RESTAURANTS: Jack in the Box expanding south of the border

RESTAURANTS: Wall Street Cheers Q2 Earnings Report

Jack in the Box announced plans to expand into four northern states in Mexico, marking its first foray south of the international border in 30 years.

In addition, the hamburger chain announced development agreements that will put Jack in the Box and Del Taco restaurants in Montana and Wyoming – two U.S. states where the business has not yet had a presence.

The expansion announcements came on May 17, the same day the business announced fiscal second quarter earnings and increased its guidance. Shares began the day by touching a 52-week high of $97.99 before closing at $95.56.

Among other things, the corporation said same store sales at Jack in the Box would increase by mid-to-high single digits. Previously the business had promised low single digits. Guidance for Del Taco was unchanged at low single digits.

Jack in the Box finalized its $585 million acquisition of Del Taco in late March.

For the quarter ended April 16, same store sales grew 9.5% at Jack in the Box. Same store sales grew 3.2% at Del Taco.

The business reported net earnings of $26.5 million (or $1.27 per diluted share) for the quarter on revenue of $395.7 million.

Operating earnings amounted to $1.47 per share, well above analysts' collective estimate of $1.22.

In the same quarter one year ago, the business reported net earnings of $7.8 million (or 37 cents per diluted share) on revenue of $322.3 million.

Several factors are expected to drive same store sales growth in the near- to medium-term, analyst Nick Setyan of Wedbush Securities said in a May 17 research note. These include dining room openings, recovery of operating hours and staffing, remodeling, menu additions (including Red Bull infusion beverages) and a new marketing campaign by TBWA\Chiat\Day of Los Angeles.

Setyan and Wedbush raised their full-year earnings per share guidance to $6.10 from $6.02. Wedbush's fiscal 2024 earnings per share guidance has been raised to $6.70 from $6.67.

A Return After 30 Years

The Mexico expansion marks the first franchise agreement for Jack in the Box in Mexico in more than 30 years. Some 22 stores are planned under franchisee Augustin Terrazas.

“This was a natural fit to expand our brand into Mexico. Our goal was to find an experienced restaurant operator with infrastructure and local ties to develop our brand internationally,” said Tim Linderman, chief development officer. “It also made sense strategically to expand our brand along the border due to our strong brand recognition and the number of restaurants near this region. The Terrazas family brings tremendous experience to the Jack in the Box franchise system and are the perfect franchisees to expand our brand into Mexico.”

“We are thrilled to join the Jack in the Box franchise system,” Terrazas said in a statement distributed by the company. “We have been operating hotels and family dining concepts for over 20 years and we've been looking to add a QSR [quick service restaurant] brand to our portfolio. Jack in the Box met all our requirements: a craveable menu, brand awareness and available territory to grow. After our first meeting with the senior leadership team, we knew this was the brand for us.”

Darin Harris, CEO of Jack in the Box, said he sees “continued strength” in the balance of fiscal 2023.

“The momentum in our business continued throughout the second quarter, reflected in outstanding sales, positive net unit growth, improved margin performance and the signing of a development agreement for expansion into Mexico,” Harris said in a prepared statement. “Over the last year we have been focused on the execution of our strategy, and the results are beginning to show. We look forward to continued strength in the back half of 2023, while remaining focused on what is most important: expanding our reach, offering guests what they want when they want it, and a relentless pursuit to improve restaurant level economics for Jack and Del Taco franchisees.”

In the last 52 weeks, Jack in the Box stock has traded in a range of $54.80 to $97.99. Shares closed May 22 at $91.91.

The business' recent ad campaign from TBWA\Chiat\Day features Mark Hamill, the actor who portrayed Luke Skywalker in the “Star Wars” franchise. Hamill's personal story included working at Jack in the Box in the 1970s. He was fired from his job after using goofy voices in the Jack in the Box drivethrough intercom.

The ad campaign has chief executive Jack Box bringing Hamill back to the drive-through for a limited time. ■