Jack in the Box plans to close as many as 200 underperforming locations and may sell its Del Taco Brand as part of a comprehensive reconfiguration of its business under newly-named CEO Lance Tucker.
The San Diego-based company said it plans to sell real estate and will stop paying a dividend so it can pay down debt.
It has also hired BofA Securities to explore “strategic alternatives” for Del Taco, “including a possible divestiture of the business,” just three years after it acquired the brand.
Jack in the Box will close 150 to 200 underperforming restaurants under what it calls a “block closure program.”
Tucker told analysts on Wednesday that the company wants to operate in a “simplified” structure and “refocus toward our core Jack in the Box business.”
The announcement follows a series of management changes at the company, including the departure of Darin Harris and the elevation of Tucker into the chief executive seat—with an apparent mandate to improve the company’s finances—just weeks after he was hired as CFO in the first place.
It also follows a quarter in which sales at both of its brands struggled amid fires and bad weather in California, where many of its restaurants are located. Same-store sales declined 4.4% at Jack in the Box in the quarter ended April 13, according to preliminary results. Del Taco same-store sales declined 3.6% in the period.
In a statement, Tucker said the actions are designed to improve cash flow and pay down debt while preserving investments in technology and remodels, close underperforming locations to return to net unit growth and improve unit economics and simplify Jack in the Box as a company.
Jack in the Box said most of the closures will be of restaurants that have been in the system for over three decades.
The program will start with 80 to 120 closures by the end of this year. The closures are on top of the 1.5% to 2% unit closures expected this fiscal year. But the company expects the closures will lead to “consistent, net positive unit growth.”
The potential Del Taco sale follows a string of weak performances and the closure of all but one of its restaurants in Colorado. Last quarter’s 3.6% same-store sales decline was the fifth straight quarterly decline. System sales declined 2% last year, according to data from Restaurant Business sister company Technomic.
Jack in the Box bought Del Taco in a $575 million deal in 2022 and suggested that it could acquire more brands. But the chain has underperformed its much larger rival Taco Bell every quarter since the first quarter of 2021.
Tucker told analysts that several issues took place after the acquisition, such as the $20 California fast-food wage law and inflation. But he also alluded to “implementation challenges” following the combination. Tucker added that the chain likely won’t “meaningfully contribute to the bottom line” over the next several years.
“It can thrive,” Tucker said. “It just needs to be in a situation that’s probably not with Jack in the Box, where we need to focus on our core business. It just makes a lot more sense to simplify our model.”
All but one Del Taco restaurant in Colorado closed in February amid a legal dispute with the brand that led to its bankruptcy just a year after the operator of the locations acquired the development rights to the market.
At Jack in the Box, meanwhile, the company was sued by a big Washington state franchisee over the termination of 39 restaurants there.
UPDATE: This story has been updated to add quotes from an afternoon analyst call.
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