Jack in the Box didn’t need to look far to find a buyer for Del Taco.
The burger chain said on Thursday that it has sold its Mexican fast-food chain to one of its franchisees, Yadav Enterprises, for $115 million in cash.
Yadav operates 343 locations under several brands, including Jack in the Box, Denny’s, El Pollo Loco, Corner Bakery and Sizzler. But the company has certainly dabbled in brand ownership, too. It owns Nick the Greek.
The acquisition is expected to close in January. Jack in the Box plans to use the proceeds from the sale to pay off debt.
The $115 million is a substantial decrease in value from the $575 million Jack in the Box paid to acquire Del Taco just four years ago. But that was also a different time: Restaurant industry valuations were sky-high coming out of the pandemic.
But rising labor and food costs hurt profits, and then higher menu prices turned customers away. That hammered industry performance and valuations. Del Taco’s same-store sales have declined six straight quarters. Jack in the Box’s own performance has also deteriorated, including a 7.1% decline last quarter.
That prompted Jack in the Box to put Del Taco on the market. “This divestiture is an important step in returning to simplicity, and we look forward to focusing on our core Jack in the Box brand,” Jack in the Box CEO Lance Tucker said in a statement.
He called Yadav “the right steward for Del Taco in its next chapter of evolution.”
Jack in the Box stock was up more than 2% in pre-market trading on Thursday.
Yadav will now take on an effective turnaround of the Del Taco brand. The Mexican chain is a distant second behind Taco Bell among fast-food Mexican brands. Del Taco’s system sales declined 1.8% last year, to $957 million, according to Technomic data. It operates 594 locations, with a heavy concentration in California.
Some of the chain’s franchisees have shown signs of stress. Its operator in Colorado was shut down earlier this year, forcing the temporary closure of most of its locations there. And then a 22-unit operator in Georgia and Alabama filed for bankruptcy in July.
Tucker, named Jack in the Box CEO earlier this year, announced plans to sell Del Taco in April, saying that the company needed to focus on its flagship brand. “It can thrive,” Tucker said of Del Taco at the time. “It just needs to be in a situation that’s probably not with Jack in the Box, where we need to focus on our core business.”
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