Jack in the Box Closes Sell-Out of Qdoba for $305 Million

Jack in the Box Inc.JACK yesterday announced that it finally accomplished the sell-out of Qdoba Restaurant Corporation, the company's subsidiary, to private equity firm Apollo Global Management, LLC APO .

Shares of the company have closed 0.8% higher at $84.87 yesterday and barely moved in after-hours trading. Shares, however, have lost 14.4% in the past year, underperforming its industry 's growth of 13.9%.

Deal Details

Jack in the Box sold Qdoba to an affiliate of certain funds, managed by affiliates of Apollo for roughly $305 million in cash.

In connection to the sale, the terms of credit facility demand Jack in the Box to make a pre-payment of $260 million to retire outstanding debt under its term loan.

Why Sell Qdoba?

At the time of its acquisition by Jack in the Box in 2003, Qdoba had 85 locations across 16 states, with $65 million in system-wide sales. Since then, this number has increased to 700 and spread across 47 states, the District of Columbia and Canada. The subsidiary had system-wide sales of more than $820 million in fiscal 2017.

Despite this notable growth, Qdoba had become more of a drag in the recent quarters, given the poor restaurant-level execution and a choppy sales environment, with comps declining 3% in fiscal 2017. Further, Qdoba generated a net loss of $0.6 million in the first quarter of fiscal 2018 against net earnings of $1.4 million in the prior-year quarter.

Moreover, Jack in the Box's valuation was being impacted for quite some time as it had to simultaneously run two business models for Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants.

Synergies to be Realized From the Sale

According to management, selling of Qdoba takes Jack in the Box one step ahead toward the aim of enhancing shareholders' value while creating an asset-light business model.

We believe that Qdoba's sale will help Jack in the Box shift to a less capital-intensive business model and focus more on core operations. Additionally, asset sales will help the company in terms of strengthening its liquidity and protecting current liabilities with a combination of cash and liquid assets.

Zacks Rank & Stocks to Consider

Jack in the Box carries a Zacks Rank #3 (Hold).

Two better-ranked stocks in the industry are BJ's Restaurants BJRI and Carrols Restaurant Group TAST , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

BJ's Restaurants and Carrols Restaurant Group's earnings for 2018 are expected to grow 27% and 30%, respectively.

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Apollo Global Management, LLC (APO): Free Stock Analysis Report

BJ's Restaurants, Inc. (BJRI): Free Stock Analysis Report

Jack In The Box Inc. (JACK): Free Stock Analysis Report

Carrols Restaurant Group, Inc. (TAST): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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