8-K: Jack in the Box Inc. Reports Mixed Q3 Results with Del Taco Goodwill Impairment

Jack in the Box Inc. announced its third quarter fiscal 2024 results, which included a significant goodwill impairment charge for Del Taco and mixed same-store sales performance across both brands.

Summary

• Jack in the Box Inc. reported its third quarter 2024 financial results, showing a diluted loss per share of ($6.26), which includes a $162.6 million non-cash goodwill impairment charge for Del Taco.
• Operating EPS was $1.65, while total revenues decreased by 7.0% to $369.2 million compared to the prior year quarter.
• Jack in the Box same-store sales decreased by 2.2%, with franchise same-store sales down 2.4% and company-owned same-store sales up 0.1%.
• Del Taco same-store sales decreased by 3.9%, with franchise same-store sales down 4.1% and company-operated same-store sales down 3.5%.
• The company repurchased 0.3 million shares of common stock for $15.1 million during the quarter and declared a cash dividend of $0.44 per share.
• Adjusted EBITDA was $78.9 million, down from $81.6 million in the prior year quarter.
• The company has updated its full-year guidance, projecting adjusted EBITDA of $320-$325 million and operating EPS of $6.10-$6.25.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the significant loss per share, goodwill impairment, and same-store sales declines. However, there are some positive aspects such as new development agreements and tech progress, which prevent the sentiment from being extremely negative.

Positives

• Jack in the Box company-owned same-store sales increased by 0.1%.
• Jack in the Box signed 3 development agreements with new franchisees for 28 new restaurants.
• Jack in the Box is expanding into the Chicago market with company-owned locations in FY 2025.
• Del Taco's three most recent restaurant openings set new company records for first-week sales.
• The company is progressing on its tech and digital transformation with a new POS system and app launch.
• The company repurchased 0.3 million shares of common stock for $15.1 million.
• A cash dividend of $0.44 per share was declared.

Negatives

• The company reported a diluted loss per share of ($6.26).
• A $162.6 million non-cash goodwill impairment charge was recorded for Del Taco.
• Jack in the Box same-store sales decreased by 2.2%.
• Del Taco same-store sales decreased by 3.9%.
• Total revenues decreased by 7.0% to $369.2 million.
• Adjusted EBITDA decreased to $78.9 million from $81.6 million in the prior year quarter.
• Restaurant-Level Margin for Jack in the Box decreased to 21.0% from 21.8% a year ago.
• Restaurant-Level Margin for Del Taco decreased to 13.4% from 17.4% a year ago.

Risks

• The company is facing a challenging sales environment for the entire industry.
• Increased labor costs, particularly due to California's new minimum wage law, are impacting margins.
• The Del Taco brand is experiencing a negative trend in same-store sales.
• Unfavorable changes in the economic environment, including inflation and interest rates, are impacting the industry.
• The company's share price has been under pressure.
• The company is exposed to risks related to competition, unemployment, consumer spending patterns, and commodity costs.
• There are risks associated with the company's ability to manage its planned growth and expansion into new markets.

Future Outlook

The company has updated its full-year guidance, projecting adjusted EBITDA of $320-$325 million, operating EPS of $6.10-$6.25, Jack in the Box same-store sales of approximately (1.0%), and Del Taco same-store sales of approximately (1.5%).

Management Comments

• Darin Harris, Jack in the Box Chief Executive Officer, stated that he is proud of the teams and how they continue to enhance the guest experience and deliver operational improvements during a challenging sales environment.
• Management is focusing on value and ways to improve transactions with the low-income guest while doubling down on innovation, variety, and late night.
• The company will strive to finish the year strong with positive momentum heading into 2025.

Industry Context

The results reflect a challenging sales environment for the entire restaurant industry, with increased labor costs and economic pressures impacting performance. The company is focusing on value and operational improvements to navigate these challenges.

Comparison to Industry Standards

• The same-store sales decline of 2.2% for Jack in the Box is worse than some competitors in the quick-service restaurant (QSR) space, which have reported flat or slightly positive growth in recent quarters. For example, McDonald's has reported positive same-store sales growth in the US.
• The 3.9% decline in Del Taco same-store sales is significantly below the industry average, indicating potential brand-specific challenges. Other Mexican-American QSR chains like Chipotle have shown more resilience.
• The restaurant-level margin of 21.0% for Jack in the Box is in line with some QSR peers, but the 13.4% margin for Del Taco is below average, suggesting operational inefficiencies or pricing pressures.
• The goodwill impairment charge of $162.6 million for Del Taco is a significant negative event, indicating that the acquisition may not be performing as expected compared to industry benchmarks for acquisitions.

Stakeholder Impact

• Shareholders will be negatively impacted by the loss per share and the goodwill impairment.
• Employees may be affected by the company's focus on cost management and operational improvements.
• Customers may see changes in menu offerings and pricing as the company focuses on value.
• Franchisees may be impacted by the company's strategic initiatives and development plans.
• Suppliers may be affected by changes in the company's purchasing patterns.

Next Steps

• The company will continue to execute against its strategic initiatives to achieve long-term growth and profitability.
• The company will focus on value and ways to improve transactions with the low-income guest.
• The company will continue to progress on its tech and digital transformation.
• The company will host a conference call for analysts and investors on August 6, 2024.

Key Dates

Keywords

Jack in the Box, Del Taco, same-store sales, goodwill impairment, restaurant margin, EBITDA, earnings per share, franchise, restaurant development, digital transformation