10-Q: Jack in the Box Inc. Reports Q2 2025 Loss, Announces Strategic Shift

Jack in the Box Inc. reported a net loss for Q2 2025 and announced a strategic plan including exploring alternatives for Del Taco, discontinuing dividends, and closing underperforming restaurants.

Summary

• Jack in the Box Inc. reported a net loss of $142.2 million for the second quarter of 2025, compared to a net income of $25.0 million in the same period last year.
• Year-to-date, the company reported a net loss of $108.5 million compared to a net income of $63.7 million in the prior year.
• The company is exploring strategic alternatives for the Del Taco brand, including a possible divestiture.
• Jack in the Box will discontinue its dividend and direct funds toward debt reduction.
• A closure program is projected to close approximately 150-200 underperforming Jack in the Box restaurants.
• Same-store sales decreased for both Jack in the Box and Del Taco brands.
• The company recognized an impairment of goodwill and intangible assets totaling $203.2 million during the quarter, primarily related to Del Taco.
• The company refranchised 13 Del Taco restaurants during the quarter.
• The company's effective tax rate for the quarter was a benefit of 19.5%, and 15.7% year to date, differing from the U.S. statutory tax rate primarily due to non-deductible goodwill impairment and non-deductible losses from the market performance of insurance products used to fund certain non-qualified retirement plans.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to the reported net loss, declining same-store sales, and impairment charges. The strategic shift, including exploring alternatives for Del Taco and discontinuing dividends, indicates significant challenges and uncertainty.

Positives

• The company refranchised 13 Del Taco restaurants during the quarter for proceeds of $5.7 million.
• The company had $45.6 million of cash and restricted cash on its consolidated balance sheet as of April 13, 2025.
• The company had available borrowings of $96.5 million under its $150.0 million Variable Funding Notes as of April 13, 2025.
• Food and packaging costs, as a percentage of company restaurant sales, decreased 1.0% in the quarter, and 2.6% year-to-date compared to the prior year, due mainly to a 1.0% and 2.4% benefit, respectively, from a new beverage contract with funding retroactive to January 1, 2024, the majority of which is non-recurring, as well as menu price increases, partially offset by commodity inflation and unfavorable menu item mix.

Negatives

• The company reported a net loss of $142.2 million for Q2 2025.
• Same-store sales decreased for both Jack in the Box and Del Taco brands.
• The company recognized an impairment of goodwill and intangible assets totaling $203.2 million, primarily related to Del Taco.
• The company will discontinue its dividend.
• A closure program is projected to close approximately 150-200 underperforming Jack in the Box restaurants.
• Payroll and employee benefit costs, as a percentage of company restaurant sales, increased 3.2% in the quarter, and 2.8% year-to-date compared to the prior year.
• The cash surrender value of our company-owned life insurance (COLI) policies, net of changes in our non-qualified deferred compensation obligation supported by these policies, are subject to market fluctuations. The changes in market values had an unfavorable impact of $2.6 million in the quarter and $8.9 million on a year-to-date basis, compared to the prior year.

Risks

• Changes in the availability and the cost of labor could adversely affect our business.
• Changes in consumer confidence and declines in general economic conditions could negatively impact our financial results.
• Increases in food and commodity costs could decrease our profit margins or result in a modified menu, which could adversely affect our financial results.
• Failure to receive scheduled deliveries of high-quality food ingredients and other supplies could harm our operations and reputation.
• Inability to attract, train and retain top-performing personnel could adversely impact our financial results or business.
• Our business could be adversely affected by increased labor costs.
• Unionization activities or labor disputes may disrupt our operations and affect our profitability.
• Our insurance may not provide adequate levels of coverage against claims.
• We face significant competition in the food service industry and our inability to compete may adversely affect our business.
• Changes in demographic trends and in customer tastes and preferences could cause sales and the royalties we receive from franchisees to decline.
• Negative publicity relating to our business or industry could adversely impact our reputation.
• We may not have the same resources as our competitors for marketing, advertising and promotion.
• We may be adversely impacted by severe weather conditions, natural disasters, terrorist acts or civil unrest that could result in property damage, injury to employees and staff, and lost restaurant sales.
• Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and increasing costs.
• We may not achieve our development goals.
• Our business and Del Taco's business may not be integrated successfully, or such integration may be more difficult, time consuming, or costly than expected.
• Operating costs, customer loss, and business disruptions, including difficulties maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected.
• Our highly franchised business model presents a number of risks, and the failure of our franchisees to operate successful and profitable restaurants could negatively impact our business.
• We are subject to financial and regulatory risks associated with our owned and leased properties and real estate development projects.
• We have a limited number of suppliers for our major products and rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program. If our suppliers or distributors are unable to fulfill their obligations under their contracts, it could harm our operations.
• Increasing regulatory and legal complexity may adversely affect restaurant operations and our financial results.
• Governmental regulation may adversely affect our existing and future operations and results, including by harming our ability to profitably operate our restaurants.
• The proliferation of federal, state, and local regulations increases our compliance risks, which in turn could adversely affect our business.
• Legislation and regulations regarding our products and ingredients, including the nutritional content of our products, could impact customer preferences and negatively impact our financial results.
• We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.
• We are subject to increasing legal complexity and may be subject to claims or lawsuits that are costly to defend and could result in our payment of substantial damages or settlement costs.
• If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company's stockholders could lose confidence in our financial results, which would harm our business and the value of the Company's common shares.
• Changes in tax laws, interpretations of existing tax law, or adverse determinations by tax authorities could adversely affect our income tax expense and income tax payments.
• We may be subject to risk associated with disagreements with key stakeholders, such as franchisees.
• Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business.
• We are subject to the risk of cybersecurity breaches, intrusions, data loss, or other data security incidents.
• We are subject to risks associated with our increasing dependence on digital commerce platforms and technologies to maintain and grow sales, and we cannot predict the impact that these digital commerce platforms and technologies, other new or improved technologies or alternative methods of delivery may have on consumer behavior and our financial results.
• We are dependent on information technology and digital service providers and any material failure, misuse or interruption of our computer systems, supporting infrastructure, consumer-facing digital capabilities or social media platforms could adversely affect our business.
• The securitized debt instruments issued by certain of our wholly-owned subsidiaries have restrictive terms, and any failure to comply with such terms could result in default, which could harm the value of our brand and adversely affect our business.
• We have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our Company or its subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations.
• The securitization transaction documents impose certain restrictions on our activities or the activities of our subsidiaries, and the failure to comply with such restrictions could adversely affect our business.

Future Outlook

The company is exploring strategic alternatives for the Del Taco brand and plans to discontinue its dividend, directing funds toward debt reduction. A closure program is projected to close approximately 150-200 underperforming Jack in the Box restaurants.

Industry Context

The restaurant industry is facing challenges including rising labor costs, commodity inflation, and changing consumer preferences. Jack in the Box's strategic shift reflects an effort to adapt to these challenges and improve financial performance.

Comparison to Industry Standards

• Given the limited information, a detailed comparison to industry standards is difficult.
• However, the decline in same-store sales suggests underperformance compared to some competitors.
• Companies like McDonald's and Restaurant Brands International (QSR) often serve as benchmarks for quick-service restaurants.
• Their performance in comparable periods would provide context for Jack in the Box's results.
• The impairment of goodwill suggests that the Del Taco acquisition has not met initial expectations, which is a concern compared to successful acquisitions in the industry.

Legal Proceedings

• The Company assesses contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements.
• As of April 13, 2025, the Company had accruals of $18.2 million for all of its legal matters in aggregate, presented within Accrued liabilities on our condensed consolidated balance sheet.
• On October 24, 2022, a jury awarded plaintiffs approximately $6.4 million in damages and penalties in Gessele v. Jack in the Box Inc.
• As of April 13, 2025, the Company has accrued the verdict amount above, as well as estimated prejudgment and post-judgment interest and fee award, for an additional $9.7 million.
• The parties are currently awaiting the appellate courts ruling in J&D Restaurant Group.

Stakeholder Impact

• Shareholders will be impacted by the discontinued dividend.
• Employees may be affected by the closure of underperforming restaurants.
• Franchisees may be impacted by changes in brand strategy and support.
• Creditors will benefit from the company's focus on debt reduction.

Next Steps

• Explore strategic alternatives for the Del Taco brand.
• Discontinue dividend payments.
• Implement a closure program for underperforming Jack in the Box restaurants.
• Focus on debt reduction.

Key Dates

Keywords

Jack in the Box, Del Taco, Financial Results, Q2 2025, Same-Store Sales, Refranchising, Dividend, Impairment, Restaurant Closures, Strategic Alternatives, Divestiture, Debt Reduction