Jack in the Box
It’s worth the risk?
Jack in the Box (NASDAQ:JACK) is Quick Service Restaurant franchisor in the Western States of the US that is down -85% from ATH. The sharp decline of the stock price was started in April 2024 triggered by AB1228 law in California pushed minimum fast-food wages in restaurants with more than 50 stores to $20/hour starting April 2024, impacting both brands Jack and Del Taco.
The company has historically been very aggressive with the use of financial leverage (near 6x Net debt/EBITDA), using debt to fund share repurchases, the M&A of Del Taco and dividend payouts, while neglecting the re-investment into the business for organic growth. Under this plan JACK reduced the share count by 70% in the last 17 years.
Fortunately for shareholders, starting in February 2025 a new management took over and released the “Jack on Track” initiative. The strategy of the new executive team is to strengthen the balance sheet and simplify the business to return to organic growth. The proposed roadmap contains the following initiatives:
Immediately stop the dividend.
Considerably reduce share repurchases and only do them opportunistically.
Divest the brand Del Taco to reduce debt and focus con the core Jack in the Box brand.
Sell real estate assets to repay debt.
Close within a year 10% of the Jack in the Box stores.
In the midst of this uncertainty and changes, the valuation of this stable and recurrent business has fallen to all time lows. It is very rare to find in the US market a company with such a low valuation multiple.
But this once in a blue moon opportunity is not free of risks. Macroeconomic, regulatory, demographic and asset-specific risks impacting the business should be understood before jumping into this opportunity that has a chance to produce explosive returns in a short amount of time.
In the write-up to day we discuss:
What is the situation of the company after the Del Taco Divestiture?
How much breathing room are the levers they still can pull going to provide? (Real estate sales, footprint realignment…)
The updated financials
How the new strategy of the company could shape the financials.
What is the situation of the company once the upcoming debt maturities hit?
Is bankruptcy avoidable?
An in-depth analysis of catalysts and risks around this high-volatility opportunity.
Our opinion on the upside and downside