‘Extreme Frustration’ at Jack in the Box as Sale Drags On
Jack in the Box beat fiscal first-quarter earnings expectations, $1.19 a share compared to 43 cents a share a year ago.
Jack in the Box’s road to a possible sale, now in its sixth month, is “painful” to members of the national franchisee association who say they object to cuts in general & administrative expenses to make the brand attractive to potential buyers but harm the operators, according to Michael Norwich, chairman of the association’s board.
“We believe it’s imperative to reinvest back into the brand. We wouldn’t benefit from further reduction in expenses,” he said in an interview last week, following a statement sent by the association in early April that renewed the call for a change in CEO and seats on the franchisor’s board of directors. That echoed the association’s original demand for change made last October.
He said sales at Jack in the Box stores are the same today as they were in 2015 yet operating costs are much higher particularly for labor, making cuts in corporate support particularly harmful. “We were at 4 percent G&A then” at the corporate level, he said. “Now we are at 1.6 percent. It’s such a precipitous drop. There have been so many painful transitions and when you bring the concerns up and are being ignored, it adds salt to the wound.”
“We’re frustrated with the fact that there’s not going to be much reinvestment if any back into the brand. It’s frustrating in a day-in-day-out world as a franchisee, to live without services that we’ve been used to and we’ve relied on in the past.”
He said the response to issues raised by the association is “we’re going to put the business up for sale. You know as well as I do if you’re going to sell your house you’re not going to put a lot of work into the house.”
Norwich operates 14 stores. “I know the frustrations. It’s very difficult when you have the kind of cutting that’s going on and you don’t have the people who are experienced with the brand any longer. It’s painful,” he says.
Norwich said they’re taking their case to shareholders. “When you have management that won’t listen to you, then the board won’t listen to you, the only alternative is to appeal to investors and shareholders. It’s mainly an institutional-owned entity,” however, so “there’s not a lot of persona behind them. That’s our best bet at this point because nobody else will talk to us. We all want Jack to be successful, but you can’t check out just because you’re for sale.”
In February, Jack in the Box shares climbed 2.3 percent after the burger chain’s fiscal first-quarter earnings beat expectations. Earnings were $31.1 million, or $1.19 a share, compared with $12.9 million, or 43 cents a share, a year ago.
Chairman and CEO Lenny Comma said in a statement at the time the company continues to explore a range of financing and strategic alternatives.
"The company's Board has not set a timetable for the conclusion of this process nor has it made any decision related to any strategic or financing alternative at this time," the statement continued. "The company has had discussions with potential buyers; however, there can be no assurance that the exploration of strategic and financing alternatives will result in a transaction.”
Norwich said a lawsuit filed by the association last December over the use of the marketing fund and remodel requirements is ongoing, at a typically slow pace.
In an April 3 statement, the association said there was “no improvement” in brand management or communication, and said the situation had “deteriorated to retaliation as evidenced most recently by the formation of the Franchisee Advisory Council,”a new organization “that appears to replace the Strategy Leadership Council.”
The Strategy Leadership Council was created by an agreement between the NFA and CEO Lenny Comma, the statement said.
The National Jack in the Box Franchisee Association says it represents 95 franchise owners with approximately 2,000 restaurants. It was formed in 1995.
Anil Yadav, who operates 223 Jack in the Box restaurants, told Franchise Times last October that the publicly held franchisor’s focus on cutting G&A costs and boosting the stock price in the short term is “really unhealthy.” “You can’t live quarter by quarter and keep the stock price up. It’s great for the shareholders, but we are also stakeholders,” he said. “A lot of franchisees are collapsing because the transactions have been eroding.”
At that time Jack in the Box sent a statement saying in part: “For the past several years, and during the past year in particular, we’ve worked closely with the leadership of the NFA on a variety of issues of importance to the company and our franchisees,” it said.
“We have always been open to their constructive feedback and have worked to address any legitimate concerns. Importantly, we believe the viewpoints expressed today by the NFA leadership are not reflective of the entire franchise community.”