Article

Despite Q3 losses, investment firm gives Jamba Inc. a “Buy”

November 9, 2010

On paper, healthy juice and grub fast casual chain Jamba Inc. looks to have had a hard Q3: total revenue for the quarter decreased 16 percent from last year, and comps are still suffering, though not as much as in the corresponding period in 2009.  

Despite third quarter declines, Conrad Lyon, restaurant analyst at B Riley Research and investment banking firm, sees a lot of momentum in the chains' quickly recovering same-store sales, and expects an eventual payoff via refranchising and consumer product licensing efforts to include fruit cups and health drinks, the revenue from which Lyons believes will triple in 2011. 

The payoff from these efforts is slow-coming in nature, which Lyon believes affected the numbers. “My sense is that there are those involved in the stock that expect more of a light-switch type effect with the licensing program, which is not the case and induces volatility around earnings (and the opportunity to accumulate more),” he said.  

This past year, Jamba Juice has refranchised stores in Florida, California, Nevada and Washington. The company said in August its goal is to refranchise 150 locations by the end of 2010. Of that 150, nearly 120 have been refranchised.

The numbers

Company-owned same-store sales for Q3 '10 decreased 2.7 percent compared to a decrease of 5.3 percent for the prior year period. “Current indicators are improving for comparable store sales, which are for the year expected to be flat to minus 3 percent," said James D. White, chairman, president and CEO. 

"As we move into the fourth quarter, we see some improvement in our California stores, which continue to be affected by the state’s sluggish economy.” The company hopes to deliver positive comps of 2 percent to 4 percent in the new year.  

Net loss for Q3 '10 was $(0.8) million, compared to net income of $2.8 million in the prior-year period. Affecting the loss were non-cash charges of $1.4 million related to the early closing of seven stores and $1.4 million related to the refranchising of company-owned stores. Year-to-date, net loss was $4.4 million, compared with a loss of $12.6 million the 40-week period prior. 

Total revenue for Q3 2010 decreased 16.3 percent to $66.1 million from $79.0 million for Q309, primarily due to the reduction in the number of company-owned stores and the decrease in comparable store sales.

To jump-start traffic, White has described an emphasis on Jamba’s new marketing efforts designed to drive consumption in the morning and all-day parts with new and value-priced beverages and foods. Jamba is now offering fresh, brewed-by-the-cup, organic coffees, teas, and hot blended beverages in more than 360 stores to complement its popular oatmeal. 

“We are pleased with the recent progress we have made against the completion of several of our annual objectives,” White said. “Compared to a year ago, the change is significant. We recently signed two definitive agreements which signaled completion of our initiative to re-franchise up to 150 company stores. These agreements provide new momentum for our franchise development initiative for 2010 and beyond.”

Momentum and diversification

During the quarter, Jamba announced several licensing initiatives, including plans to launch a line of Jamba All-Natural Energy Drinks with Nestle U.S.A. in northeastern U.S. early next year. “This line delivers a unique concept – the healthy, all-natural energy drink – that we think has tremendous potential in the $8.5 billion energy beverage sector. These products will capitalize on the growing trend of consumers who are seeking health-oriented, fruit-based natural beverages that provide quick energy without any artificial ingredients,” White said.

Just this week, the company also announced a partnership with Sundia Corp., the nation’s fastest-growing produce brand, to launch a new line of proprietary Jamba-branded fruit cups. The product line is expected to roll out in grocery, convenience and other retail outlets in early 2011.

The concept is increasing its footprint in America and beyond, having recently signed store development agreements for a total of 13 new stores in Boston, New Orleans and South Bend, Ind., the company's first entry into each market. 

The company also announced plans to tackle franchising agreements in Canada through a non-binding letter of intent with International Franchise Inc. for the development of up to 125 locations across Canada throughout the next 10 years.

The non-binding letter of intent aims to provide a structure for the establishment of a long-term relationship, which would give International Franchise Inc. the generally exclusive rights to the franchising of the Jamba Juice brand throughout the Canadian marketplace.