Most investors, including us, expected the call to represent the opportunity to get a deeper insight into Jamba Go financials, as this relatively new and interesting growth initiative is finally getting traction, and for a first look into the company's guidance for 2014.
Unfortunately, the main headline resulting from the call is that Jamba Juice is lowering its 2013 guidance for same-store sales and profit margins, citing bad weather and constraints on consumer spending. Blaming the weather didn't please investors, and as a result, the stock price collapsed after hours.
A broken business model?
Nothing like a quick look at two different company's charts can help us visualize how 2013 guidance was changed:
From Jamba's August 2013 analyst presentation
From Jamba's Key Business Initiatives Update
The bad news are come at several levels:
- Company-owned comparable store sales are now expected to be flat, instead of a positive 4-6%;
- Store-level margin are lowered to 16% to 17%, or slightly less than in 2012, instead of an increase to 20%;
- As a result, income from operations is now expected to be just 1% - 2%;
- In addition, Consumer Packaged Goods [CPG] revenues are now anticipated to come at $3 million for 2013, rather than the previously forecasted $4 million to $5 million.
A closer look at some of these data
It may be interesting to put some of these data over a longer time frame, as shown in the following charts:
Store-level margins take a hit in 2013, according to the company's new guidance, but still remain higher than in 2011. Positive-thinking investors may hope the 2013 hiccup is similar to what happened in 2010 - a decline that did not impact a longer term positive trend.
Q3 preliminary same-store sales results indicate a decline of 3.4%, caused by a decrease in company store sales of 5.5% and a weakening in franchise store sales of 1.3%.
This is the first decline recorded by Jamba Juice after 11 positive quarterly numbers.
The CPG number also puts some shadow on the company's ambitious growth forecasted in that area:
From Jamba's August 2013 analyst presentation, corrected to reflect new guidance.
The good news
Among these bad news, a glimmer of light:
Actually for JambaGo, the target is being increased, and we are disclosing today some significant news. As of yesterday, JambaGo express smoothie units are now opening in over 1,000 Target cafés. This partnership represents the largest single expansion of JambaGo and will bring the total units to over 1,800.
The Target win represents an unexpected - and pleasant - development for the platform, which was supposed to be targeting mainly schools, stadiums and event centers, with emphasis on K-12 schools and college campuses.
More interestingly, the financials of this self-serve machine format, which offers pre-blended smoothies and other Jamba-branded items, sound quite appealing:
Reed Alan Anderson - Northland Capital Markets, Research Division
Yes, okay. Were you -- I guess, shifting gears a little bit. I'm just -- were you going to give some more detailed economics on the JambaGo concept?
James D. White - Chairman of the Board, Chief Executive Officer and President
We actually did, I think, in the slides that we reported. But the headline would be -- the big news is the expansion in the 1,000 Target locations. And we provided a piece of that around the profitability on a per unit basis, and it would average on a net profit basis about $2,000 per unit.
From Jamba's August 2013 analyst presentation
Jamba Juice yearly revenues per franchised unit should be in the $25,000 to $30,000 range.
If we consider Jamba Go in terms of "franchised store equivalent", apparently it takes about 12 to 15 self-serve machines to match the opening of a franchise store in terms of revenues to the company. More interestingly, the Jamba GO system seems very scalable, and the company forecasts 1,000 new units in 2014, too (or the equivalent of opening more than 70 franchised units).
Management also increased the number of new international markets where it expects to operate by 2015.
Guidance is now for 7 to 9 markets (instead of 5 to 7), with the potential for international store number being increased from 1,000 to 1,500. For 2014, Jamba expects to add 1 to 2 new markets.
After navigating through the toughest part of its turnaround, the company has hit what we believe is mainly a road bump - although some investors are seeing a brick walls, also following the Q2 revenue miss.
Management has proved to be pretty creative in its initiatives, and Jamba GO sounds like a very interesting growth platform. Assuming the average net profit of about $2,000 per unit is correct, and 2,300 Jamba GO operating on average in 2014 (1,800 installed at year's end plus 1,000 to be opened in 2014), this platform alone should represent about $4.5 million in revenue - mostly profit.
Looking at the company's historical numbers, franchised stores represented just $ 6 million per year in 2099. By adding Jamba GO and CPG (even at a slower than anticipated pace), Jamba succeeded in strengthening the margin rich side of its asset light business model. These numbers, although relatively small, are in our opinion the most interesting metrics to track for a proper understanding of the company's performance.
As we believe that there is a secular trend toward the company's healthy product offering, we remain positive for Jamba's long term prospects, in spite of today's disappointment. Management has shown great skills developing the company's brand, which in our opinion is not yet reflected in the company's share price. In our opinion, a patient investor should look at the company (and its future execution) very seriously.