Jack in the Box: Redirecting The Promotional Mix, Still Undervalued

Core Insights - The analysis focuses on the developments of Jack in the Box (NASDAQ:JACK) in the last quarter, particularly in the context of California's QSR landscape and the impact of the FAST Act on operating costs and sales performance [1] Group 1: Industry Overview - Fast-food chains in California experienced weaker traffic than the national average in 10 of the 12 weeks following the enactment of the FAST Act, attributed to competition from substitute products and rising menu prices [1] - Full-service restaurants in California attracted more traffic compared to QSRs, contrasting with national trends where full-service restaurants saw slower traffic [1] - QSRs in California have successfully increased average check sizes, offsetting declines in traffic, with comparable sales growth outpacing the national average [2] Group 2: Company Performance - Jack in the Box reported a 2.2% decline in comparable sales overall, but a slight increase of 0.1% in company-operated locations, driven by a 4% increase in average check per guest despite a 3.9% decrease in traffic [4] - The company has been refranchising, converting 66 Del Taco locations and 5 Jack's locations to franchisees, which is part of a strategy to control operating costs and enhance profitability [5] - Jack's average check per guest grew to nearly $15, indicating effective cross-selling strategies, although traffic did not increase as expected from promotions like 'Munchies Under$4' [5][9] Group 3: Strategic Initiatives - Jack's is implementing a revamped value meal called 'Jack's Big Deal Meal' priced at $5, aimed at attracting lower-income guests and increasing transaction values through cross-selling [6] - The company is adopting a barbell pricing strategy, offering both low-priced and premium items to cater to different customer segments during slow traffic periods [7] - A hook and build strategy is being employed, using limited-time offers (LTOs) to attract customers while building long-term relationships through loyalty programs and menu innovations [8] Group 4: Future Outlook - The company anticipates that comparable sales may remain neutral or slightly negative in the upcoming quarter, but expects improvements in margins as operational enhancements are implemented [13][14] - Del Taco is facing challenges with lower-than-expected performance and needs to focus on improving restaurant-level margins, which are currently low compared to industry standards [10][11] - Jack's plans to expand into new markets such as Florida, Chicago, and Georgia by 2025, with a mix of company-owned and franchised units, indicating growth potential [12]