Jack in the Box is taking bold steps to restructure its business, announcing plans to close up to 200 underperforming locations across its portfolio permanently. The move comes as the fast-food chain also hires an advisor to explore strategic alternatives for Del Taco, the Mexican-inspired brand it acquired just three years ago, including a potential sale as part of the company’s comprehensive reconfiguration under its newly-named CEO Lance Tucker.
Jack in the Box Plans Closures and Cuts to Refocus Core Business
San Diego-based Jack in the Box has announced a series of financial and operational changes aimed at streamlining its business and reducing debt. According to Restaurant Business, the fast food chain plans to sell off real estate assets and suspend its dividend payments to prioritize debt repayment.
As part of its restructuring strategy, Jack in the Box will shut down 150 to 200 underperforming locations through what it refers to as a “block closure program.” During a call with analysts on Wednesday, Tucker emphasized the company’s intent to simplify its structure and “refocus” toward its core Jack in the Box business.
Additionally, the company has engaged BofA Securities to evaluate “strategic alternatives” for Del Taco, “including a possible divestiture of the business.”
What Prompted Jack in the Box’s Restructuring Plan
Jack in the Box’s restructuring announcement comes on the heels of significant leadership changes, most notably the sudden departure of former CEO Darin Harris. Just weeks after being appointed CFO, Tucker was elevated to the chief executive role, signaling a clear directive to strengthen the company’s financial position.
The decision also follows a challenging quarter marked by sales declines at both of the company’s brands. Severe weather and wildfires in California—home to a large portion of its restaurants—impacted performance, with same-store sales dropping 4.4% at Jack in the Box and 3.6% at Del Taco in the quarter ending April 13th, according to preliminary results.
While not directly cited, ongoing legal issues may have also influenced the restructuring move. The company is currently embroiled in a lawsuit filed by a major franchisee in Washington state over the termination of 39 restaurants.
Which Jack in the Box Locations Are Closing?
Jack in the Box has not yet released a list of specific restaurants slated for closure. However, the company noted that most of the affected locations have been operating for more than 30 years. The initial phase of the closure plan is expected to impact 80 to 120 restaurants by the end of this year.
These closures are in addition to the previously projected 1.5% to 2% reduction in total units for the fiscal year. Despite the downsizing, Jack in the Box anticipates that the effort will ultimately result in “consistent, net positive unit growth” as the brand refocuses on newer, higher-performing locations.
Jack in the Box’s Potential Sale of Del Taco: What’s Behind the Move
Jack in the Box is considering selling Del Taco following a series of disappointing results and operational setbacks, including the closure of all but one of its locations in Colorado. As previously mentioned, the brand posted a 3.6% decline in same-store sales last quarter, marking its fifth consecutive quarterly drop. According to data from Restaurant Business sister company Technomic, systemwide sales for Del Taco fell 2% in 2023.
Acquired in a $575 million deal in 2022, Del Taco was once seen as the beginning of a broader acquisition strategy for Jack in the Box. However, the brand has consistently underperformed compared to its much larger competitor, Taco Bell, every quarter since early 2021.
Speaking to analysts, Tucker cited external factors such as inflation and California’s new $20 minimum wage for fast-food workers as contributing challenges. He also acknowledged internal struggles, referencing “implementation challenges” in the wake of the acquisition. Tucker noted that Del Taco is unlikely to “meaningfully contribute to the bottom line” for several years.
“It can thrive,” Tucker said. “It just needs to be in a situation that’s probably not with Jack in the Box, where we need to focus on our core business. It just makes a lot more sense to simplify our model.”
The restaurant closure in Colorado earlier this year stemmed from a legal dispute that pushed the franchisee into bankruptcy, just a year after obtaining development rights for the market.
Source: Restaurant Business