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Jack in the Box Is Not Seeking Unit Growth

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Jan. 20 2016, Updated 1:06 p.m. ET

Jack in the Box brand’s unit growth

In this article, we’ll discuss another main driver for revenue growth: unit growth. With the intention of improving its operating margins, the Jack in the Box brand, under the umbrella of Jack in the Box (JACK), closed down some of the underperforming restaurants or sold them to franchisees. The company is currently focused on improving same-store sales.

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The Jack in the Box brand’s unit growth over five years

In the last ten years, the Jack in the Box brand has moved from being mainly a company-owned restaurant company to a franchise-heavy company, either by closing down underperforming restaurants or by selling company-owned restaurants to franchisees.

In 2011, the Jack in the Box brand operated 2,221 restaurants, of which 629 were company-operated restaurants, and 1,592 were franchisee-operated restaurants. By 2015, the overall unit count increased to 2,249, an increase of 1.2%. In that period, the company-owned restaurant unit count declined to 413, a decrease of 52.3%, and franchisee-operated units increased to 1,836, an increase of 13.2%.

Peer comparison: Unit growth

From September 2014 to September 2015, The Wendy’s Company’s (WEN) overall unit growth decreased by 0.7%, with a decline of 14.4% in company-owned restaurants and an increase of 1.8% in franchised restaurants. During the same duration, McDonald’s (MCD) overall unit count increased by 1.5%, with franchisee-owned restaurants increasing their unit count by 2.3% and company-owned restaurants decreasing by 2.1%.

The Consumer Discretionary Select Sector SPDR ETF (XLY), which invests about 10% of its portfolio in restaurant stocks, has 4.8% of its portfolio invested in McDonald’s (MCD) and 3.8% invested in Starbucks (SBUX).

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