Chipotle could gain from closures
Analysts said the closures would benefit Jack in the Box Inc. overall — and would also benefit competitor Chipotle Mexican Grill.
Applauding the planned closures in a report Tuesday, analyst Conrad Lyon of B. Riley & Co. LLC raised his expectations for Jack in the Box Inc.’s earnings in 2014 to $2.05 per share from $1.97.
“We view this as smart decision in not only enhancing cash flows to shareholders, but redirecting assets away from underperforming units,” he said.
Lyon said poor real estate has plagued the chain since it was acquired by Jack in the Box in 2003, which contributed to awareness issues. “Thus, we would expect awareness to improve simply through better sites,” he wrote.
Meanwhile, analyst Stephen Anderson of Miller Tabak + Co. LLC wrote Tuesday that Qdoba’s “chronic underperformance” compared with Chipotle likely contributed to Jack in the Box’s decision to close the 67 units.
With 1,447 units at the end of the first quarter, Chipotle has a 3-to-1 lead over Qdoba in U.S. market share in the $6 billion fast-casual Mexican category, Anderson wrote.
“We have long argued CMG (Chipotle) has had stronger brand differentiation and operations execution relative to Qdoba, and anticipate CMG will gain market share at the expense of Qdoba as the latter chain retreats,” he wrote.
Chipotle’s units average about $2.1 million in sales, while Qdoba’s average unit volume is about half that at $1 million, he said.
Assuming that about 25 percent of Qdoba’s former customers will become Chipotle customers, Anderson projected that Chipotle will see an incremental $14.2 million increase in sales from the fourth quarter 2013 through the third quarter next year.
Meanwhile, Rebel said no additional closures are expected.
“Neither Tim, nor I, want to be up here talking about this next year,” Rebel told the Jefferies audience.