JACK RIGHT-SIZING THE QDOBA SHIP

We received JACK’s press release last night as a positive for the stock with more details forthcoming at 9:30 ET when management is due to speak at the Jeffries conference.

 

 

Our View

 

As we wrote on May 21st, “If or when the company moves to restructure Qdoba, we believe the impact on the stock could be a negative over the short-term but, ultimately, the decision will pave the way for the brand’s profitability to be improved, allowing investors to become more confident in assigning it a growth multiple.”

 

The upside in JACK, as we have often written, is in the multiple assigned to the Qdoba business. To the extent that it occurs, future upside to earnings is obviously also positive.  In last night's release, CEO Linda Lang stated that the closures were expected to have a positive impact on financial performance, resulting in higher future earnings, AUV’s, restaurant operating margins, cash flow, and ROIC. Lang also reiterated the company’s commitment to open 70-75 new Qdoba system locations in 2013.  

 

Synopsis of the press release from last night

  • Closing 67 co-op Qdoba by end 2013 following unit-level analysis
  • $40 million pre-tax charge ($28m non-cash impairment, $12 million charges related to cash lease obligations)
  • This is a shrink-to-grow initiative aimed at initially “optimizing the company’s footprint”
  • Planned new openings not impacted by this initiative

 

JACK RIGHT-SIZING THE QDOBA SHIP - jack eeg

 

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst


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