Sales Remain Popular Vs. Spinoffs as Jack In The Box(JACK) Sells Qdoba to Apollo

Jack In The Box (JACK) will sell Qdoba, its Mexican themed restaurant brand, to private equity firm Apollo Global Management for $305m cash. JACK actually acquired Qdoba for $45m back in 2003, so the company was able to do some nice things with it over the years. Unfortunately, the brand has struggled to grow recently and same store sales have consistently declined over the past few periods. Having another brand in house is great when its growing, but when that cycle stops it quickly becomes a ‘distraction’ and a stock price anchor. Perhaps new ownership will be able to turbo charge the growth engine, but the entire ‘fast casual’ sector has struggled recently. Its worth noting that the transaction also helps JACK become even more ‘asset lite’ since only ~47% of Qdoba locations are franchised.

Investors applauded after Jack In The Box announced that it had hired Morgan Stanley to evaluate its strategic alternatives for its Qdoba business back in May. The announcement came shortly after Keith Meister’s Corvex Capital Management, fresh off of success at YUM! Brands (YUM), had taken a small stake in the company. This actually wasn’t even the first time that there was speculation about Qdoba’s future. In late 2014, even Jim Cramer thought a spinoff was possible, but the CEO eventually shot down those rumors. Not this time though.

The deal is expected to close in April and JACK expects to use the deal proceeds to pay down debt.

Disclosure: Author holds no position in any stock mentioned.