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.
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.
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.”
“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.”
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.
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.
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.
“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.”
Gordon said he and others have estimated that Jack in the Box overpaid for Del Taco by $200 million to $300 million,
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.
There are nearly 600 Del Taco restaurants, with more than half in California.
In explaining the move to sell Del Taco, Tucker was careful to place no blame on the chain itself.
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He also acknowledged the timing of the purchase was not great, coming about a year before new legislation was passed mandating a $20-an-hour minimum wage for fast-food workers. The new hourly wage went into effect last year.
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.
“What may have frightened the board is that they’re thinking, ‘Oh no, we bought into this bad concept of Del Taco and now we have a debt payment coming up on it,’” Gordon said. “Normally, restaurants don’t like to close down units but now the situation is far more severe. They need to make the fixes to the system now so that later the base of the system improves and they can be in better shape.”
Jack in the Box’s stock price closed Thursday at $23.96 a share, down $1.45 or 5.72%. The stock has fallen nearly 60% in the past year.
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