Jack in the Box Looks To Ramp Up Development of New Locations
by: Lou Hirsh | CoStar News
Burger chain Jack in the Box plans to open between 20 and 25 new restaurants nationwide this year after food sales rose more than 12% from a year earlier in its first quarter.
CEO Darin Harris told analysts that the planned 2021 opening count for the San Diego-based fast-food company is slightly lower than its goal set for 2020. That’s in part because the pandemic spurred agreements between Jack in the Box and several of its franchisees to put a six-month hold on new development during the past year. Some location closings are also possible in the St. Louis area, where a regional franchisee group recently filed for bankruptcy.
Still, the pace of new openings is expected to pick up this year. Harris said a recent survey of Jack in the Box franchisees, which operate the bulk of the chain’s 2,200 current locations, found that two-thirds are looking to expand. Executives estimate there is the potential in coming years to add 950 to 1,200 new units within its current franchisee base in existing markets.
The company is optimistic about "the possibility of growth, but we also know that to be realistic, there’s a timeline where we have to continue to build a pipeline,” Harris said during the company’s Feb. 18 quarterly earnings call.
The owners of 70 franchised Jack in the Box restaurants in the St. Louis area, a group that includes the limited liability companies Missouri Jack, Illinois Jack and Conquest Foods, filed Feb. 16 for Chapter 11 financial reorganization in federal bankruptcy court. Representatives of the groups did not immediately respond to a request for comment.
Harris said depending on the outcome of bankruptcy proceedings, some of those restaurants may be closed because of underperformance and some may be sold. Jack in the Box may need to make arrangements with new franchisees to take over the remaining stores. Principal Financial Officer Dawn Hooper said the company expects to continue to collect royalty and other franchise-related fees during the Missouri group’s bankruptcy proceedings.
Harris said Jack in the Box's strongest sales performance is in California and Texas, but executives see potential for significant growth in markets such as Denver, which could add 50 locations over the next few years based on current demand trends.
Harris said the company would consider drawing from its own balance sheet to develop future new restaurants, but it's currently sticking with the “asset light” model that’s been in place for the past decade. The bulk of restaurants and related real estate are owned by franchisees.
Stores opening this year and beyond are expected to emphasize a streamlined new format, which Harris said has been shown to cut costs per location by between 18% and 23% while boosting sales. The format de-emphasizes dining room space in favor of tech-enhanced drive-thrus and kitchens to speed service geared toward pickups and app-enabled delivery orders.
Jack in the Box posted a 12.5% increase from a year ago in same-store food sales for the quarter ended Jan. 17, which contributed to a 10% rise in total revenue with franchise fees factored in, reaching $338.5 million. Net income for the quarter topped $50.8 million, well up from $7.9 million a year earlier.