Jack in the Box to Sell Del Taco With Big Markdown. The Stock Plunged.

Jack in the Box stock has fallen nearly 60% this year. (Justin Sullivan/Getty Images)

Key Points

• Jack in the Box stock fell 9% after announcing the sale of Del Taco to a franchisee for $115 million, a significant markdown from its 2022 purchase price of $585 million.
• The sale aims to simplify Jack in the Box’s business, allowing it to focus on its core burger brand and use proceeds to pay down debt.
• Del Taco has experienced six consecutive quarters of same-store sales declines, reflecting broader struggles in the fast-food industry due to rising costs and reduced consumer spending.

Jack in the Box stock tumbled 9% on Thursday after the company said it is selling Del Taco, the Mexican fast-food chain with nearly 600 stores.

Jack in the Box sold the chain to one of its franchisees, Yadav Enterprises, for $115 million in cash. The acquisition is expected to close in January, the company said.

The sale represents a steep markdown for Del Taco, which Jack in the Box bought for $585 million in 2022 when the restaurant industry was rebounding from the pandemic and customers were eagerly returning to dine in.

At the time, Jack in the Box said the combined company will “benefit from a stronger financial model, gaining greater scale to invest in digital and technology capabilities, and unit growth for both brands.”

But the restaurant business has been struggling over the past two years. Pressured by rising labor and ingredient costs, many fast-food chains have aggressively raised menu prices to offset the inputs—a move that has pushed many diners away.

Del Taco has logged six consecutive quarters of same-store sales declines, while Jack in the Box saw its own sales fall 7.1% last quarter. CEO Lance Tucker first announced plans to sell Del Taco in April, saying the company needed to focus on its core burger business.

“This divestiture is an important step in returning to simplicity, and we look forward to focusing on our core Jack in the Box brand,” said Tucker said in a Thursday statement.

Jack in the Box said the proceeds from the sale will go toward paying down debt. The company has rolled out a plan that explicitly targets debt paydown by closing underperforming stores, selling real estate assets, and cutting dividend payments.

Jack in the Box isn’t the only one scrambling for a turnaround. Weight-management drugs, inflation pressures, and weaker consumer spending—especially among low-income households—have led to sluggish sales at many fast-food companies.

But smaller chains are having an even harder time. While stocks in industry leaders like McDonald’s and Burger King owner Restaurant Brands have edged slight gains this year, Wendy’s shares have lost nearly half their value, and Jack in the Box has tumbled nearly 60%.

The industry is leaning into promotions and menu innovation—including an expansion into the beverage business —to drive more traffic in stores. Some brands are also investing in technologies like automation and digital ordering to improve efficiency and boost profits.

Write to Evie Liu at evie.liu@barrons.com