Introduction to Jack in the Box’s Restructuring
In a surprise move, Jack in the Box announced this week it would be closing as many as 200 of its restaurant locations, in addition to possibly unloading Del Taco, a chain it purchased only three years ago.
Background and Rationale
The latest initiative by the San Diego-based fast-food chain will allow it to focus more exclusively on the Jack in the Box brand, while shuttering underperforming restaurants and raising cash to eventually pay down $300 million in debt, the company’s new CEO, Lance Tucker, said.
Implementation of the New Strategy
The closing of dozens of locations, none of which have been announced yet, will be done in phases with the first 80 to 120 to be shuttered by the end of this year. The company is calling its new strategy, “JACK on Track.”
Expected Outcomes
“We expect closing these restaurants will strengthen the overall long-term economics of our franchisees, free up dollars for reinvestment, and allow the system to focus on maximizing performance of our stronger restaurants,” Tucker said during a Wednesday conference call with analysts and investors. “In short, we anticipate this program will better position Jack in the Box for more reliable, consistent, positive unit growth in the future.”
Del Taco’s Potential Sale
While Tucker did not indicate whether Del Taco is formally up for sale, he said that Jack in the Box is currently working with B of A Securities to explore a potential divestiture.
Industry Challenges
The decision to sell stores as well as the Del Taco chain comes at a time when fast-food restaurants in general face a number of challenges, including higher wages in California, food cost inflation and, more recently, a pullback in spending by consumers in the face of economic uncertainty.
Return to Roots
The new strategy effectively returns Jack in the Box to its roots when the focus was solely on the burger chain. It no longer owns the Qdoba fast-casual Mexican brand that it purchased more than two decades ago and later sold. And it could soon be free of Del Taco as well. The purchase of the chain — for $585 million — closed in 2022.
Analysis by Experts
“The problem is they bought Del Taco in the first place and paid too much,” said San Diego restaurant consultant John Gordon. “They hoped that they could sell off a bunch of Del Taco’s company-owned stores and there would be a lot more growth in Del Taco, not just from franchisees but also from Jack in the Box franchisees who would buy Del Taco stores, but that didn’t happen. It was a bet by the prior CEO, but one that didn’t pay off.”
Financial Performance
According to the latest financial figures released by the company this week, same-store sales for both brands struggled during the last quarter ending April 13. They were down by 4.4% for Jack in the Box and 3.6% for Del Taco. In all, there are 2,191 Jack in the Box stores, of which the vast majority are franchised. The highest concentration of locations is in California and Texas, and of those, 103 are in San Diego County, which includes two venues at the airport and one at Petco Park.
Future of Del Taco
In explaining the move to sell Del Taco, Tucker was careful to place no blame on the chain itself. “I think highly of the Del Taco brand, and I think it can thrive,” he told analysts. “I just think it needs to be in a situation … where we need to focus on our own core business. It just makes a lot more sense to simplify our model, and they can move ahead and in addition to that, I don’t know (that) the results in the next several years are going to meaningfully contribute to Jack’s bottom line so I think it makes sense to move them on to another owner.”
Debt Repayment
Gordon pointed out that the latest decisions were no doubt prompted, in part, by looming debt coming due. The company, he said, is facing repayment of more than $500 million in secured notes by February 2027.
Conclusion
The announcement by Jack in the Box to close up to 200 locations and potentially sell Del Taco marks a significant shift in the company’s strategy. By focusing on its core brand and shedding underperforming assets, Jack in the Box aims to strengthen its financial position and improve its competitiveness in a challenging fast-food market.
FAQs
- Q: How many Jack in the Box locations are expected to close?
A: Up to 200 locations are expected to close, with the first 80 to 120 closures happening by the end of the year. - Q: Why is Jack in the Box considering selling Del Taco?
A: The company wants to focus on its core Jack in the Box brand and simplify its business model, potentially allowing Del Taco to thrive under a different owner. - Q: What challenges is the fast-food industry facing?
A: The industry is facing challenges such as higher wages, food cost inflation, and a pullback in consumer spending due to economic uncertainty. - Q: What is the current financial situation of Jack in the Box?
A: The company is facing a significant debt repayment, with over $500 million in secured notes due by February 2027, and has seen a decline in same-store sales for both Jack in the Box and Del Taco.
