Jack in the Box Focuses on Franchising to Cut Costs After Disappointing the Street

Wall Street took a bite out of Jack in the Box Inc. JACK shares Wednesday after the company missed consensus on earnings and revenue.
The sixth word out of chairman and CEO Lenny Comma’s mouth in the release was “disappointing,” indicating the company didn’t even want to try to sugar-coat the results.*
The company offered comps guidance for the second quarter, expecting around 2 percent growth at its eponymous restaurant and Qdoba, the Chipotle competitor it maintains.
Barclays analyst Jeffrey Bernstein thinks Jack’s focus will be on its namesake division as it faces breakfast and lunch competition from McDonald's Corporation MCD’s all-day breakfast. Bernstein also notes Jack faces high-quality quick-service competition across the board as it attempts to upgrade its own menu offerings.
“We expect the shares to underperform based on fundamental concerns,” Bernstein wrote.
To cut costs, the company will shift its focus to franchisees as opposed to corporate stores. Bernstein writes “Management will boost Jack franchise ownership to more than 90% and reduce G&A to around 3% of system sales, both over the next two years, which will prove accretive.”
Franchise investment can prove risky, as McDonald’s saw during its attempts to right its course in recent years. Attempts to remodel stores and change up menus left some franchisees in debt and angry with their parent company, according to a Fortune report from last July.
He offered an Equal Weight rating and $83 price target for the company.
Jack in the Box shares sat at $64 in pre-market trading Thursday after falling from $76.91 at close Wednesday.

*Feel free to replace this graf with “Our first quarter results were disappointing,” said CEO Lenny Comma. Just wanted to throw in some spice :)