Does Jack in the Box Inc. (JACK) Know Qdoba?

Page 1 of 2

Recently Jack in the Box Inc. (NASDAQ:JACK) disclosed that it would close 67 Qdoba stores for a cost of $40 million in impairment and severance charges. With a turnaround at the Jack in the Box concept, one has to wonder if management knows how to operate Qdoba.

The company operates and franchises Jack in the Box Inc. (NASDAQ:JACK) restaurants with more than 2,250 restaurants in 21 states. Additionally, the company operates and franchises Qdoba Mexican Grill with more than 640 restaurants in 44 states and Canada.

Jack in the Box Inc. (NASDAQ:JACK)

While the plan is to close the underperforming stores probably in regions with limited stores to improve profits, the company is taking substantial charges to close these stores. Especially considering the intent to continue opening new stores at a rate of roughly 10% per year.

Qdoba over stretched

The one point that really sticks out with Qdoba is that it only had 647 stores as of the end of April, but it was already in 44 states and Canada. That amounts to about 15 stores per state compared to nearly 100 Jack in the Box Inc. (NASDAQ:JACK) restaurants per state. If anything the company needed to do some infilling to support the stores in regions without brand recognition, but instead it had made the draconian decision to close the underperforming stores while opening new ones in different locations.

The company provided the following expected performance improvements at the Jefferies conference last week:

1). Improve Qdoba AUV’s by approximately 10%
2). Improve Qdoba ROM by approximately 500 basis points
3). Improve EBITDA by approximately $4.5 million
4). Improve operating earnings by approximately $7.0 million

Beating Earnings Yet Again

The stock is holding strong as the news of the Qdoba closing helps push up analyst earnings estimates for future quarters and especially next year. The company as well beat earnings estimates for Q2 2013 though the $0.02 beat was the smallest in over a year. In addition, that small beat suggests the current estimates for fiscal years 2013 and 2014 might be more inline with reality now. See table below:

* Data provided by Yahoo! Finance.

Conversely, competitors in both the hamburger and Mexican chain markets spent the majority of the last year struggling to meet estimates. Both Chipotle Mexican Grill, Inc. (NYSE:CMG) on the Mexican side and McDonald’s Corporation (NYSE:MCD) and The Wendy’s Company (NASDAQ:WEN) on the hamburger side missed earnings estimates at least twice during the last five quarters.

More interesting is that Jack in the Box Inc. (NASDAQ:JACK) trades at a similar if not cheaper valuation to all these stocks. Jack only trades at 18 times forward earnings while Chipotle Mexican Grill, Inc. (NYSE:CMG) tops the group at 28 times forward estimates. Even The Wendy’s Company (NASDAQ:WEN) has a high 25 times forward estimates multiple while meg-cap McDonald’s Corporation (NYSE:MCD) with a market cap approaching $100 billion has an earnings multiple of nearly 16 times.

Growth Plans

Even with the plans to shutter so many Qdoba stores, the company is moving forward with growth opportunities in other locations. Qdoba plans to expand by 70 to 75 new locations in fiscal 2013. In 2014, the goal is to open another 60 to 70 new restaurants placing the total at September 2014 larger than the current balance of stores prior to the closures.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!