10-Q: Jack in the Box Q3 2026: Sales Dip, Costs Rise Amid Del Taco Sale Aftermath

Jack in the Box reported a mixed third quarter for fiscal year 2026, with company restaurant sales showing a slight increase but same-store sales declining, alongside rising costs and a substantial net loss attributed to the prior sale of Del Taco.

Summary

• Jack in the Box reported a net earning of $20.1 million for the quarter ended July 5, 2026, a decrease from $22.0 million in the prior year quarter.
• Year-to-date net earnings were $27.9 million, a significant improvement from a net loss of $86.5 million in the prior year, largely due to the prior year's loss from discontinued operations.
• Company restaurant sales increased by 2.3% to $96.3 million in the quarter, but same-store sales for company-operated restaurants decreased by 0.9%.
• Franchise rental revenues decreased by 4.6% to $73.0 million in the quarter, and franchise royalties and other revenue decreased by 3.4% to $43.1 million.
• The company completed a significant refinancing transaction, issuing $500 million in new notes and repaying existing debt, resulting in a $1.3 million loss on extinguishment of debt.
• Losses from discontinued operations (Del Taco sale) were $0.9 million for the quarter, compared to $0.8 million in the prior year quarter.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as slightly negative due to declining same-store sales, increased costs, and a significant net loss from discontinued operations, despite some positive refinancing activities.

Positives

• Company restaurant sales increased by 2.3% to $96.3 million in the quarter.
• The company successfully completed a major debt refinancing, issuing $500 million in new notes and improving its debt structure.
• Available borrowing capacity under the Variable Funding Notes was $54.6 million as of July 5, 2026.
• The company had $71.8 million in cash and restricted cash as of July 5, 2026.
• The company's effective tax rate for the quarter was 36.9%, with a year-to-date rate of 33.3%.

Negatives

• Same-store sales at company-operated restaurants decreased by 0.9% in the quarter and 3.0% year-to-date.
• Franchise rental revenues decreased by 4.6% in the quarter and 6.8% year-to-date.
• Franchise royalties and other revenue decreased by 3.4% in the quarter and 5.8% year-to-date.
• Food and packaging costs as a percentage of company restaurant sales increased by 0.7% in the quarter and 2.1% year-to-date due to commodity inflation.
• Payroll and employee benefit costs as a percentage of company restaurant sales increased by 1.1% year-to-date.
• Occupancy and other costs as a percentage of company restaurant sales increased by 0.3% in the quarter and 0.8% year-to-date.
• A $1.3 million loss on extinguishment of debt was recorded due to the refinancing transaction.
• Net earnings for the quarter were $20.1 million, down from $22.0 million in the prior year quarter.

Risks

• Commodity inflation, particularly in beef, tacos, produce, and beverages, is impacting food and packaging costs.
• Labor inflation and the mix of restaurants are affecting payroll and employee benefit costs.
• Sales deleverage and higher rent are increasing occupancy and other costs.
• The company faces ongoing legal matters, including a remanded case from Gessele v. Jack in the Box Inc., with uncertain outcomes.
• The company is contingently liable for certain leases related to its former Qdoba business, with a maximum potential liability of $22.9 million.
• Franchisee payment delays and deferrals are impacting cash flows from operations.
• The company's highly franchised business model presents risks if franchisees fail to operate successful restaurants.
• Increasing regulatory and legal complexity could adversely affect operations and financial results.

Future Outlook

The company expects that cash flows from operations, combined with its securitized financing facility, will be sufficient to meet its capital expenditure, working capital, and debt service requirements for at least the next twelve months and the foreseeable future. However, operating results and their impact on franchisee profitability may continue to be impacted by franchisee payment delays and deferrals.

Management Comments

• The company's effective tax rate for the quarter was 36.9% and year-to-date was 33.3%, differing from the U.S. statutory rate due to valuation allowance on interest deduction limitations and non-deductible share-based compensation, partially offset by a state refund claim settlement and non-taxable gains from insurance products.
• The company's effective tax rate for the prior year quarter was 20.9% and year-to-date was 26.8%, differing from the U.S. statutory rate primarily due to non-deductible share-based compensation offset by non-taxable gains from insurance products.
• The company's Interim Chief Executive Officer and Chief Financial Officer have concluded that the registrant's disclosure controls and procedures were effective as of July 5, 2026.

Industry Context

StockSavvy.ai notes that the reported decline in same-store sales and increased cost pressures (food, labor, occupancy) are consistent with broader challenges faced by the quick-service restaurant industry, including commodity inflation and labor market dynamics. The company's strategic debt refinancing is a positive step in managing its capital structure amidst these industry headwinds.

Comparison to Industry Standards

• The decline in same-store sales (company: -0.9% QTD, -3.0% YTD; franchise: -1.2% QTD, -4.4% YTD; system: -1.1% QTD, -4.2% YTD) indicates a performance below the industry average for growth, which has seen some segments recover strongly post-pandemic.
• The increase in food and packaging costs as a percentage of sales (up 0.7% QTD, 2.1% YTD) reflects industry-wide commodity inflation, impacting margins for many restaurant operators.
• The company's focus on an 'asset-light' model for new restaurant growth, prioritizing franchisees, aligns with industry trends favoring capital-light expansion strategies.
• The debt refinancing, while incurring a loss on extinguishment, positions the company with a more manageable debt profile, a common strategy for companies looking to optimize their balance sheets in a rising interest rate environment.

Corporate Governance

Legal Proceedings

• The company is involved in Gessele v. Jack in the Box Inc., a class action lawsuit concerning wage and hour claims. A jury awarded $6.4 million in damages in 2022, and the Ninth Circuit Court of Appeals remanded several issues back to the trial court for further proceedings. The company has reversed a portion of its prior charges and is maintaining an estimated liability.
• The company filed a complaint against the buyer of Del Taco for unpaid service fees under a terminated Transition Services Agreement (TSA) and to enforce insurance collateral and deductible assumption requirements.
• The company is subject to normal and routine litigation from employees, customers, franchisees, vendors, landlords, and shareholders.
• The company remains contingently liable for certain leases related to its former Qdoba business, with a maximum potential liability of $22.9 million, though exposure is believed to be limited.

Stakeholder Impact

• Shareholders: Declining same-store sales and net earnings for the quarter may negatively impact investor sentiment. The debt refinancing is a positive for long-term financial stability.
• Franchisees: Decreased franchise rental revenues and royalties suggest potential pressure on franchisee profitability, exacerbated by commodity and labor cost inflation. Delays in franchisee payments are also a concern.
• Employees: Labor inflation is noted as a cost pressure. The company's incentive compensation increased due to higher achievement levels.
• Creditors: The successful debt refinancing improves the company's debt structure and liquidity position, which is positive for creditors.

Next Steps

• The company will continue to monitor franchisee payment delays and deferrals.
• The company will continue to assess optimal sources and uses of cash, including potential sale of owned Jack in the Box properties.
• The company will adopt ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, in its Form 10-K for the fiscal year ended September 27, 2026.
• The company is evaluating the impact of ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures.

Key Dates

Recommendation

While the debt refinancing is a positive strategic move and the company has liquidity, the declining same-store sales, rising costs, and the lingering impact of discontinued operations suggest a cautious approach. The company needs to demonstrate a clear path to sales recovery and margin improvement to warrant a more positive outlook.

Keywords

Jack in the Box, Restaurant Operations, Franchise, Financial Results, Same-Store Sales, Debt Refinancing, Commodity Inflation, Quarterly Report