Jamba, Inc. Q2 2009 Earnings Call Transcript

Jamba, Inc. (JMBA)

Q2 2009 Earnings Call

August 20, 2009 5:00 pm ET

Executives

Karen L. Luey – Chief Financial Officer & Senior Vice President

James D. White – President, Chief Executive Officer & Director

Analysts

Mark Hillman – Jefferies & Co.

[Alan Dannen] – RBC Capital Markets

Christopher Donnelly – Pacific Rock Capital

Jason Blair - Rockdale

Patrick Lin – Primarius Capital

Presentation

Operator

Welcome to Jamba, Inc.’s second quarter earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Ms. Karen Luey, Senior Vice President and Chief Financial Officer for Jamba, Inc. Thank you. You may begin.

Karen Luey

Thank you operator. Good afternoon. With me on today’s call is James D. White, our President and CEO. During today’s call I will review our second quarter results and James will follow with an update on our 2009 blend plan which was released earlier this year and then we will take Q&A. I would like to remind all listeners that this call is being broadcast and recorded live over the Internet at JambaJuice.com. The webcast is available on our website and replay will be available via telephone until September 10, 2009.

This conference call will include forward-looking statements within the meaning of the securities law. These forward-looking statements will include discussions about the company’s strategic priorities and certain statements of our expectations and plans. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements that are contained in the company’s filings with the SEC including the risk factor section in our most recent Form 10Q.

The company does not assume any obligation to publically release any revisions to forward-looking statements discussed during the call. With that said, I would like to turn it over to James.

James White

Thank you Karen and welcome to all of you. I would characterize the second quarter as one of significant progress in the face of continuing tough challenges. As we move into Q3 I am confident that we have the right strategy to turnaround and transform Jamba, the right capabilities, resources and team to execute them with excellence, but much of our success of course will be contingent upon the condition of the economy.

Our performance in the second quarter underscores that belief. We are obviously not pleased with our comp store sales performance at minus 13 but we were able to post improvements on the consolidated EBITDA line for the second consecutive quarter which reflects the results of our disciplined expense management and cost reduction programs.

Despite an intensely difficult macro environment especially in our California heartland where we have such a substantial presence, our 2009 blend plan is yielding tangible results in a number of key areas. Our strategy will not eliminate the full negative impact of growing unemployment and hard pressed consumers but we are starting to mitigate some of those challenges.

Our improvements are coming from several important fronts. We are transforming our business model as we embark on our expanded food menu. We are still early in the effort but are pleased with the results of our addition of oatmeal in January and the expansion of food in over 200 locations in June. We are creating a new balance in our system with an increased role for franchise stores. We are in the early phases of our refranchising initiative and making progress.

We are extending the reach and building the equity of our powerful Jamba brand through a series of licensing deals. We are resetting our cost structure through cost management and productivity gains that also are improving our customer service while maintaining the iconic quality and taste of our products and we have strengthened our balance sheet by retiring our long-term debt.

In short, the macroeconomic environment isn’t working for us but we are starting to make progress in key areas of the blend plan. After Karen walks you through our Q2 financials I will come back and add some details to this overview.

Karen?

Karen Luey

Thank you James. Our comments today together with the information provided in today’s press release and our 10Q filing should be utilized together to provide you the most comprehensive understanding of our financial results.

Overall, our diligence in managing costs and expenses is paying off despite the unprecedented economic challenges facing us today. We posted our second consecutive quarter of positive consolidated EBITDA during fiscal 2009 with an increase this quarter of $0.3 million over the same period last year. Our net loss attributable to common stock holders of $5.3 million over last year’s same period loss of $89.2 million reflects significant improvement. The net loss attributable to common stock holders for the second quarter of 2009 included a non-cash store impairment charge of $7.5 million, a write off of $2.9 million in loan fees and discounts related to the early pay off of our debt and a non-cash gain of $1.4 million related to derivative liabilities.

The net loss for the same quarter of the prior year included a non-cash trademark impairment charge of $82.6 million, the net tax effect was $49.7 million, a non-cash store impairment charge of $3.3 million and a non-cash gain of $2.5 million related to derivative liabilities.

Our numbers reflect the hard work that our entire organization is engaged in driving forward to ensure we achieve our blend plan objectives. It is our goal and commitment to push aggressively ahead to find ways to continuously improve our top line performance and our overall results.

Total revenue for the second quarter decreased 15.1% to $83.2 million and company store revenue decreased 15.2% to $81.7 million as compared to the same prior year quarter. Comparable store sales decreased 13.7% for the quarter. The decrease in comparable store sales was the result of a decline in traffic, unfavorable weather and the reduction in store operating hours as compared to the prior year.

During the quarter we did not open any new company stores. We opened six new franchise locations and our franchisees closed three franchise locations. We also sold nine stores in Oregon to an existing franchisee as part of the refranchising initiative we discussed earlier this year. This brings our store count at the close of the quarter to 735 stores with 490 company owned stores and 245 franchise locations.

Our store level EBITDA margin for the quarter was 22.3%, a 200 basis point improvement over the same quarter of 2008 which was driven by our disciplined focus on the management of cost of sales and labor expenses. Our store level EBITDA for the quarter decreased by $1.4 million to $18.5 million as compared to $19.9 million for the same quarter of 2008 primarily due to the decrease in comparable store sales.

We continue to see improvement in our cost of sales. Our Q2 cost of sales decreased 23.8% from $19.3 million compared to $25.3 million for the same prior year quarter. This was achieved primarily through our cost saving initiatives started in late 2008 including reductions in waste. As a percentage of company store revenue, these costs decreased to 23.6% in the second quarter compared to 26.3% in the same prior year period as a result of the cost saving initiatives, a shift in product mix and price increases taken during late 2008 and early 2009.

Labor costs decreased 19.2% to $25.4 million. As a percent of company store revenue labor expenses decreased to 31.1% in the second quarter of fiscal 2009 compared to 32.6% in the same period last year. The decrease as a percentage of company store revenue is due primarily to the optimization of our labor scheduling and adjustments to our workers compensation due to better claims management and more efficient labor management which was offset by the decrease in total store sales.

Occupancy costs decreased 3.9% to $10.1 million and as a percentage of company store revenue decreased to 12.4% in the second quarter of fiscal 2009 compared to 11% in the same period of the prior year. This increase as a percentage of company store revenue was primarily due to the de-leverage impact of fixed costs over our lower sales volume. While we continue to make progress on our rent concessions, this has been offset by increases in other occupancy costs.

Store operating expenses decreased 8.8% to $9.8 million and as a percentage of company store revenue increased to 12% for the second quarter of fiscal 2009 compared to 11.2% in the same period of the prior year. As discussed earlier, through better controls and negotiation we have been able to reduce store operating expenses in repairs and maintenance, credit card fees and cleaning supplies to name a few and as we have discussed during our past calls we have reduced our marketing spend to focus less on brand marketing and more on local marketing initiatives targeting the two mile radius around our store locations.

For the second quarter of 2009 marketing expense was $1.9 million a reduction of 21.5% or $0.5 million over the prior year same quarter. Depreciation and amortization decreased 23.5% to $4.3 million for the second quarter and as a percentage of total revenue decreased to 5.2% for the second quarter of fiscal 2009 compared to 5.8% in the same period of the prior year. The decrease in depreciation expense was due to the decrease in the total number of stores open and the non-cash impairment charges recorded during 2008 and 2009.

We reduced G&A by 16.9% for the quarter to $8.2 million and as a percent of total revenue G&A decreased to 9.8% for the second quarter of fiscal 2008, a 30 basis point improvement over the prior year. The improvement was attributable to our efforts to bring G&A spending in line with industry standards by more effective management of professional fees, travel expenses and our continuing impact from our efforts to right size the organization. These savings were partially offset by increases in contract services and net increases in other G&A.

During the second quarter interest expense increased to $4.9 million from $0.1 million the same period of the prior year. The increase was primarily due to early repayment interest and deferred loan costs incurred in conjunction with the payoff of our debt. Other key items included a decrease in other operating costs of $3.2 million primarily attributable to a decrease in store closures, lease termination and pre-opening expenses.

We recorded a non-cash store impairment expense of $7.5 million for the quarter compared to $3.3 million for the same period of the prior year. We had a non-cash gain from derivative liabilities of $1.4 million as compared to a gain of $2.5 million in the prior year’s same quarter. For the second quarter our tax rate is 0.34% as we took a full valuation on our deferred tax assets in the second quarter of 2008.

So let me talk for a minute about liquidity. At the end of the second quarter we had over $28.9 million in cash and cash equivalents as a result of the issuance of the $35 million convertible preferred transactions that we entered into on June 16, 2009. With the net proceeds we paid off our outstanding debt and repurchased 2 million shares of our common stock. Our restricted cash balance was $2.7 million.

Our focus going forward will remain on diligent management of our costs and expense structure and the execution of our blend plan and growth initiatives with a goal of driving top line results and continuous improvement in overall performance. With that said I will turn it back to James.

James White

Thanks Karen. As I said in my opening comments, our 2009 blend plan strategies haven’t eliminated the full negative impact of the economic headwinds but they are mitigating the negatives and providing the foundation for our turnaround. Our plan is designed to allow us to come out of this recession with a reduced cost structure and expenses, a more productive customer focused service culture, a broadened menu of tasty, good for you grab-and-go foods that significantly shifts our business model towards a healthier quick service restaurant, our retail licensing initiative that broadens and strengthens our Jamba equity and our refranchising initiative that allows for faster growth, especially with high potential sites in both traditional and non-traditional locations.

We know that is a lot to accomplish and we know we will continue to face stiff challenges but I also know we have a very focused, disciplined leadership team that knows how to get things done. Karen has pointed out the progress we are making on the cost management productivity gains. The key metrics show improvement and there is more to come. I come from a background where cost control and elimination of unnecessary spending were a way of life and that philosophy is already becoming an important part of the Jamba culture.

We are achieving these gains while improving our high levels of customer service and product quality, attributes that define Jamba with our customers. In addition to the cost management gains, the sale of $35 million in convertible preferred stock in quarter two has strengthened our balance sheet by eliminating all long-term debt. The transaction also provided another important benefit, the addition of three members to our board. They are: Andrew Heyer, Beth Bronner from Mistral Equity Partners and Michael Serruya representing the Canadian Based company owned by the Serruya family. We welcome their retail, consumer products and business experience to our board.

Let me now provide you with some additional detail on key areas of our plan. Our management team is squarely focused on improving comp store sales and will continue to expand food, aggressively deliver more value to our consumers via promotional offers and continue to work diligently to improve our customer service experience. I will start with our customer first initiatives where we had several developments in the second quarter.

We implemented a mystery shopper program in quarter one of 2009 to strengthen our service culture and have achieved a 400 basis point improvement over our baseline Q1 score. Our goal is to deliver [wild] service every time system wide and this program will be an important part of measuring our success. We also worked to deliver a stronger consumer value message by delivering a buy-one get one free offer in June. The results of the BOGO promotion were very positive. We exceeded last year’s redemption by 100,000 visits.

This is a very effective tool for us to drive increased traffic and in the stores where we sold food the promotion not only raised awareness of our new food offerings; they also increased the sales of food in those stores during the promotional period. Our overall goal is improved customer service, delivering more consumer value more often in an important part of that effort and we are doing a lot of work with the consumer to identify the best way to deliver more value.

Moving to food, as we said in the past our research shows that 27% of our customers eat food with their smoothies. The research also shows our consumers, almost 2/3 of them would welcome high quality, healthy foods offered at Jamba locations. In fact, when asked many of our consumers are surprised that we haven’t acted sooner. As most of you know we started our food initiatives with the successful winter launch of oatmeal. The launch improved our breakfast day part and added credibility to our expansion into food.

In June we announced the most significant addition to our menu since Jamba’s founding. It was a roll out of grab-and-go offerings in over 200 stores in California. These are super items, a great fit for the Jamba brand and a perfect complement to our beverages. These offerings have no artificial preservatives, no artificial flavors, no high fructose corn syrup. The line includes the sandwich, four wraps including one vegetarian wrap, one vegan wrap, two salads and four signature California flatbreads and we also launched our proprietary line of ice cold fruit tea infusions in three refreshing flavors.

In making our food and beverage choices we were very selective. We wanted simple, high quality, better for you items that were great tasting. Since the June launch we have now expanded foods into more than 250 locations in California and on July 27^th we launched California flatbreads in the New York City marketplace. I am excited to report that yesterday we launched food including wraps, California flatbreads and fruit tea infusions into the Chicago marketplace.

Currently our food line is in almost 300 locations across the country with more to follow. We intend to aggressively expand foods throughout the system throughout the remainder of the year. We will continue to test new items and expand our offerings. As an example we will begin a test of select hot beverages later this year. The addition of these items gives our customers more of what they want; value, price, tasty premium ingredients, better for you foods that are quick, easy and on the go. We believe we have reason to feel good about our efforts today.

For example, we recently won the Zaggat Award for the Number One Healthy Option in the quick refreshment category. The feedback on food has been very positive. Our preliminary analysis of the stores in California where we initially launched our food items is showing an increase in customer frequency and average check. While it is still very early in the process, we are quite pleased with the initial data and we feel like we are hearing from our customers nothing but very positive reaction to the launch of food. To sum up, food is an exciting and promising area for Jamba. As I said earlier, it is part of a broader strategy to transform Jamba into the premier healthy quick service restaurant with a differentiated set of simple, better for you and delicious products.

Let’s move now to franchising. We announced the blend plan in January. We have focused on driving our franchise development. To date we have made progress on refranchising and we have raised the bar on our commitment to add additional franchise outlets in 2009. In June we announced another important development when the U.S. Small Business Administration listed Jamba on its official franchise registry. Recognition by the SBA through the online franchise registry is a great incentive for potential franchise partners since they receive a streamlined process for loan approvals. In the current risk averse lending environment this fast track simplified lending process can be a critical element in the decision making process for franchise purchasers.

In early July we announced the sale of nine restaurants in Oregon to an existing Franchisee who already owns nine Jamba outlets in the northwest. This followed an earlier sale in Q1 of ten company restaurants to an existing franchisee in Arizona. We plan to resize our operations to approximately 300 company owned locations. We will accomplish most of this through our refranchising initiative which is expected to involve about 150 company owned locations. We expect to close a number of additional deals this year.

The total effort should be completed by the end of 2010 depending on of course market and other conditions. In addition to the progress on refranchising we opened six new franchise locations during the quarter, 15 year-to-date and we are on pace for our plan to open between 40-45 outlets by the end of 2009.

Overall, we believe our franchise development strategy will position Jamba for better growth and market share, reduce our capital outlay, provide a greater overall margin and brand presence for the company. In brief, it will allow us to grow.

The other area I want to address is our licensing growth platform. Again, our research shows the Jamba brand is extendable. Consumers expect Jamba to offer products that are great tasting, better for you and fun. Right now we are continuing to work with Nestle on the re-launch of several new ready to drink beverage concepts and are conducting joint research so that we target the most innovative and appealing options. We are also working diligently on several other licensing arrangements.

A new line of novelties with Oregon Ice Cream will launch in test with a major retailer later this year. Also a Jamba branded blender for kids with Think Wow Toys will also launch later this year with a major retailer. All products that will test in 2009 will be leverage for significant national rollout in 2010. Just last week we announced another license agreement. We signed a deal with The Inventure Group for a line of blend and serve frozen fruit smoothie kits for retail distribution.

The Blend and Serve Smoothie kits are expected to launch in the U.S. during the first quarter of 2010 and will include a variety of fresh frozen whole fruit pieces including raspberries and blueberries from Washington based Rader Farms, an Inventure Group company. The products will feature Jamba’s signature recipe and will be the first smoothie kit to the marketplace to include vitamin and mineral boosts.

We are driving hard to grow the brand equity and to provide the opportunity for consumers to engage with the brand in and outside of our stores. I am very pleased about the current portfolio of products that represent the initial efforts to expand the Jamba brand into a full range of consumer products. We are exploring a number of other opportunities.

So far in 2009 it has been a very challenging, but rewarding year. We don’t like the macroeconomic environment that has continued to depress our same store sales but we are proud of the progress we have made with our 2009 blend plan. We have reduced our costs and expenses, are enhancing our customer first operationally focused service culture, are increasing food offerings across day parts, are making progress both on refranchising and in growing our franchise in non-traditional venues and we are progressing our retail licensing initiatives.

We have a plan and strategy that are working and we are fully committed to them. I like to use the baseball analogy with our team in describing our efforts. I tell them that we are in the early innings of a very important game and we are off to a good start but we must be prepared to play hard for the full nine innings. Given the challenging operating environment, we are focused on improving our comp store sale performance by continuing to expand food, aggressively delivering more value to consumers and diligently working to improve our customer experience.

I am confident we will continue to make progress. We have got the right game plan, the right attitude, focus, discipline and commitment and a truly capable team of experienced leaders. As we move through the balance of the year, I know that the challenges will persist but as I said at the outset our 2009 blend plan it yielding tangible results.

Before I conclude I want to thank our general managers across the Jamba system for their leadership. Thank you for your time today and now I will turn it over to the operator for questions and answers.

Operator

(Operator Instructions) The first question comes from the line of Mark Hillman – Jefferies & Co.

Mark Hillman – Jefferies & Co.

A two part question. One is any comment on sequential trends through the quarter? Secondly, just on the cost of goods sold you talked about the initial uptake of the grab and go items. You also delivered another quarter where cost of goods sold this quarter was well below your full year guidance of 26%. I am wondering if you are anticipating an impact of the food mix of the grab and go items entering and kind of being a new procurement category such as bread and proteins into the food mix. Is that part of the pressure that is built into your outlook for the second half of the year or is there something else going on in the COG line?

James White

I would make a couple of points. I will start with talking a little bit about our food performance to date. We are actually very excited about what we are seeing. We launched food in California in June and we have seen improved traffic and average check. So incredibly excited about that as a result. We have also seen improved comps in food stores over non food stores of about 100-300 basis points.

Based on those early successes we have already added food into an additional 100 locations. As I mentioned on the call we will test hot beverages before the end of the year. Your broader question I would say it is too early to tell. We launched food towards the end of Q2 and have been building to the current set of locations. As we move forward we will have more to report as it relates to the COGS line.

I will have Karen just make a couple of comments.

Karen Luey

Regarding the COGS line not specifically related to food. As you recall last year in Q3 2008 that is when we implemented some or a lot of our cost saving initiatives in the COGS line. Therefore you are going to see that improvement start to narrow as we go forward into Q3 and Q4 anyway excluding the impact of food.

Operator

The next question comes from the line of [Alan Dannen] – RBC Capital Markets.

[Alan Dannen] – RBC Capital Markets

You mentioned the comp during the quarter and I was wondering, you spoke a lot about the economy having an impact and I was wondering if the weather had any impact since the beginning of the quarter.

Karen Luey

Yes we did. Like we said in the script, weather was unfavorable this quarter particularly in California where we have the majority of our stores so that was an unfavorable impact to our comparable store sales.

[Alan Dannen] – RBC Capital Markets

Is there any way you can quantify that?

Karen Luey

We think it is around between a 200-400 basis point decrease to comp.

[Alan Dannen] – RBC Capital Markets

Also, as far as the impact on food in the stores is that cumulative oatmeal and flatbreads and ready to go items or is that just the flatbreads and ready to go items?

James White

The comment that I specifically made relates to the recently launched food items and actually excludes oatmeal. If you look at our program in total we are making significant progress with the installment of oatmeal in January. That really helped strengthen our breakfast day part and really the 300 basis point improvement I talked about is exclusive to the 200 stores and the products we launched as a part of the June intro.

[Alan Dannen] – RBC Capital Markets

Is it both company owned and franchise stores?

James White

It is.

[Alan Dannen] – RBC Capital Markets

When do you plan a full rollout of the products? I know you announced Chicago yesterday.

James White

For us we are in approximately300 locations today and we will continue to refine the portfolio of product and we will move out in a very disciplined, methodical fashion but we will extend our food products across the system over the balance of this year.

[Alan Dannen] – RBC Capital Markets

Did you have any licensing revenue during the quarter?

James White

We did not.

Operator

The next question comes from the line of Mark Hillman – Jefferies & Co.

Mark Hillman – Jefferies & Co.

Thanks for the color on the weather impact in the quarter. That was helpful. Also curious did you see any notable regional same store sales differences? Did you see any sequential trend through the quarter or month-to-month through the quarter?

James White

I guess the only point we would make and it is kind of embedded in my comment around food, with our addition of food we saw as we launched food that 100-300 basis point improvement. Again, kind of early on. I wouldn’t call that a trend but that happened in California even in a tough operating environment. Particularly in California we showed significant improvement where we launched food.

Operator

The next question comes from the line of Christopher Donnelly – Pacific Rock Capital.

Christopher Donnelly – Pacific Rock Capital

When we look at consolidated EBITDA for the six month period it has almost doubled versus last year, $5 million to almost close to $11 million for this year’s period. How should we think about the prospects for continued positive EBITDA and what you see in the face of continued soft comps going forward?

Karen Luey

A couple of things. We are squarely focused on making sure we hit a couple of metrics. One is taking off $25 million of store level costs for the year. So we continue to be very pleased with our progress we are making toward that end. The other metric we have said we are very, very pleased with is the goal of reducing G&A to $35 million pre-stock option expense. So we feel very good about the progress we are making on both of those line items. I would say those would be the significant contributors to betterment in the consolidated EBITDA line going forward.

James White

I guess a related comment I would make is around our focus on improving our comp store sales. Obviously tough operating environment but we are as a management team squarely focused on really lifting our comp store sales. Our expansion of food is an indication of our focus. We are intensely focused on delivering more value promotionally to consumers and we will do that in a number of different fashions. Beverage and food bundles, which now with our expanded menu we have many more chances to deliver value that is relevant to consumers. I talked about our June BOGO promotion which was really to drive traffic into the box so we can expose people to the new menu items. We will continue to be very focused on our off-site sales or out of store sales and community outreach programs promotionally. Finally, we are working diligently every day to improve our customer experience and service.

Christopher Donnelly – Pacific Rock Capital

How should we think about some of these non-cash charges in a recurring nature going forward?

Karen Luey

Our policy with respect to store long live assets is the accounting rules say we have to review those every time there is a triggering event. With the economy being as tough as it is, we are required to review them every quarter. With respect to the gain from derivative liability, most of that goes away because the significant portion of warrants that we have outstanding expired in June 2009. Then with respect to the last piece which is the loan fees and the discounts related to the [victory] debt all of that goes away because we paid off the debt in the middle of June.

Christopher Donnelly – Pacific Rock Capital

What was the cash flow from operations in the quarter and free cash flow?

Karen Luey

Cash flow from operations is about $4 million. You will get some more color on that. We are filing the 10Q probably in the next hour. So you will probably be able to pick up free cash flow and cash flow from operations from that.

Operator

The next question comes from the line of Jason Blair – Rockdale.

Jason Blair - Rockdale

I was wondering if you could just walk us through how you are thinking about from a high level the structure of your leases outstanding and also how we should be thinking about the economics of refranchising a store and also finally the performance of the stores based on a regional basis and how you think strategically about the different regions whether they are core or kind of the secondary market?

James White

I guess I would make a couple of points at a high level and then I will ask Karen to kind of fill in a little bit of the color around the financial components we are willing to share. From a portfolio perspective, we have talked about earlier in the year there was a shift from a company perspective from a company store model to a franchise oriented model. For us on a big picture basis it actually takes risk out of the business model for the company. We think it sets us up to grow very differently on a perspective, so that is a point I would make on a high level.

As a part of our recently announced refranchising program we will refranchise about 150 units in primarily outside of what we would describe as our core California markets and New York City is the way I would describe that point. Again, that will reshape the company owned store portfolio down to about 300 locations. Again primarily California based.

Karen would you kind of fill in the color around some of the other details?

Karen Luey

I think your first question was on leases?

Jason Blair - Rockdale

That is correct.

Karen Luey

The way we structure our leases is we normally go for a 5-10 year term with options if we can get them. That is still our policy. What we have done with respect to the refranchise locations is on certain leases we still remain as the tenant and we sublease those locations out to the respective franchisees. I think our development group has made substantial progress in renegotiating a certain number of leases. We have been able to recoup a little bit less than $1 million on a cash basis with respect to the lease concessions and the renegotiations that we have entered into this year.

Jason Blair - Rockdale

Is there a capital cost to you at all for refranchising?

Karen Luey

No there is not.

Operator

The next question comes from the line of Patrick Lin – Primarius Capital.

Patrick Lin – Primarius Capital

You mentioned earlier the mystery shopper and how that has improved some of the metrics and I was wondering if you could give us a little bit more detail about how you go about doing this and how this is being measured in terms of ultimately is there a minimum level? Is there a target level? Are we just looking at specific percentage improvements? The second thing is, I know in the past some of the gift cards have been quite successful and I’m just curious if that is something that is still going to be a focus. Are there variations and do you have any thoughts about that as a driver for revenue?

James White

I would make a couple of comments as it relates to our overall strategy to improve delivery. We have a handful of key measurements as we know that shape a great customer experience at Jamba. We have actually codified those into a very disciplined mystery shop program. Again, we launched this program at the beginning of the year. We have got a baseline set of scores. My reference to the improvement was off of that Q1 baseline. This will be a very, very critical measurement for the general managers in both our company and franchise locations. We have institutionalized the discipline and we fully expect this will drive us back to the legendary customer service that Jamba is known for.

Did I answer your question on that one?

Patrick Lin – Primarius Capital

Sort of. I am still wondering are we measuring that on a scale of 1-10? On a scale of 1-100? Just wondering if you could provide a little bit more color about this for the outsiders to understand how you are measuring things.

James White

We wouldn’t share those details. We view that as proprietary and us really advantaging ourselves from a service perspective in the marketplace.

Patrick Lin – Primarius Capital

Then on the gift card?

James White

We view gift cards as a critical tool that driving both trips and transactions and we have used it successfully in the past and we will continue to.

Operator

I would now like to turn the conference back to Mr. White for any closing comments.

James White

I just want to thank everybody for joining us on the Q2 call. We look forward to our call next quarter and we will have some updates on some of the items that we talked about today. Thank you.

Operator

Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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