Jack in the Box is officially in turnaround mode.
The quick-service giant announced plans—officially called “JACK on Track”—to close 150 to 200 restaurants (mostly franchised units) and consider selling Del Taco. It also wants to pay down at least $300 million in debt over the next year to year and a half. The end goal is to improve long-term financial performance and strengthen its balance sheet.
“Jack in the Box has gotten away from some of the core characteristics that has made it a successful driver of shareholder value in the past,” CEO Lance Tucker said. “And it is time we return to those basics.”
Jack is working with BofA Securities to help with exploring strategic alternatives for Del Taco. As it looks for other options, the company suspended all future guidance for the Mexican chain. Del Taco’s comps dropped 3.6 percent in the second quarter, and it debuted six stores and shuttered four.
Jack bought Del Taco for $585 million in 2022. The company later revealed plans to refranchise hundreds of Del Taco’s corporate stores. At the time, the brand had 297 corporate units and 306 franchises; it had 119 corporate units and 470 franchises at the end of Q1. It was the first time Jack would operate another brand since 2017, when it sold 700-unit QDOBA to Apollo Global Management for $305 million.
Del Taco’s same-store sales dropped 1.5 percent in fiscal 2024 and rose 1.7 percent in 2023.
Tucker said that when Del Taco was originally acquired, unexpected challenges emerged almost immediately. For example, California’s fast-food wage law came into effect, and the chain also saw rising inflation. So the business took an immediate hit to the P&L, which was different from what had been expected.
He also believes Del Taco can thrive, just not with Jack in the Box.
“There have been some implementation challenges,” Tucker said. ” … When you think about the reason we would do this at this point, it just makes a lot more sense for us to simplify our model. I think [Del Taco] can move ahead. And then in addition to that, I don’t know that [Del Taco’s] results over the next several years are going to meaningfully contribute to Jack’s bottom line. So I think it makes sense to move them to another owner.”
As for the footprint optimization, Jack said most of the locations scheduled for closure have been in the system for over 30 years. 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.
These particular closures are part of a specific program and will not be included in the expected 1.5 percent to 2 percent system closures for fiscal 2025 and the ongoing closure rate of 1 percent beginning in fiscal 2026.
When the program is complete, Jack expects to return to positive net unit growth thanks to expansion into new markets and additional whitespace opportunities, the company said in a news release. The brand saw net positive unit growth in fiscal 2023 and 2024 after failing to do so from 2020 to 2022.
Additionally, Jack will reduce its spend on company-owned restaurant development beginning in 2026, but will continue with planned improvements and reimages.
Another key focus is paying down debt through two main strategies. The first is selling some of the real estate it leases (land and building) to roughly 170 franchised restaurants. It will also suspend its dividend, which should result in annual savings of $35 million. Most of that will be put toward debt while the remainder will be for share repurchases.
Tucker said the company is willing to sell real estate back to certain franchisees, but it wants fair market value.
“Frankly, we need to get good prices for this real estate, so we’re not going to give the ‘friends and family discount,'” the CEO said.
Jack’s same-store sales dropped 4.4 percent in Q2. The burger brand opened five restaurants and closed 12 during the quarter as well. For the year, the brand anticipates negative comps in the low to mid single digits and company-owned restaurant-level margins of 19 to 21 percent (this includes the impact of a full year of California’s fast-food wage law, higher utility costs, and commodity inflation in the low to mid single digits). Jack also anticipates 35 to 40 gross openings.
“In my time thus far as CEO, I have worked quickly with our teams to conclude that Jack in the Box operates at its best, and maximizes shareholder return potential, within a simplified and asset-light business model,” Tucker said. “Our actions today focus on three main areas: addressing our balance sheet to accelerate cash flow and pay down debt, while preserving growth-oriented capital investments related to technology and restaurant reimage; closing underperforming restaurants to position ourselves for consistent net unit growth and competitive unit economics; and, an overall return to simplicity for the Jack in the Box business model and investor story.”
The announcement comes almost a month after Tucker moved into the CEO role after serving as interim and as CFO before that. He replaced Darin Harris, who served as CEO for almost five years. Under his tenure, Jack began aggressively franchising, welcomed new operators for the first time in over 10 years, and saw many existing operators sign on to build stores in new and existing markets. By the end of fiscal 2024, Jack had signed 101 development agreements for 464 restaurant commitments since launching its new franchise program.
