QSR - Jack In The Box: Capitulation With Del Taco

2024-05-08 09:09:44 ET

Summary

• Jack in the Box Inc. is de-risking their footprint with Del Taco as part of their overall plan to make the business more profitable after joining under their umbrella.
• It's a major capitulation, that means the paid-for multiple probably doesn't end up being an incredible steal.
• More importantly, both segments within Jack in the Box are facing cost pressures, and we call out something the Street might be missing, which is the impact of competition for late-night dayparts.
• Jack in the Box has the most to lose here, and it could become a bit of a race to the bottom for this segment of "munchies-hour" sales.
• Also, working without guidance, we get figures that probably don't demonstrate a clear relative valuation case here. Not sure about Jack in the Box or the industry.

Jack in the Box Inc. ( JACK ) made a sizeable acquisition in 2022 of Del Taco, which quite dramatically changed their profile and was the source of discussion in our last coverage . The headline acquisition price was quite reasonable at first glance, but it's clear that the plans that JACK teased for Del Taco were very dramatic with massive refranchising effects and net disposal of stores which have reduced the scale of those Del Taco revenues significantly. Same store sales were flat, but clearly there was a capitulation on the footprint, greater than what we were expecting....

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