Same-store sales at Jack in the Box have declined 17% in the five weeks since the coronavirus shutdown first emerged, prompting the San Diego-based burger company to take steps to hoard cash and protect its franchisees.
At the same time, however, executives say the slowdown hasn’t been as bad as expected. The 17% decline represented a 22.2-point slowdown from the first seven weeks of the quarter, when same-store sales were up 5.2%.
By comparison, many other fast-food chains have seen sales slow more than 30 points. “We’ve been pretty pleased,” CFO Lance Tucker said in an interview Thursday. “Nobody wants to be down 17%, don’t get me wrong. But compared to other stories in our industry, we feel like our business has held up pretty well.”
Still, Jack in the Box says it is providing some assistance for its operators to provide them with cash to make it through the shutdown.
The company is reducing its marketing fee to 4% of sales, from 5%, and plans to collect the funds over 24 months to give operators more cash.
It is delaying collection of 40% of rent payments and says it is negotiating with landlords on payment terms. It is also delaying remodel requirements and development agreements for at least six months.
Jack in the Box franchisees have been pushing back against the system in recent years over various moves, including cuts to marketing and general and administrative costs, arguing that many operators are struggling financially.
But Tucker said the company is confident in the condition of its base of franchisees, who operate the vast majority of its 2,250 restaurants.
“We have strong margins despite the fact that we’re a west-coast based franchise, where wages are higher,” Tucker said. “The assistance we’re putting in place will allow us to emerge in pretty good financial position, both corporate and franchisees.”
The company has also taken steps to improve its own cash position. It drew down $100 million on its credit facility and then another $8 million. It expects to have $165 million in cash on its balance sheet at the end of this quarter.
The “manageable” sales declines should help the company weather the coronavirus storm, Tucker said. “[With] other changes we’ve made to pull back on capex, combined with the amount we drew on our line of credit, we actually feel strong about our cash position,” he said.
As for why Jack in the Box has had better-than-expected sales, Tucker said much of it could be attributed to its business model.
The burger chain generates more than 70% of its sales through the drive-thru, which has been only modestly hurt by the shutdown. And most of its sales inside are takeout, too. Only about 10% of its sales are dine-in.
Jack in the Box has also enjoyed a “nice” improvement in delivery sales. “It’s not a tremendous change to our normal business model,” Tucker said.
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