What is an FDD? Understand the Financials and How to Not be Misled

A due diligence guide for serious franchise investors — including a full earnings model walkthrough using Jack in the Box's 2026 FDD

Key Takeaways:

You Have the FDD. Now What?

You've made it to due diligence. The FDD is sitting in front of you — all several hundred pages of it. And somewhere in there is Item 19, which might be the most important section you'll read, or it might be three sentences that tell you almost nothing.

Most articles explain what Item 19 is. This one goes further: we're going to show you how to actually use it, how to spot the ways it can mislead you even when every word is technically accurate, and then we're going to walk through Jack in the Box's specific Item 19 data from the 2026 FDD — line by line — to show you what a real earnings model looks like before you ever talk to a broker.

This is not investment advice. Your actual results will depend on your market, your management, your real estate, and a hundred other variables. But understanding what Item 19 does and doesn't tell you is the most important due diligence skill you can develop — and most prospective franchisees skip it entirely.

What Item 19 Actually Is

Item 19 is the Financial Performance Representation section of a Franchise Disclosure Document. It's the one section where a franchisor can legally show you data about how their existing locations actually perform — revenue, sometimes costs, sometimes earnings.

The FTC's Franchise Rule is specific about this: financial performance data cannot be communicated outside of Item 19 unless it's the actual records of a specific location you're considering buying. That means if a salesperson is quoting you earnings figures that aren't in the FDD, that's not just aggressive sales talk — it's a legal violation.

What a Robust Item 19 Discloses

The best Item 19 disclosures include multiple data points:

A minimal Item 19 might give you only average gross sales, or nothing at all. The difference between those two presentations is the difference between being able to do real diligence and having to rely entirely on refranchised validation calls — which have their own limitations.

• Average and median gross sales across all operating units
• Sales broken down by tier, quartile, or geography
• Cost of goods sold as a percentage of sales
• Labor costs (production labor, management compensation, payroll taxes)
• Royalty and marketing fee percentages
• Occupancy costs (rent, building depreciation, taxes, licenses)
• Operating margin and/or EBITDAR
• The number of locations included vs. excluded from the sample — and why

The Metrics That Trip Up Most Buyers

Average vs. Median: Why This Gap Matters

Here's something that surprises almost every first-time franchisee: in most QSR systems, significantly fewer than 50% of locations actually hit the average gross sales figure.

That sounds counterintuitive — shouldn't half be above average and half be below? Not necessarily. A small number of exceptional high-volume locations pull the mean upward. The median — the midpoint when you rank every location by sales — is usually lower, and in most systems, it's the more realistic proxy for what a new operator in an average market might expect.

Jack in the Box's 2026 FDD illustrates this clearly. Table 1 shows:

Source: Jack in the Box 2026 FDD, Table 1. 12-month period ended September 30, 2025. Continental U.S. franchise units only; excludes C-Store/Travel Plaza, Hawaii, Guam, and Mexico locations.

Look at that last column. Only 40.8% of system units — 715 out of 1,754 — performed above the system average. The mean is $1,913,335, but the median is $1,830,083. That's an $83,000 gap. In a business with thin margins, $83,000 in annual revenue is the difference between a profitable unit and a struggling one.

The takeaway: when you model a new franchise investment, start from the median, not the average. Build to the average as your base case and treat anything in top-tier territory as an upside scenario.

The Top-Quartile-Only Presentation

This is one of the more common Item 19 presentation tactics in the industry: a franchisor includes only the top 25% or top third of their unit performance data. The numbers look great. The presentation is technically compliant. And you just spent 20 minutes building a model off of what the best locations in the system produce — not what you're likely to do in Year 1 with a new build.

Red flags to watch for:

• Item 19 shows only top-quartile or top-third average sales without disclosing the system-wide figure
• The sample size is small relative to total unit count — check Item 20 to see how many locations are actually operating
• Costs are disclosed for a subset of locations but the selection criteria aren't clearly explained
• The average disclosed is labeled 'affiliate-operated' or uses company-owned locations as benchmarks

Company Store Data vs. Franchisee Data

Some brands include performance data from company-owned and operated locations alongside (or instead of) franchisee data. Company stores are not a reliable proxy for what you'll experience as a franchisee, for several reasons:

1. Company stores often benefit from lower occupancy costs because the franchisor owns the real estate outright
2. Corporate operators frequently receive more favorable supplier pricing and rebates at scale
3. Management overhead at corporate stores is partially absorbed by the parent company's G&A, not charged to the unit
4. Corporate locations tend to cluster in core markets where brand recognition and traffic are strongest
5. How many units were excluded from the sample, and what were the primary exclusion reasons?
6. What percentage of operating units submitted cost data (for Table 3 disclosures)?
7. Are new builds typically in the top, middle, or bottom tier in their first 12 months?
8. Are there geographic clusters that significantly outperform or underperform the system average?
9. Are food and paper costs (COGS) likely to increase or decrease over the next 2-3 years based on current supply chain trends?
10. How does labor cost as a percentage of sales typically change in the first 2 years of a new build vs. a mature unit?
11. What minimum wage legislation is pending in my target markets, and how does that affect the 31.2% total labor percentage?
12. Are there any system-level changes to the marketing fee structure planned that would affect the 5.2% advertising line?
13. What are the occupancy costs for the sites I'm evaluating? If rent exceeds the 11.8% average, how does that affect the model?
14. Do I qualify for the Select Market Incentive Program, and what is the royalty reduction on a per-unit basis?
15. What do the franchisee validation calls tell me about what experienced operators actually earned in Year 1, Year 2, and Year 3?

Jack in the Box's 2026 FDD avoids this issue entirely: Tables 3 and 4 disclose operating costs exclusively from franchised locations. The footnotes confirm the data came directly from franchisee-submitted financials. That's the standard you want to see — the brand should be showing you what franchisees actually experience, not what corporate operators with different cost structures produce.

What's Excluded From the Sample

Every Item 19 disclosure includes exclusions — locations that weren't open long enough, changed ownership during the period, or were closed for remodel. The question is whether those exclusions systematically bias the numbers upward.

In Jack in the Box's 2026 FDD, Table 1 for FY2025 excluded:

• 19 restaurants that opened during FY2025 (reasonable — new builds haven't ramped)
• 75 restaurants that permanently closed in FY2025
• 96 restaurants with insufficient data due to ownership transfers, remodels, or rebuilds
• 81 C-Store/Travel Plaza locations (reported separately in Table 2)
• 34 locations in Hawaii, Guam, and Mexico

Pay attention to permanent closures. 75 closures in a single fiscal year against a system of roughly 1,900 franchised units is a 3.9% closure rate. Those weren't high performers — and they're not in your AUV calculation. That's not manipulation; it's how the rule works. But it's something you should factor into your risk assessment alongside the revenue projections.

Frequently Asked Questions

What is Item 19 in a Franchise Disclosure Document?

Item 19 is the Financial Performance Representation section of an FDD. It's the one place in the franchise disclosure process where actual historical financial data from operating locations can legally appear. If a franchisor chooses to include it, the data must be factual and supportable. If they don't include it, the sales team cannot legally make verbal earnings representations.

Are franchisors required to include Item 19?

No. The FTC's Franchise Rule makes Item 19 voluntary. Some franchisors include comprehensive earnings data; others include only gross sales averages; a handful leave Item 19 blank. An absent or minimal Item 19 isn't automatically a red flag, but it does mean you'll need to rely more heavily on direct franchisee validation and your own market research.

What's the difference between average and median in Item 19?

The average is the sum of all location revenues divided by the number of locations. A handful of very high-volume stores can pull the average significantly above what most operators actually produce. The median is the middle value when all locations are ranked — half perform above it, half below. In Jack in the Box's 2026 FDD, the system average is $1,913,335 and the median is $1,830,083. That $83,000 gap matters when you're stress-testing an investment model.

What does EBITDAR mean, and why do FDDs use it?

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent. FDD disclosures use it because it represents unit-level operating performance before the two costs that vary most dramatically based on an individual franchisee's capital structure and real estate deal: debt service and rent. It gives you a cleaner apples-to-apples comparison across units with very different financing arrangements. Jack in the Box's 2026 FDD discloses an average EBITDAR of 17.7% for Fiscal Year 2025.

What does Jack in the Box disclose in Item 19 of its 2026 FDD?

The 2026 FDD (issued March 13, 2026 by Different Rules, LLC) discloses four tables: Tables 1 and 2 cover gross sales averages, medians, highs, lows, and tier breakdowns for franchised continental U.S. restaurants and C-Store/Travel Plaza locations respectively. Tables 3 and 4 disclose selected operating cost percentages for the same location sets. FY2025 system average AUV across 1,754 continental U.S. franchise units was $1,913,335. Average EBITDAR was 17.7%.

The Bottom Line

Item 19 is the most important section of an FDD for a prospective franchisee who wants to do real financial due diligence. But it's only useful if you know how to read it without letting the presentation mislead you.

The things to watch for: average figures inflated by a few high-volume outliers, top-quartile-only presentations that obscure system-wide results, corporate store data used as a proxy for franchisee economics, and exclusion footnotes that quietly remove the underperformers from the sample.

Jack in the Box's 2026 FDD discloses a comprehensive Item 19 — four tables, both average and median figures at every tier, and actual cost percentages from franchisee-submitted financials. The numbers tell an honest story: a system producing $1.9M average AUV and 17.7% EBITDAR margins in a year where most QSR brands faced meaningful headwinds.

What it also tells you — if you're looking at it critically — is that this is a multi-unit investment thesis. Single-unit economics at average AUV are tight before debt service. Layered across 5 or 10 locations with shared overhead, incentive program benefits, and operational leverage, the picture looks considerably different.

Run your own numbers. The framework above gives you a starting point. Your attorney, accountant, and discussions with existing franchisees give you the validation layer. The Item 19 data gives you the foundation to have those conversations from a position of knowledge rather than blind trust.