Jack in the Box noted earlier this month it would explore strategic options around Del Taco, but the decision seems to have already been made about what’s happening next—the brand will be sold to another owner.
CEO Lance Tucker said the company is a few weeks away from officially marketing Del Taco, but the chain has received “significant reach out and interest in the brand.”
“When you think about other alternatives, I think given the early returns on the interest we seem to be getting, I feel pretty solidly that that would be the option we would go down,” Tucker said during Jack’s Q2 earnings call.
The plan is part of the company’s “JACK on Track” turnaround strategy, which also contemplates the closure of 150 to 200 restaurants (mostly franchised units), selling real estate, and paying down at least $300 million in debt over the next year to 18 months.
READ MORE: Jack in the Box Mulls Selling Del Taco, Plans Hundreds of Store Closures
Del Taco, like several other QSRs, has felt notable consumer pullback. During its fiscal Q2, same-store sales declined 3.6 percent, comprising a 4.2 percent drop at franchise units and a 1.7 percent decrease at company stores. The lower sales were the result of a decline in transactions, partially offset by an increase in price. Restaurant-level margin was 12.8 percent, down 400 basis points from the prior year. The decline was driven mainly by lower sales and commodity and wage inflation, partially offset by menu price increases, according to the company.
Despite the negative results, Del Taco did see momentum from a menu optimization initiative that launched in the first half of Q1. It drove improvements in product mix and average check.
The brand is currently ramping up its digital prowess, with kiosks, third-party delivery, and mobile mixing over 18 percent. All corporate restaurants have kiosks, and franchisees are increasing their adoption rates.
Del Taco also plans to revamp its marketing with a different tone later this year, including some new menu additions.
“Kind of looking backwards to some things we may have done in the past that I think are going to be exciting for the brand,” said Tucker, explaining Del Taco’s marketing plan. “So continue to drive marketing, bring out innovation, and drive operations.”
The Mexican chain finished Q2 with 591 restaurants, with six openings and four closures. Del Taco has worked to refranchise its locations since being under Jack in the Box. When the company was bought in 2022 for $585 million, it had 297 corporate units and 306 franchises. Now it has 117 corporate units and 474 franchises.
As for Jack, same-store sales declined 4.4 percent in Q2, comprising a 4.5 percent decrease for franchises and a 4.4 percent dip for corporate restaurants. The result included a decrease in transactions and negative mix, partially offset by increases in menu price. Restaurant-level margin decreased to 19.6 percent, down from 23.6 percent a year ago, driven primarily by lower sales, continued inflation for commodities, wages, and utilities, as well as higher operating costs, partially offset by price increases and favorable beverage funding.
Tucker noted that Jack’s sales were impacted by multiple income cohorts lowering their visits and issues with rolling out a new POS system to nearly 1,500 restaurants. The IT issues affected comps by 1 to 2 percentage points.
“As we integrate modern technology with our existing legacy systems, some of which are decades old, we’ve encountered a few challenges,” the CEO said. “These issues are unrelated to our new POS systems or the partners involved in the integration. Rather, they highlight the necessity for Jack in the Box to continue overhauling its technology by investing in the rapid modernization of these legacy systems, which is already in progress.”
Jack’s 150 to 200 closures—which are part of a separate program and will not be included in the expected 1.5 percent to 2 percent system closures for fiscal 2025—will be spread throughout the system and among “a fairly broad number of franchisees.” Between 80 and 120 of the shutdowns will occur between now and the end of 2025. The rest will shut down afterward based on franchise agreement termination dates. Most of these outlets have been in the system for more than three decades.
“It is largely going to be driven on economics and sometimes you’re going to have a given franchisee who may have more closures than others,” Tucker said. “Certainly that’s going to be the case. But with that said, we are going to try to keep it pretty broad among the franchise base.”
The company remains confident in new market growth. Since mid-2021, Jack has signed development agreements accounting for well over 400 restaurant commitments.
Jack finished Q2 with 2,183 stores, consisting of 2,037 franchises and 146 company units. The brand opened five restaurants and closed 12 in the quarter.
The burger giant believes it will return to positive net unit growth after the closure program finishes. The brand saw net positive unit growth in fiscal 2023 and 2024 after failing to do so from 2020 to 2022.
“We think we’ve got a lot of ability to grow,” Tucker said. “I think the bigger change from my perspective would be we want it to be more franchisee-led than corporate-led. So we will continue to meet the obligations we’ve made as far as building a long-term franchisees in some of these markets. We’ll just take a little bit less active role and how many of those are actually restaurants that we own versus restaurants we’ll be asking the franchisees to build. But absolutely, we want to keep going on those new markets.”
