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McDonald’s Corporation (MCD), Chipotle Mexican Grill, Inc. (CMG): There’s More Than Just Jack in the Box Inc. (JACK)

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Jack in the Box Inc. (NASDAQ:JACK)What I like about Jack in the Box Inc. (NASDAQ:JACK) is that you get both a hamburger chain and a Mexican fast-food chain by owning the company. It’s like having both McDonald’s Corporation (NYSE:MCD) and Chipotle Mexican Grill, Inc. (NYSE:CMG) all in one. Or is it? The concept certainly is appealing. The only question is if the company can execute on this strategy and deliver.

Company overview

Jack in the Box Inc. (NASDAQ:JACK) operates the hamburger chain Jack in the Box Inc. (NASDAQ:JACK) and Qdoba Mexican Grill. The Jack in the Box hamburger chain has more than 2,200 locations in 21 states, while Qdoba Mexican Grill has more than 600 locations in 45 states, the District of Columbia and Canada.

The hamburger chain’s locations have drive-thru windows, indoor dining and are open 18 to 24 hours a day. Hamburgers are the core of the menu, but the restaurants also offer chicken sandwiches, breakfast, portable salads and have a value menu.

Qdoba Mexican Grill was acquired by Jack in the Box Inc. (NASDAQ:JACK) in January 2003. Its fast-casual dining locations offer a Mexican kitchen where each meal is prepared fresh right in front of the customer. Its menu items include burritos, nachos, quesadillas, tacos, taco salads and breakfast burritos.

Outlook

For the Jack in the Box Inc. (NASDAQ:JACK) hamburger chain, the strategy is like many other fast-food chains. The plan is to get out of owning its restaurants and instead franchise. In the last quarter, the company completed the sale of 18 restaurants. The company also decided to refranchise more than 50 additional locations, hoping to complete the sale of about 40 of them by the end of the fiscal year. The typical refranchising scenario for a company has a positive effect on sales volumes, restaurant operating margins, earnings per share, cash flow and returns. According to CFO Jerry Rebel on the company’s last earnings call,

When we’ve completed our refranchising, we expect to operate roughly 400 company Jack in the Box restaurants, and for the brand to ultimately be between 80% and 85% franchised.

For Qdoba, the restaurant chain is in the middle of a restructuring. In March, the company brought in a new President with a renewed focus on market performance, overhead structure, brand development and growth strategies. A performance review has already been completed, and the company will close 67 (10%) of its Qdoba Mexican Grills by the end of September. By closing these underperforming restaurants, the company can redirect its resources elsewhere and will open 60 to 70 new stores next year.

Comparison

With all the success that McDonald’s Corporation (NYSE:MCD) and Chipotle Mexican Grill, Inc. (NYSE:CMG) have had, it’s safe to say that every hamburger chain wants to be like McDonald’s Corporation (NYSE:MCD) and every Mexican grill wants to be like Chipotle Mexican Grill, Inc. (NYSE:CMG). This is especially true for investors where both companies have been great stock performers over the long-term.

In terms of McDonald’s Corporation (NYSE:MCD), the company has faced its stiffest competition in recent memory. Its competitors like Wendy’s, Burger King, and Jack in the Box Inc. (NASDAQ:JACK) have all taken a page out of its playbook by offering value menus and breakfast. To better compete, McDonald’s Corporation (NYSE:MCD) is continuing to update its menu and offer new items such as wraps, smoothies, and new burger variations and flavors.

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