Jack in the Box Inc. said Thursday it plans to prioritize value in its advertising early next year. The move follows disappointing fiscal fourth-quarter results and an earnings call that shed no light on a potential sale of its Qdoba Mexican Eats to private equity.
“Our value promotion will be our primary message on media,” said CEO Lenny Comma on Thursday’s earnings call, adding that discount deals would have the “lion’s share” of advertising bandwidth as new limited time offers and specials between $1 and $5 are rolled out in January.
At the close of the second quarter, Comma announced a pivot to single-item value promotions after the brand felt that it was being “dragged into that space” by its rivals.
Despite gaining some traction with value plays, Jack in the Box same-store sales slid 1 percent in the fiscal fourth quarter ended Oct. 1.
Revenue fell nearly 15 percent overall to $338. 7 million, while net income decreased more than 6 percent, to $0.97 per diluted share. Both figures were below analysts’ expectations.
“We don’t want to be in a position where we are reacting after the fact,” said Comma regarding the emphasis on discounting. “You will see us have similar price points in the marketplace in anticipation of what’s to come from some of our major competitors.”
Comma briefly mentioned Qdoba’s future on the call amid ongoing talks to sell the Mexican fast-casual brand to Apollo Global Management, but he declined to comment further on next steps.
Meanwhile, Qdoba’s same-store sales dropped 2.1 percent systemwide in the quarter, far more than analysts had expected, spurred by a 4 percent slide at company-owned locations.
In May, Comma said that Jack in the Box’s overall valuation was apparently impacted by having two different business models.
Qdoba’s 700-plus restaurants are mostly company-owned, an issue that some observers say could ultimately push Jack in the Box to sell the brand.
Sources close to the Qdoba negotiations who asked to remain anonymous due to the confidential nature of the talks said that this is indeed motivating Jack in the Box to consider unloading the struggling Mexican concept.
Despite the struggles, Jack in the Box shares were higher in Thursday trading.
In contrast to Qdoba, the company is moving forward with its franchising push for its namesake quick-service burger brand.
Sixty existing Jack in the Box restaurants were sold in the fourth quarter to franchisees, setting the tally for the fiscal year at nearly 180 and leaving only 12 percent of stores in under company control.
The company expects Jack in the Box to be 90 to 95 percent franchised by the end of fiscal 2018.
Digital and delivery
The San Diego-based company said it is also updating Jack in the Box’s digital and delivery offerings.
The company is testing a mobile app that is expected to be available across the system in 2018, and is planning to expand delivery to more than 1,300 Jack in the Box restaurants by February. This represents nearly 60 percent of its locations.
Jack in the Box has more than 2,200 restaurants across 21 states and Guam, and more than 700 Qdoba restaurants in 47 states, Washington, D.C., and Canada.
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