For Jack in the Box, franchisee profitability becomes crucial

More than a year ago, Jack in the Box announced a broad-based “Jack on Track” program that included a goal to close 150 to 200 franchisee-owned restaurants.

The closures were part of a strategy to improve the financial health of the franchisees that operate the bulk of those restaurants. Yet that process has been slower than expected, largely because it would still cost franchisees money to close those stores.

The economic situation hasn’t exactly improved since then. Same-store sales have now fallen nine of 10 quarters, including a 1.1% decline in the most recent period. Inflation, particularly for beef, increased the cost of doing business. And the company itself has changed management for the second time in less than two years.

All of which has the company rethinking the number of closures. “If you look at when we announced Jack on Track, we said we needed to close about 150 to 200 restaurants,” CFO Dawn Hooper told analysts and investors on Wednesday. “Since then, we’ve obviously had four more quarters of same-store sales losses. So we are reevaluating our closure program as a whole.”

Jack in the Box has closed 40 stores to date, and expects to close as many as another 20 by the end of the current fiscal year. The company said closures it doesn’t complete this fiscal year can be closed in the next. But Hooper noted that “elevated closures” are expected to continue into 2028.

Franchisee profitability

For the 2,100-unit chain, the closure program is crucial because a growing number of its franchisees are struggling and unprofitable.

Some franchisees are delaying payment of royalties, for instance, because of profit challenges. “Profitability remains challenged for our franchisees,” Hooper said.

The profit challenges among the operator base have a simple solution: Improve sales.

Jack in the Box’s sales challenges have coincided with soaring beef costs, which helped drive commodity inflation more than 5% in the period. That, plus same-store sales weakness, have hurt profits.

The company is working with a consultant to negotiate leases so franchisees can exit those lease terms early to close weak stores and improve their profitability. Executives said that operators have been more willing of late to consider closing stores before their terms are up.

The store closure discussion is in some respects upside down. Franchisors typically want more stores, not fewer of them, and franchisees are often the ones that want to close unprofitable stores.

Yet Jack in the Box has been stuck at around 2,100 to 2,200 locations for years. And its profitability challenges of late have made it more difficult for the company to accomplish goals.

Unit growth strategy

“The success of any franchise system begins with the success of its franchisees,” CEO Mark King said. “Stronger profitability creates capacity for franchisees to invest in remodels and build new restaurants. Over time, the results are healthier unit growth, stronger revenue streams, and ultimately better earnings for our shareholders.”

Sales are crucial to that goal, and the company does have some evidence of an initial turnaround. While same-store sales declined 1.1% last quarter, the chain was able to turn things around late in the period, and the key metric has been positive so far in the current period.

In comments to investors, King said the company has cut the number of marketing promotions to simplify operations. He said that the chain needs to make its restaurants easier for franchisees to operate.

King also said the chain is contributing $2,000 per store for franchisees that sign up for a modest remodel program. He said that the company needs a “broader remodel strategy” over the longer term, but noted that the refreshes should provide an initial boost to the guest experience.

Jack in the Box is also testing a new burger platform, with “premium, higher quality ingredients, a juicier burger patty, new ingredient prep and presentation, and new packaging.” King said the company expects to roll out its “best burger platform” systemwide next year.

“Guests expect hot food that looks delicious, tastes fresh, and delivers value they can immediately recognize,” King said. “This requires more quality of ingredients. It requires preparation, presentation, and execution, along with a restaurant environment that reinforces the quality of the food, from the curb appeal of the restaurant all the way through the packaging.”

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