Seeking Alpha
Long only, value, growth at reasonable price
Profile| Send Message|
( followers)  

It's no secret that international smoothie chain Jamba Juice (NASDAQ:JMBA) has seen better days. From its all-time high of $61.25 in May of 2006, it fell to an all-time low of $2.00 in March of 2009 (prices adjusted for the recent May 31st 5-1 reverse split). However, up 23.66% year-to-date, Jamba seems to be turning itself around.

The Fundamentals

Given its most recent earnings report for the first quarter of 2013, Jamba is showing signs of growth, albeit minimal. Comparable store sales of company-owned locations saw modest increases of 3.6%, compared to a 12.7% increase in the prior year period. Comparable store sales of franchise-owned locations saw a decrease of 0.9%, compared to the prior year period increase of 10.5%. The company seems to be inching its way towards profitability, reporting a net loss of $1.2 million, compared to a net loss of $1.5 million for the prior year period.

The numbers are mediocre at best. They are neither particularly promising or discouraging. Jamba will likely continue to see minimal to modest growth in the near future, but nothing about the stock screams buy now; particularly after retracing into a current downtrend after the recent reverse split.

Riding Jamba Through the Current Juice Craze Wave? Think Again

What investors seem to like about Jamba is its rather fortuitous market position. After bottoming out in 2009 and seeking to regrow its tattered brand, Jamba found itself nestled in a golden opportunity: the beginning of the juice craze. Touted by countless nutritionists and dietitians as a nutritional powerhouse, and playing off rising consumer sentiment for healthy alternatives, juicing has grown into a multi-billion dollar industry with no signs of slowing up. In fact, we could see an enormous boom in the juice craze if it supplants cupcakes as the next food fad. With Crumbs Bake Shop, Inc. (NASDAQ:CRMB) down over 90% in just a two year span, the title of 'current food fad' seems to be changing hands. Many industry experts believe juicing is that next fad. While risky, if played right, fads can drive in huge returns for investors.

In the juice bar space, Jamba remains the only publicly traded pure play. While it would seem as though Jamba has a Wall Street monopoly on the juice craze, that is far from the truth. Just a quick glance at Jamba's menu provided on their website shows a meager offering of a fresh juices: carrot and orange. The focus of the brand remains on their smoothie offerings. Jamba's smoothies remain a popular and relatively healthy alternative to milkshakes and sodas, but the fact of the matter is that it's a juice craze - not a smoothie craze. Crumbs Bake Shop did not play off the cupcake craze by primarily selling cinnamon buns; they also sold cupcakes.

Jamba has been amping up their marketing efforts by signing Venus Williams as a spokeswoman and establishing a Healthy Living Council to gain nutritional credibility for their brand. These efforts may be effective in persuading a broader market to pursue a healthier lifestyle. However, most disciples of the juice craze will see right through these efforts. The product just isn't there.

Again, Jamba will likely continue to see some modest growth. But don't assume to see some quick returns just because it's the only pure play off the juice craze. If you're a believer in juicing as the next food fad, Jamba Juice is not the company to ride it out with. They have been unable to position themselves to take advantage of it.

Some Alternative Plays

If you're set on making some money from this emerging fad, there are some better options. Starbucks (NASDAQ:SBUX) and Coca-Cola (NYSE:KO) are two strong and established companies that have sought to capitalize on the juice craze each in their own right.

Starbucks

In March of 2012, Starbucks opened its first Evolution Fresh juice bar in Bellevue, WA. The Evolution Fresh brand has currently grown to four locations, as well as offering its bottled juices in select grocery stores. In February of this year, Starbucks began offering Evolution Fresh bottled juice at its stores on the east coast. As Starbucks continues to offer the bottled juices at their stores across the nation, they should see a little boost in revenue. However, the real growth potential here lies in the expansion of the standalone brick-and-mortar Evolution Fresh locations.

Starbucks is no stranger to rapid expansion. In fact, Starbucks is one of the all-time great success stories in rapid expansion. From one location in 1971, the company currently claims over 20,000 locations worldwide and yearly revenues in excess of $13 billion. If you had purchased one share of Starbucks at its initial price of $17 in 1992, it would now be worth about $2,105 (there have been five 2-1 splits).

So what does this mean for Evolution Fresh? Well, as the juice craze picks up steam, existing markets will expand and new markets will emerge. With the invaluable resources and expertise that Starbucks has to offer, Evolution Fresh will be able to capitalize on these increasing markets. If juicing turns out to be more than just a fad, and healthy living becomes the new norm, don't be surprised if Evolution Fresh becomes a nationally recognized brand, much like its parent company. This is my favorite play to see some nice returns off the juice craze.

Coca-Cola

Coming at the craze from a slightly different angle, Coca-Cola is looking to capitalize through its wholly owned subsidiary, Odwalla Inc. Coke purchased Odwalla for the bargain price of $181 million back in 2001. Odwalla sells bottled fruit juice and smoothies, as well as packaged food bars at grocery and convenience stores across the nation.

Odwalla has seen immense growth in the past decade thanks in large part to the marketing prowess and established distribution networks of its parent company. The brand has proven to be one of Coke's most successful subsidiaries. When Coke issued its company-wide hiring freeze in 2007, Odwalla was exempt because of its strong performance.

I like this company because it is well positioned to target the laggards of the juice craze. Odwalla is a trusted name in the space and provides an easy to access, consumer friendly product. While Evolution Fresh seems poised to appeal to the early adopters of the juice craze, Odwalla will see more success going after the early and late majorities. As long as juicing continues to gain popularity, and I think it will, all Odwalla has to do to reap the benefits is continue exactly what they are already doing.

While I don't see as much potential here as I do in Starbucks' Evolution Fresh, I do think Odwalla will contribute to a nice boost in revenues for Coke in the coming years. Either way, both options present much better alternatives to Jamba Juice to see some nice returns off the juice craze.

Source: Riding Jamba Through the Current Juice Craze Wave? Think Again