Del Taco’s sales have been challenged. Its growth has been tepid. Store-level profits have been hammered.
Yet its parent company isn’t worried that it won’t be able to find a buyer for the brand. Lance Tucker, CEO of Jack in the Box Inc., told analysts this week that the 591-unit chain has received interest from potential buyers.
“We’ve had a lot of reach-out,” Tucker said on Wednesday, according to a transcript on the financial services site AlphaSense. “We haven’t even gone to official marketing on the thing. We have had significant reach-out and interest in the brand.”
That interest gives Tucker confidence that Jack in the Box can sell Del Taco, three years after acquiring the chain in a $575 million deal. “Given the early returns on the interest we seem to be getting, I feel pretty solidly that would be the option we go down,” he said.
Jack in the Box said in April that it was “exploring strategic alternatives” for Del Taco and hired financial advisers to study the direction of the business. But a sale has seemed likely from the get-so, so long as Jack in the Box could find a buyer. Tucker’s comments suggest that won’t be a problem.
Yet Del Taco has had challenges, and last quarter’s results only served to accentuate those issues.
Same-store sales declined 3.6%, and 5% on a two-year stacked basis. Restaurant-level margins plunged to 12.8% of sales, compared with 16.8% a year ago. Weak sales and higher costs are eating into its profitability.
By comparison, flagship Jack in the Box generated restaurant-level margins of 19.6% of sales. That, too, was down—from 23.6% a year ago—but that’s a substantial gap.
In a sign of the chain’s challenges, Jack in the Box took a $203 million impairment charge on the Mexican fast-food brand.
Tucker last month cited “implementation challenges” for part of Del Taco’s weak performance. But he also said that the brand likely wouldn’t contribute “meaningfully” to Jack in the Box’s bottom line.
Throughout this, however, Del Taco continues to forge ahead on various initiatives. The company has been adding kiosks to its restaurants, including all 117 of Del Taco’s company-owned locations. Franchisees are adding them, too.
Digital now represents 18% of sales, and Del Taco expects to get that to 20% quickly.
Tucker said that the brand has been working on some menu additions, though he wouldn’t reveal what they are. The chain is “kind-of looking backwards to some things we may have done in the past that I think are going to be exciting for the brand.”
Del Taco is also revamping its marketing. And Tucker said that operations will be vital too. “Just continue to drive marketing, bring out innovation, and drive operations,” Tucker said.
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