is seen November 18, 2014. Jack in the Box is set to release their Q4 2014 earnings November 18, 2014. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS)·Yahoo Finance· (REUTERS)

For the second year in a row, a burger seller is the Yahoo Finance restaurant stock of the year. Last year, it was Wendy's (WEN), and this time around, it's Jack in the Box (JACK).

The headline out of the way, it's technically only partly about the hamburgers at this San Diego-based chain. Because along with its namesake restaurants, Jack in the Box also owns the Qdoba Mexican Grill, a Tex-Mex-style fast casual operator that's making more of an impression on investors and diners alike. And 600-store Qdoba's emergence as a focal point of the business was one of the key factors in the tremendous showing by Jack in the Box shares this year.

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Here's why Jack took the gold medal:

Market wins

Unlike a number of restaurant stocks that struggled in 2014 until a fall rally in consumer discretionaries, Jack in the Box didn't have that problem. It was consistently strong throughout most of the year, significantly outpacing the average of a large group of restaurants tracked by Yahoo Finance. In June, with shares trading around $60, I wondered if the stock might take a rest. It didn't, and is now trading closer to $78.

This stock today is a long way from the terrible E. coli contamination of 1993. As of Dec. 16, Jack in the Box was up 56% for the year and is in its third consecutive year of gains. Hard to argue with that.

Knowing the customer

Along with the chuckles patrons might get from the chain's quirky -- some might say questionable -- advertising, Jack in the Box continued to not apologize for cooking a lot of fast food at its 2,200-plus shops, proudly standing as a seller of cheese, meat, tacos, shakes and fried fare.

The new or limited-time offers were right up its alley. Among the highlights: Two gigantic breakfast burritos were rolled out in August, and the Munchie Meal line was updated with a Hella-peno Burger option and the Chick-n-Tater Melt -- that's fried chicken, bacon, hash browns, cheese and ranch on a croissant. A promotion underway now is recognizing one of the big flavors of the day, Sriracha sauce, via the Spicy Sriracha Burger.

The website BurgerBusiness cheered, as well, naming Jack in the Box its Burger Chain of the Year.

Qdoba

Jack in the Box has owned Qdoba for more than a decade, yet it's never mattered more. Investors can't get enough of fast-casual stocks these days, and Qdoba represents the sector well. It's the second-biggest of the Mexican-influenced chains behind market star Chipotle (CMG). Jack in the Box believes it can more than triple the Qdoba base over the years ahead to 2,000 stores, giving analysts and investors plenty of time to relish the brand. In fiscal year 2014, which ended Sept. 28, the Qdoba system's same-store sales were solid indeed, rising 6%. Some weak locations were closed in 2013, but the last time that number was better was in 2005.

A major turn occurred only a few weeks ago, when the company said it would rework the way it charges Qdoba customers. Meals are likely to be more expensive to start, with pricing based on the protein choice, but extras such as queso sauce and guacamole are now free, providing a nice offset. Simplifying the pricing structure means diners don't have to over think it while they're ordering, and it eases transactions for the staff. Good for the restaurant and for its visitors.

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Shareholder interests

The year's summary: Earnings from continuing operations rose almost 15% to $94.8 million as overall costs declined, partly from the ongoing move into franchised locations, which the company says has been "essentially completed." Also, it worked out a debt-refinancing agreement to better manage its borrowing payments. And the buyback continued. Yes, there are a lot of buyback haters in the world, with stock repurchases not always seen as the best use of capital or dismissed as a too-simple way to unfairly boost earnings-per-share. But they do contribute to a scarcity factor for shares left on the market, potentially elevating price.

Regardless of one's opinions on repurchases, a far more important development took place in May, when Jack in the Box said it would start paying a dividend. The yield isn't large, slightly over 1%, but it's a start.

Not without issues

It isn't without areas to improve potentially. Jack in the Box doesn't put a great deal of energy into health food, at least at its biggest division, though if a customer prefers it does have salads. So even as I applaud the company for staying with its strengths, there always will be detractors about what fast-food restaurants are doing to American eaters. Further, being the type of restaurant it is means it's had to face some of the criticisms about low pay levels as similar operators.

And whether the stock's climb carries on in 2015 of course can't be known. What we can and do know, and this isn't to be ignored, is that some of Jack in the Box's large investors have been cashing in on the way up. According to FactSet data, that's included its biggest holder BlackRock. In fact, the top four shareholders, as of the most recent data, have reduced their share counts overall in the last two quarters for which they reported, though they do still own 25% of the company.

That clearly deserves watching in the months ahead. But for the months behind, in 2014, Jack in the Box was powerful stuff.

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