Jack in the Box's Shares Jump on Potential Sellout Buzzes

Shares of Jack in the Box Inc. JACK have surged nearly 6% on Nov 29, following the buzz of a potential sellout of the company. Per Reuters, this hamburger restaurant chain, with more than 2,000 restaurants, is looking for options that may include the sale of the company.

Although there is no certainty about any potential deal, rumors are that the company has started to look for potential buyers, including private equity firms. Notably, in March 2018, Jack in the Box sold its subsidiary Qdoba to Apollo Global Management APO.

Why is the Sellout a Dire Need of the Hour?

Jack in the Box has been facing the brunt of declining sales for quite some time now. Despite selling its Qdoba subsidiary, the company could not overcome hurdles of soft comps and operational inefficiencies.

In the fourth quarter of fiscal 2018, Jack in the Box saw its overall revenue decline 23.5% year over year. Moreover, the company mentioned that it began first-quarter fiscal 2019 on a disappointing note. Comps for the first seven weeks of the fiscal first quarter decreased 1-2% due to Ribeye Burger’s dismal performance. For fiscal 2019, the company expects comps to be in the range of flat to up 2%.

Further, the company is plagued with competition from high-end fast food chains. While several other restaurateurs, including McDonald’s MCD, have opened their outlets in the emerging markets, Jack in the Box has a limited international presence. Moreover, the company is experiencing increased competitive pressure on breakfast and lunch day parts as many other restaurateurs introduced aggressive value offers.

Bottom-Line

If the deal materializes, it will be the latest among a plethora of buyout deals that the fast food sector is witnessing this year. Earlier, the drive-in burger chain Sonic made a merger deal with Inspire Brands for about $1.57 billion. Pizza giant Papa John’s PZZA has also been looking for ways to sell the company.

In a highly competitive industry, all restaurant chains are supposed to make pragmatic use of advanced technologies and innovate across value chains. Jack in the Box seems to be slightly slow in this front as is reflected in its dismal sales performance and share price movement. Hence, a potential sellout could be in the cards for the company.

Notably, shares of Jack in the Box have declined 15.8% over the past year, underperforming the industry’s rally of 11.3%.

Jack in the Box currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Apollo Global Management, LLC (APO) : Free Stock Analysis Report
 
McDonald's Corporation (MCD) : Free Stock Analysis Report
 
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Jack In The Box Inc. (JACK) : Free Stock Analysis Report
 
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