Jack in the Box to Shut 67 Qdoba Outlets

Zacks Equity Research
June 19, 2013

Popular hamburger chain Jack in the Box Inc. (JACK) is on the verge of closing 67 underperforming restaurants under its Qdoba Mexican Grill brand by the end of fiscal 2013 (ending Sept 29, 2013).

The company came to this decision following an extensive operational review and financial analysis of its Qdoba restaurants. The end to negotiations with the leaseholder is also expected to be the reason for this shutdown. All these shuttered restaurants will be treated as discontinued operations.

Currently, there are 647 Qdoba restaurants including 340 company-owned units. Following the closure, the total number of Qdoba restaurants will be reduced by 10%. The restaurateur stated that it expects to incur about $28 million as impairment charges related to the closings and approximately $12 million in lease-related costs during fiscal 2013.

Management believes that since the restaurants were not doing well, closing them would improve the company’s future profit and enhance the cash flow position. Continuous decline in traffic due to macro concerns and resultant conservative spending is the primary reasons behind the sluggish performance.

Jack in the Box’s Qdoba units have been reeling under pressure in various locations. Therefore, this restaurant closures can be seen as a part of the company’s brand revitalization initiative. We believe that it will help the company to reduce its overhead and also allow it to venture into fast-growing markets where traffic is expected to be high.

Jack in the Box is set to open 70-75 new units including 40 company-owned restaurants across North America by the end of fiscal 2013. Moreover, nearly 60-70 Qdoba restaurants are slated to be launched in 2014 in the region.

Jack in the Box carries a Zacks Rank #3 (Hold). Some other restaurateurs worth considering are AFC Enterprises Inc. (AFCE), The Wendy’s Co. (WEN) and CEC Entertainment Inc. (CEC). While CEC Entertainment carries a Zacks Rank #1 (Strong Buy), AFC Enterprises and The Wendy’s carry a Zacks Rank #2 (Buy).

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