Just like its imaginary CEO mascot, Jack, Jack in the Box (NYSE:JBX) shareholders have sported a permanent smile as they've watched their company outperform the market over the past five years. But the market has begun to catch up over the last 12-month period, and competitors are always dreaming up new menu items to grab customers. So should investors demand that the company float a piece of its successful Qdoba Mexican Grills -- since other restaurant chains have been partially jettisoning their own secondary concepts?
For those wanting to get up to speed on Jack's first-quarter results, check out our "Jacked Up" recap, in which Fool contributor Jeremy MacNealy pointed out that company growth is progressing well and according to plan. He also noted that Qdoba Mexican Grill comparable-store trends were up 5.6% for the quarter -- and that was after even more impressive double-digit comps last year.
But regardless of recent or projected performance, the investment community has been speculating on whether Jack in the Box management had any plans to spin off its faster-growing Qdoba chain in an attempt to enhance shareholder value, much like when McDonald's offered up a tiny morsel of its own fast-growing Chipotle Mexican Grill (NYSE:CMG). Wendy's (NYSE:WEN) has also been playing the spinoff game to drive shareholder value, having floated a taste of its popular Canadian doughnut chain, Tim Hortons (NYSE:THI). Can we expect the same for Qdoba?
To quickly burst your bubble, it won't be happening any time soon. In a recent CNNMoney article, CEO Linda Lang -- the real company CEO -- was quoted as saying recently that Jack in the Box had no immediate plans for a spinoff, but that it would consider it in the future. Quite a savvy response, as it kills any near-term speculation but leaves the door open for a change of heart, should future developments warrant such an action.
But can we at least attempt to place a value on Qdoba? No deal. Jack in the Box doesn't appear to break out Qdoba sales from total revenue. But according to the company, Qdoba operated a recent 280 stores, of which most are franchised rather than company-owned. This compares with approximately 500 Chipotle restaurants, but without specific numbers on store-owned versus franchised locations, it's difficult to make a more detailed comparison. At least we have the comfort of knowing that Qdoba and Chipotle both started in Denver and have a similar store concept and expansion opportunities.
What we do know is that Chipotle skyrocketed to a recent $58.16 per share after its $22 debut in January, and currently trades at 37 times trailing earnings. Fool contributor Stephen Ellis also points out that Tim Horton shares are richly valued but still may be worth the hype. They're up 10% from their IPO to roughly $26 and change, for a recent trailing P/E of 27. Jack in the Box as a whole is trading at 16 times trailing earnings, a figure that suggests Qdoba's earnings are also being valued at this level and could gain an immediate doubling if allowed to trade separately.
The main reason Jack in the Box may hang on to Qdoba for the foreseeable future is that its namesake stores have been growing well and it doesn't need any boost to its shares, since investors have been quite pleased with operating and stock performance. Plus, it just bought the Qdoba chain in January 2003, so it may still be determining just how great the potential is. In contrast, McDonald's in recent years has had to put itself into overdrive to regain its reputation as one of the most consistent fast-food operators of all time and meanwhile jettison secondary brands such as Donato's Pizza. It may eventually spin off Chipotle completely. More recently, Wendy's has been experiencing stagnant growth at its namesake stores and caving to activist shareholder Nelson Peltz and Trian Fund Management. These power players demand that Wendy's spin off Tim Horton's and sell other secondary brands in order to get the stock above the $30-$40 range that it had been stuck in until last November.
There's no question that Qdoba has become a valuable franchise and looks like a savvy purchase based on the $45 million Jack paid in 2003 for what was then 85 restaurants. At least current Jack shareholders have the comfort of knowing the company has a future insurance policy, especially if growth at the namesake stores starts to mature or hit a rough patch after the Ciabatta sandwich and garden salad hype ends.
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Fool contributor Ryan Fuhrmann is long shares of McDonald's but has no financial interest in any other company mentioned. The Motley Fool has a disclosure policy.
