San Diego Business Journal

Jack in the Box Mulling Options for Qdoba Division

By Lou Hirsh Thursday, May 18, 2017
   

San Diego-based Jack in the Box Inc. has retained Morgan Stanley & Co. to assist the company’s board in evaluating “potential alternatives” with respect to its struggling Qdoba restaurant division.

The move was disclosed by Chairman and CEO Lenny Comma, as part of the company’s recent reporting of its second-quarter earnings. In a May 16 statement, Comma noted that officials a year ago had said company valuation was among factors that would cause the board of directors to reconsider its strategy with respect to Qdoba.

“It has become more apparent since then that the overall valuation of the company is being impacted by having two different business models,” Comma said. “As a result, we’ve retained Morgan Stanley & Co. LLC to assist the Board in its evaluation of potential alternatives with respect to Qdoba, as well as other ways to enhance shareholder value.”

Officials did not elaborate on what’s being considered in regard to Qdoba, a fast-casual chain of Mexican-style eateries that Jack in the Box acquired in 2003. Based on past similar situations in the restaurant industry, observers have said those options likely include selling or spinning off Qdoba.

Since the acquisition, Jack in the Box has relocated Qdoba operations from Denver to its Kearny Mesa corporate headquarters, and also consolidated support, franchising, IT and other operations.

Jack in the Box reported total revenue of $369.4 million for its second quarter ending April 16, up from $361.2 million in the year-ago quarter. The company reported net earnings of $33.1 million for the quarter, up from $28.7 million a year ago.

While the company reported improving sales for its flagship hamburger chain, same-store sales for its Qdoba restaurants “worsened in the latter two months of the quarter,” Comma said.

The CEO said that occurred as “we lapped more aggressive discounting in last year’s second quarter.” While profit margins at Qdoba were “still disappointing,” he said they improved to more than 16 percent in the final month of the quarter, as the company managed labor and food costs more effectively than in the prior quarter.