JACK IS UNINVESTABLE
JACK (short bias) declined 13% after FY4Q22 EPS fell short of expectations and guiding light, but did anyone really believe buying Del Taco was a good idea?
Systemwide same-store sales growth was up 4.0% in 4Q22, with higher average checks, driven mostly by pricing and a decline in traffic for franchises. Company-operated same-store sales rose 11.4%. Franchise same-store sales were up 3.2%. Restaurant-level margin fell to 16.2%, driven by increases in food and packaging costs, wage inflation of 11.3%, and increases in utilities, maintenance, and repair costs. Commodity costs increased by approximately 14.9% in the quarter due to protein, sauces, and oil increases. (A)A year ago, EBITDA was reported at $77.9M vs. $74.3M last year. Looking ahead, Jack in the Box (JACK) expects to open 25 to 30 restaurants and is guiding for positive net unit growth in FY 2023.
The CEO's spin on the company's future: "We continue to navigate operational headwinds, but Jack and Del Taco franchisees and operators showed their ability to be resilient and manage through them effectively throughout 2022. While we will continue to attack the inflationary impact on margins, our top-line fundamentals, operational focus, and expectation for positive net unit growth for Jack all demonstrate that 2023 will be a big year for our company and another positive step in the transformation of the Jack brand."
The CEO's reality: FY 2023 operating EPS $5.25-5.65, versus consensus of $6.59, including the reality of putting these two companies together:
- Changing business model - $0.08 negative impact associated with the reduction in rental revenue from real estate sales
- Previous management underinvested in the business - $0.22 negative impact associated with store-level technology investments (additional detail below in Franchise Level Margin section)
- Continued dilution - Excludes any dilutive impact from refranchising Del Taco restaurants, and we will provide updates throughout the year as this initiative progresses.
This company will be a train wreck for years. No thanks.
CMG Labor Problems
CMG labor issues are similar to SBUX - Chipotle denies union-busting in Augusta in answer to federal labor board complaint. The company told the National Labor Relations Board it closed the Augusta restaurant because it was failing, not to prevent a union from forming.
From Centralmaine.com - "Attorneys for Chipotle Mexican Grill said the company closed its Augusta location because it was failing, not to prevent a union from forming at that location or others. The statement comes in response to a complaint filed earlier this month by the National Labor Relations Board alleging the company was union-busting when it closed its Augusta location as employees there sought to form what could have been the first union at the national fast food chain. The company’s answer, obtained by a Freedom of Information Act request filed by the newspaper, also claims Chipotle decided not to rehire an employee who led efforts to unionize the Augusta site at its Auburn location “based solely on poor attendance/job performance at the closed location,” not because of her union-organizing activities. Chipotle’s eight-page answer, filed by two attorneys on Nov. 17, asks that the complaint be dismissed."
We recently did a Black Book highlighting its labor problems - CLICK HERE FOR THE WEBCAST REPLAY AND SUPPORTING MATERIALS.
Here is a story about SBUX taking the same tactic to bust the unions. Starbucks said employees reported instances of "theft, vandalism, property damage, drug use, threats of physical violence, verbal harassment and assault" at the location that's closing.
