Jamba, Inc. Q4 2009 Earnings Call Transcript

Mar.10.10 | About: Jamba, Inc. (JMBA)

Jamba, Inc. (NASDAQ:JMBA)

Q4 2009 Earnings Call

March 9, 2010 5:00 pm ET


Karen Luey – SVP & CFO

James White – President & CEO


Danny Quintana – Quintana & Associates

Dan Mendoza [ph] – Prospect and Capital Advisors [ph]

Nicole Miller – Piper Jaffray

Scott Van Winkle – Canaccord Adams

Todd Ammons – Global Capital Partners

Ed Comeau – Four Rivers Capital Management

Michael Demaray – Elevated Capital


Good day, ladies and gentlemen. Welcome to the Jamba’s fourth quarter and fiscal year 2009 earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator instructions)

I would now like to turn the conference over to our host, Senior Vice President and Chief Financial Officer Ms. Karen Luey. Please go ahead, ma’am.

Karen Luey

Thank you, operator, and good afternoon. With me on today’s call is James D. White, our President and CEO. During today’s call we will review our significant accomplishments on our 2009 BLEND plan and full year and fourth quarter results and then we’ll take Q&A.

I like to remind all listeners that this call is being broadcast and recorded live over the internet at jamba.com. The webcast is available on our Web site and replay will be available via telephone until March 30th 2010. This conference call will include forward-looking statements within the meanings of the Securities law.

These forward-looking statements will include discussions about the Company’s strategic priorities and certain statements of our expectation and plan. 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 factors section in our Form 10-K. The Company does not assume any obligation to publicly 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. Since this call covers our Q4 and full year results, I would like to open with a broader look than usual and go into specifics a little later.

At the start of 2009 we said that our turnaround and transformation would be our mission. When I joined Jamba, little over a year ago a lot of people told me Jamba was a wonderful company that had lost its way. They said Jamba didn’t have a sustainable business plan, it didn’t have a clear strategy, it wasn’t disciplined and it definitely hadn’t kept its promises.

What it had was an extraordinarily powerful brand and lots of passionately loyal customers who love the products and everything they embodied. While it was obvious all of these observations were justified. So I knew that Jamba had a lot to do, a limited time to do it and with the great recession in full force a tough environment to work in.

To meet the challenge we laid out a transformative turnaround plan that would focus on three areas. A financial turnaround that would keep the organization stable in the immediate term and set realistic objectives that would be met in year one and beyond.

A strategic turnaround that would create a sustainable business model and we provide a vision and directions for all of our efforts and a functional excellent program that would provide us with the capabilities to execute with excellence and overtime make Jamba best-in-class.

We said the turnaround would be a multi-year undertaking, but we knew we had to make substantial progress in year one. In all three areas so we developed our BLEND plan that identified our annual priorities. And I’m glad to say that we did make significant progress last year across the board.

Financially, we set realistic targets that we have met or exceeded. We eliminated all long-term debt. We introduced a program of financial discipline and cost management that has improved many of our key financial metrics and we installed a culture of continuous improvement that will define our company into the future.

Strategically, we started to move from a made-to-order smoothie company to a healthy active lifestyle company with the broadened menu of food and beverages, with a stream of license consumer products, with a commitment to franchising that will accelerate our growth, and with a push into non-traditional sites such as airports and universities that add both new customers and new geography.

Functionally, we had success in such key areas as marketing, where we launched our largest and most positive effort ever this fall our feel-good campaign. And product development where we launched one of the most successful new products ever, our hot oatmeal, which added both food and a new day part and operations where we introduced new scheduling, new technology and a renewed focus on customer excellence. The list of accomplishments is long and you’ll be hearing more about them as Karen and I go through our reports.

But I can summarize the results by saying that our organization came together in 2009 with focus, discipline, innovation and energy that met some very formidable challenges and they delivered. They delivered results that provide a foundation for what I believe will be another year of excellent progress in Jamba’s turnaround and transformation.

I’ll turn things over to Karen now and then return to provide some detail about 2009 and our plans for 2010.

Karen Luey

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

As James mentioned, we focus this year on the financial turnaround of our business, which included ensuring that we set and met realistic targets for 2009, solidifying our cash position and continuing to focus on ways to reduce and take costs out of the system, both on the store and G&A expense lines.

We have mentioned in our calls that our targets for fiscal 2009 were to take $25 million of store level costs out of the system, primarily, through cost of sales and labor reduction.

In fact, we stated that our cost of sales and labor as a percent of total revenue would be at/or below 26% and 34% respectively. We also said that we would continue to find ways to reduce G&A, excluding share-based compensation to a $35 million level. And we would be very diligent and prudent managing our liquidity and cash position.

These targets were designed to restore our store level margins while solidifying our balance sheet. As a company, we took our commitment seriously and it shows in our full year results. Our consolidated EBITDA line improved by $14.2 million to $8.6 million or 2.9% of total revenue.

For the full-year store level margins improved by 7.7% or $3.2 million to $45.7 million. And as a percent of total revenue store level margins improved by 277 basis points to 15.1%.

The primary drivers of the significant improvement relate to the goals that we committed to in late 2008. Our cost of sales at 24.6% of company store revenue was substantially better than our goal of 26% and we met our labor target of 34%.

We also delivered on our commitment of $35 million of G&A expenses. Excluding stock-based compensation, one-time severance expenses and project cost related to our new sales initiatives, our G&A was 34.8 million. We also improved our balance sheet.

During fiscal 2009, we paid off our entire senior note with the proceeds from the $35 million convertible preferred transaction we completed during the second quarter.

The financial disciplines and cost management that we demonstrated in 2009 will continue throughout 2010, as we remain focused on returning our store level margins closer to historical highs.

Our net loss for the year of 23.9 million improved by 125.3 million over the prior year. Included in the net loss for fiscal 2009 are non-cash charges of $12.6 million related to asset impairment and interest expense of $6.9 million, primarily related to the retirement of our senior note.

I’d like to add a few points on cash. For the full year, we had cash flow from operations of $8.5 million and we refranchised 27 locations for $4.7 million in cash proceeds.

As part of our discipline management of cash, we ensured that our capital expenditures stayed on the low end of our plan, approximately, $10.8 million. And as a result, we had positive free cash flow.

Our capital expenditures were all investments behind revenue growth initiatives and/or cost savings and efficiency initiatives. They consisted of opening two company-owned store locations, investments to launch our food platform, refreshing 88 existing store locations, and investments in our information technology platforms. Available cash at the end of the year increased by $8 million to $28.8 million.

So let me spend a few minutes on the fourth quarter, which as many of you know, is our seasonally toughest quarter. Total revenue for the fourth quarter decreased 9.8% to $50.6 million and company store revenue decreased 9.2% to $49.4 million as compared to the same prior year quarter. Comparable store sales decreased 5.3% for the quarter.

We had some component of food in approximately 328 company stores for the entire quarter, which contributed to our comparable store sales performance. Our average check increased by approximately 390 basis points due to the addition of food and the price increase that was taken during early 2009.

We also estimate that weather negatively impacted our comparable store sales by approximately 340 basis points. However, the traffic declines that we experienced in the first three quarters of 2009 have improved each period throughout the fourth quarter, which can be attributed to our marketing program, such as our feel-good campaign and our $1 oatmeal Wednesdays.

Both designed to drive traffic and awareness for all of our product offerings. We will continue to drive awareness and trial of our food offering and expect that overtime food will be 10% to 15% of our total mix.

During the quarter, we opened one new company store and closed three stores at natural lease expiration. We opened one new franchise location. This brings our store count at the close of the year to 739 stores, with 478 company-owned stores and 261 franchise locations.

As we committed to you at the beginning of the year, we continue to see improvement in our cost of sales. Our fourth quarter cost of sales decreased 12.5% to $12.9 million compared to $14.7 million for the same prior year quarter. This was achieved primarily through our cost saving initiative started in late 2008, which included decreases in commodity costs and continued improvement in our reduction of waste.

The decrease was also attributable to the net decrease of 33 company-owned stores during the year. The 22 stores that we closed at the end of fiscal 2008 also contributed to the decrease. As a percentage of company store revenue, these costs decreased to 26% in the fourth quarter compared to 27% in the same prior year period.

Drivers of the improvement included cost saving initiatives, a shift in product mix and price increases taken during early 2009, partially offset by an increase in cost of sales related to our food offering.

Labor costs decreased 13.4% to $19.7 million and as a percentage of company-store revenue decreased to 39.8% compared to 41.7% in the same period last year. The decrease as a percentage of company store revenue is due primarily to our continued optimization of labor, adjustment to bonuses and food offering, which requires less labor partially offset by the decrease in comparable store sales. The decrease is also attributable to the decrease in number of company stores. We will continue to review and implement initiatives to further reduce labor costs in 2010.

Occupancy cost decreased 4.3% to $9.8 million, due primarily to the decreased number of company stores. As a percentage of company store revenue occupancy cost increased to 19.9% compared to 18.8% in the same period of the prior year. This increase as a percentage of company store revenue was primarily due to the deleveraged impact of fixed costs over lower sales.

Store operating expenses increased 7.7% to $9.1 million, and as a percentage of company store revenue, increased to 18.3% compared to 15.5% for the same period of the prior year.

Starting in the fourth quarter, we start to lack the benefits of all of the cost savings initiatives and the implementation of controls that was completed in late 2008. We increased our marketing expense 123% to $2.1 million to drive traffic and awareness through our feel-good marketing program. This was partially offset by the decreased number of company-owned stores. We have additional initiatives that are planned for 2010 to take further costs out of store operating expenses.

Depreciation and amortization decreased 28.1% to $3.9 million for the fourth quarter and as a percentage of total revenue decreased to 7.7% compared to 9.6% in the same period of the prior year. The decrease in depreciation expense was due to the decrease in total number of company stores and the non-cash impairment charges recorded during 2008 and 2009.

We reduced G&A by 23.4% for the quarter to $8.3 million. As a percentage of total revenue, G&A decreased to 16.4% for the fourth quarter of fiscal 2009, a 300 basis point improvement over the prior year. The decrease is primarily due to reduction in payroll and payroll-related expenses resulting from headcount reductions implemented in 2008, bonus payouts, professional fees, travel and entertainment and consulting services. We will continue to closely monitor our G&A expenses.

For the fourth quarter, interest expense decreased to essentially zero from $1.4 million in the same period of the prior year. During the second quarter of fiscal 2009, we paid off our senior note, which we entered into during the third quarter of 2008, leaving us with an improved balance sheet and no debt.

Other key items included a decrease in store lease termination cost of $6.7 million and included in other operating is a gain of $2.4 million from our refranchising initiative.

We recorded non-cash impairment expenses relating to store impairment of $1.5 million for the quarter compared to $14.6 million for the same period of the prior year.

We had no gain or loss on derivatives as the underlying warrants expired in June 2009 as compared to a non-cash gain from derivative liabilities of $0.3 million for the prior year’s same quarter.

For the full year, our tax rate is a benefit of 4.2% due to a reduction in reserves and we continue to have a full valuation allowance against our deferred tax asset.

We continue to exhibit quarterly improvement on our consolidated EBITDA line. Our fourth quarter consolidated EBITDA improved by $2.1 million to a loss of $9.1 million. And our quarterly net loss improved by $29.8 million to a net loss of $11.4 million for the quarter.

Like to give you a few metrics on our current liquidity position. At the end of the year, we had $28.8 million in cash and cash equivalents, no debt on the book and our restricted cash balance was $2.7 million. Subsequent to year-end we refranchised an additional 20 stores, bringing our total number of refranchised units to 47. This will further increase our cash balances.

Our capital expenditures for fiscal 2010 are estimated at between $9 million and $11 million and will be used for sales driving initiatives, our store refresh program and information technology system enhancements and upgrades.

James will remind you of our overall company outlook. For those of you building a financial model I’d like to give you a way to think about revenues. We ended the year with 478 company-owned stores with average unit volume of approximately $600,000.

If you assume we complete our refranchising plan equally over the next three quarters, we average approximately 400 stores for the whole year, which would provide you a corporate store revenue number. You would then have to add your estimates for franchise royalties and CPG license royalties to get to total revenue.

So despite the challenging environment that we faced in 2009, our organization delivered on our financial commitments to improve margins by reducing store level costs, we strengthened our balance sheet by eliminating all debt and we reduced our G&A expenses.

In addition, we’re developing a core competency in cost and expense management that will be a key part of our foundation for another year of progress on our transformation.

With that said, I’d like to turn the call back to James.

James White

Thanks, Karen. Our BLEND plan saw us through a tough economic environment last year and our achievements provide a solid foundation for a turnaround and transformation.

The key drivers of the revitalization are a disciplined effort on expense reduction and store level cost savings, a commitment to customer first operationally focus service culture system wide, implementation of a food capability across day parts, development and execution of a multi-category consumer products licensing platform and a solid franchise development program to grow our brand presence.

Karen has pointed out the progress we’re making on cost management and productivity gains. The key metrics all show improvement and we will continue to drive hard on those improvements throughout 2010.

I would like to spend the balance of the call providing additional context for our Q4 and annual results, recent progress on some initiative we started in 2009 and our outlook for 2010. I’ll start with our customer first initiative.

Our Mystery Shop program to strengthen our culture of service showed significant improvement throughout the year. This resulted in part from our system wide customer excellence training program. Our goal is to deliver well service every time and we’re well on our way.

We also completed 88 store refresh projects that upgraded the look and feel of the stores to be more reflective of the fun, uplifting and vibrant culture of Jamba and we just announced the debut of our Jamba Catering program. This sales driving initiative launched in over 500 of our locations.

Jamba Catering provides businesses, schools, event planners and community organizations options to cater a full menu of Jamba better for you and great tasting products.

We will continue to find ways to broaden our reach as a brand within the local community we serve and to expand our menu offerings outside of our stores with the goal of driving awareness and increasing traffic in sales at the local store level.

Moving to food, we are very pleased with our progress. We have launched some component of food in over 370 stores system wide. Consumer response has been very positive. 95% of those who purchase food, say, they plan to do so again.

Our successful implementation demonstrates our operational capacity to expand our menu offerings. Our attachment rate is about 10%. This will grow as we enhance our platform with new better-for-you offerings across all day parts and more stores.

We expanded our hot oatmeal offering adding a new limited time holiday topping, which was a best seller. Hot oatmeal is now available in over 600 stores. We know given the current economic climate that consumers are seeking out options that deliver the best value.

And we’ve learned over the past two quarters that promotional campaigns like our feel-good campaign and our recent dollar oatmeal Wednesday really resonate with consumers.

In fact the dollar oatmeal Wednesday was hugely successful resulting in the creation of a new Wednesday Jamba breakfast occasion for new and existing customers.

You can expect to see us leverage this learning, starting in the spring with the launch of our ongoing promotional program which is designed to build new occasions and bring in new customers throughout the week.

Our hot beverages, which we tested in October in 40 stores will be available in almost 400 stores by April of 2010. We believe hot beverages will help address seasonality by driving customer traffic year round. Our products deliver a unique, compelling customer experience that will help us break through in this highly competitive category.

To sum up, food is an exciting and promising area for Jamba is transformative. It’s an important part of our broad strategy to become a healthy active life style brand.

Let’s move to franchising. As part of our BLEND program, we’ve focused on driving franchise development and we’ve made good progress in 2009. We completed the sale of 27 company-owned stores, including eight stores in California during Q4.

In February, we announced agreements to refranchise an additional 20 stores to new franchise partners. This is a milestone accomplishment for us. 47 stores or almost one-third of our goal has been achieved.

We expect to meet our refranchising target, which is to sell up to 150 company-owned stores by the close of 2010 and we expect this momentum to continue through the spring.

Over the course of 2009, we also expanded our brand presence across the country with the opening of two new company stores, 23 franchise stores, including three additional airport locations and 11 very important campus locations.

Towards the end of 2009, we entered into an agreement with Centerplate, the hospitality partner to premier convention centers and sports day in the (inaudible) North America.

This relationship gives Jamba the potential to access more than 250 new venues, exponentially increasing our brand presence and providing the opportunity to introduce thousands of new fans to our food and beverage products across the country.

Overall, our franchise development strategy is working. It is positioning Jamba for a significant growth. It promises to increase our brand presence and market share. And it also will improve our overall margin by reducing our capital outlay.

Another important area is our brand extensions through licensing, which accelerated in Q4. We believe licensing broadens the opportunity for consumers to engage with our brand beyond the in-store experience. It puts us in front of consumers in multiple challenges, math, club and grocery.

Our Costco gift card pack was initially launched in 120 locations and later expanded to 200 locations. It performed even better than anticipated. As mentioned, our Jamba-branded blended for kids was introduced at Toys”R”Us. That's close to 600 stores as well as online presence and at our Jamba locations. It was a great partnership for both Toys”R”Us and Jamba experiencing significant positive consumer response to the product.

It’s too early to comment on the results for the blender, but we expect our licensing product royalties to become more material to the company as the year unfolds.

In Q4, we signed two additional license agreements. One with headline entertainment to sell Jamba branded apparel online as well as in-store at Jamba locations and other retailers.

The other is with Johnvince Foods for Jamba branded trail mix in very distinct and proprietary blends. We expect these to be in stores this spring. We recently announced the launch of our smoothie kits and frozen novelties into retail. These products are superb. They are two of the most natural extensions of our brand. And I’m thrilled with the product development outcome.

Our partners at Oregon Ice Cream and Inventure have done an outstanding job working with us and creating two innovative and unique healthy active lifestyle consumer branded products. And we expect these two branded products to become available in the March to May timeframe in several thousand retail outlets.

And just recently we signed a memorandum of intent with Core-Mark and are exploring a three-year relationship that could provide Jamba the access to more than 20,000 convenient store outlets serviced by Core-Mart for distribution of Jamba branded products. This is an opportunity to exponentially broaden our consumer reach.

It’s a growth vehicle for our consumer product initiative, as Jamba branded products become available for retail sale this distribution, relationship with Core-Mart growth in significance and importance.

We believe licensing has the potential for significant growth. We expect with the launch of our branded products to introduce the Jamba brand to whole new set of fans across the country where we don’t presently have Jamba stores. We will continue to explore a number of opportunities in other categories.

There are three other programs that I’m excited to share with you. I think they represent milestones in Jamba’s history. First is our 2009 alliance with the National Parent Teachers Association. We will work together with the National PTA to create programs that promote and reinforce the importance of healthy active lifestyles. A fund raising component of this alliance will be a Jamba branded school appreciation program that will help to raise up to $1 million.

We have already signed up almost 1500 schools in our program and are excited about the opportunity to further leverage and drive this relationship in support of creating healthier students in schools.

In conjunction with this initiative, we also recently announced our school lunch program, which we designed to help schools offer their students better-for-you beverage alternatives like our all fruit smoothie line at reduced and fixed prices.

The second is our feel-good marketing program which I noted was the most successful and comprehensive effort to date. We will leverage feel-good element in future marketing campaigns and events.

The third is an area I’m particularly passionate about. And that is our healthy communities, healthy schools commitment. We will continue to seek out opportunities like our recently announced support of the let’s-move campaign to actively engage our brand and company in addressing health issues facing our nation’s youth like childhood obesity.

We have a nationally recognized brand that makes people feel good and inspires healthy living. We will continue to support innovative programs like Jamba Jump Day that promotes health, wellness and activity among students and youth nationwide.

We will continue to work to provide water opportunities to activate students in schools to become more nutritionally educated and to change the way we think and live to become healthier and more active.

We intend through participation in national organizations like the National PTA, let’s-move, and the launch of our school lunch program to become recognized as a leader in health and wellness solution, and we will leverage the spirit, energy and innovation of our team members in that endeavor.

To conclude on our results for 2009, we performed well despite the challenging economic environment. We delivered quarterly improvements in our consolidated EBITDA line, store margins and cost of goods. We strengthened our balance sheet by paying off all long-term debt. We developed a core competency in the cost and expense management area.

We improved our store level margins and reduced G&A. This diligence is now a central part of Jamba’s business management. We accelerated the performance of our food initiatives led by Oatmeal. Followed shortly by the launch of our Grab-n-Go menu and California flatbreads and fruit infused teas and rounded out with a successful test of hot beverages.

We will continue to innovate, optimize and expand our food and beverage platforms across all day parts. We significantly advance our licensing initiative and we roll out several license products nationally in 2010.

We have expanded our brand presence through franchising and have significantly moved the ball on our refranchising efforts.

Before I move on to review the outlook for 2010, I would like to cover an important announcement about changes to our board. Three of our board members terms end at the 2010 annual shareholders meeting and will not continue on as board members.

Our Chairman and Director, Steve Berrard and two of our Board of Directors, Tom Byrne and Ramon Martin-Busutil. The Board feels confident that we have a right strategic direction and a solid executive team and a strong capable leader and CEO at the helm. Steve feels he has left the company in the right hand and he can step down with confidence that his work is done. And this confidence is reflected in the decision to name me as Chairman.

I want to thank Steve, Tom and Ramon for their service to Jamba, especially for the leadership they provided in 2008 when the board stepped in to take control of the Company and their continued support and guidance throughout 2009. Their service was invaluable. They helped set our strategy and put us on a path towards success.

I see this transition as another vote of confidence in our leadership and our ability to build this company into a leading healthy active lifestyle brand. It is recognition of our accomplishments and our capabilities.

And now let me move onto our guidance and outlook for 2010. While we anticipate the challenging economic environment will continue, we are committed to delivering aggressive, but achievable targets.

We plan to deliver positive comparable store sales, further reduce G&A by 10% to 12% excluding share-based compensation, deliver consolidated EBITDA of 5% to 7%, deliver store level EBITDA of 15% to 17%, add 30 to 50 franchise stores, complete the refranchising of up to 150 company-owned stores, expand into one major international market and execute additional license agreements in relevant categories.

As I said at the outset I’m very pleased with Jamba’s accomplishments during 2009. When I joined Jamba a little more than a year ago, I said that promises made by me and the new management team would be promises kept.

We had to stabilize Jamba’s financial position, develop a new strategy that would transform Jamba and create a sustainable business model for advantage growth, fill critical management position and make substantial progress on our key priorities. Success in each of these areas has laid the foundation on which we will be building this year.

With our exceptional brand franchise, our focused strategy, and a disciplined organization, we are confident about our future.

Before I conclude, I would like to welcome our new franchise partners into the Jamba system. We are very glad to have you on board. I would also like to thank the Jamba team members across the system for their hard work and dedication to transform our brand.

And now, I will turn the call back over to the operator and open up for questions.

Question-and-Answer Session


(Operator instructions) Our first question comes from the line of Danny Quintana with Quintana & Associates. Please go ahead.

Danny Quintana – Quintana & Associates

Yes, obesity is such a nationally huge problem, no pun intended. I think that the initiative you guys are taking in moving the company towards a healthy lifestyle is something that will really pan out and provide just great market opportunities. Are you guys going to go after the Chinese or European markets eventually? And what are you going to do to work it more directly with the nation in dealing with the weight problems that our country is facing which are a critical element to reducing healthcare costs?

James White

Danny, thanks for the question. We’re squarely focused organizationally of really providing a significant solution to the health and wellness problem. We think we really sitting a great place to provide solutions for youths, especially with our relationship with the PTA, which puts us in front of thousands of schools and children and families. So we view that as a critical part of our go-forward strategy.

We recently participated in Jamba Jump Day to get folks very active. We had 88,000 people to participate in the Jamba Jump Day. Again, those are a couple of examples that we think significantly position the company in this brand of be at the forefront of the solution. As bad things are being pulled out of the nation’s schools, Jamba is actually well-positioned to fill a void from that perspective.

As it relates to our international development, really more to come there. We’ve done a complete analysis of the opportunities internationally and we’re not at a position today to disclose the markets, but we have taken an exhaustive look at the marketplace and as I said in my outlook for the year, we fully plan to close one international market in 2010.

Danny Quintana – Quintana & Associates

Thank you.

James White

Thank you.


Thank you. (Operator instructions) And our next question comes from the line of Dan Mendoza [ph] with Prospect and Capital Advisors [ph]. Please go ahead.

Dan Mendoza – Prospect and Capital Advisors

Hi, James and Karen. There’s obviously been a lot of exciting initiatives announced in the last quarter and so far this year. Can you help us get provide a little bit more color on kind of which ones are more likely to impact the results in the short run and which ones might take a little bit while longer to develop?

James White

So, Dan, we highlight a couple of the critical initiatives that we think impact the short run. The learnings coming out of the feel-good campaign, our dollar Oatmeal Wednesdays are really a combination of those two things, are allowing us to really drive traffic into the stores and we’ve seen a significant improvement as we’ve delivered more value to consumers. So, you can expect that we will continue to drive those kinds of initiatives, drive traffic, which we think supports our overall agenda to drive comp store sales.

That, combined with the work that we’ve done on food and hot beverages, deliver immediate impact in terms of the short-term. In terms of the longer-term view, the relationships that we’ve announced with Centerplate to take us into new venues from a brand presence perspective, convention centers and stadiums is a longer-term play that will start to show results in 2010, but as a longer-term play that puts the brand into new venues.

As it relates to our consumer products agenda, the recently announced relationship with Core-Mart to drive our consumer packaged goods up to 20,000 C stores will have some immediate impact in 2010, but it’s also a longer-term play.

Dan Mendoza – Prospect and Capital Advisors

Okay, that’s helpful. And then kind of the one follow-up question. Can you just give a little bit of color on how we should think about comps as the year unfolds? You’ve obviously got easier comps in the first half of the year although we’ve had some bad weather. So maybe you can comment on the weather impact in the first quarter also.

James White

We’ve stated simply our quarterly splits are pretty predictable if you step back and look at the historical splits by quarter for Jamba and I think the way to think about it is the overall performance will be bigger and better as we look at the 2010 results. We will deliver positive comps and you’ll see us deliver against the financial metrics that we outline annually. We don’t break it for the quarter but the way to think about it is will deliver bigger and better performance as we play across each of the quarters in 2010.

Karen Luey

Dan, as you think about it, one of the comments that we made in the prepared remarks is the fact that we see our traffic declines improving period over period in Q4 and we see that continuing into Q1 based on the traffic driving initiatives that James mentioned earlier.

Dan Mendoza – Prospect and Capital Advisors

Okay, that’s helpful, thank you.

James White

Great, thanks, Dan.


Thank you. And our next question comes from the line of Nicole Miller with Piper Jaffray. Please go ahead.

Nicole Miller – Piper Jaffray

Good afternoon.

James White

Good afternoon, Nicole.

Karen Luey

Hi, Nicole.

Nicole Miller – Piper Jaffray

Hi, two questions. First, looking at the CPG side of your business, how much royalties do you think you can generate in the next five years? And then as a follow-up is coffee something you consider for the pipeline for this year?

James White

So I would make two points and answer your consumer products question first. We will see the first royalty screen from our consumer products efforts this year and you’ll see that become material as we move into the out years but the point I would make, we now have the novelty products are in major retailers like Safeway, as of earlier this week, so the pipeline that we’ve talked about is starting to materialize and you’ll see the novelty products and the smoothie kids in thousands of locations over the course of the next several months.

We’re not prepared to describe what the exact numbers will be for 2010, but you’ll see us have a royalty extreme that it delivered in 2010 becomes material to us as we move to 2011 we think.

As it relates to our high-blended beverages, we’re incredibly excited about the tea platform that we launched. And really there are two important aspects of that program. We leveraged the blender which we think is unique to Jamba and we deliver all organic platform and there’s no player in the marketplace of our scale that will have that kind of platform in 400 stores.

As it relates to the contemplation of coffee we’re looking at hot blended beverages. I would have you just to think about what our history was a year ago and just know that’s probably on the horizon for the Company at least to think about. We won’t add any additional beverages if we can’t deliver a relevant and unique Jamba twist to the delivery.

Nicole Miller – Piper Jaffray

Thanks and congrats and good luck.

James White

Thanks, Nicole.


Thank you. And our next question comes from the line of Scott Van Winkle with Canaccord Adams. Please go ahead.

Scott Van Winkle – Canaccord Adams

Hi, congrats on the progress. Couple of quick questions. First is you accelerate into the refranchising efforts this year, the actual execution, are there any immediate financial impacts other than the change and obviously how it flows through? The day it occurs is there a financial impact that we can consider as it becomes a bigger piece this year?

Karen Luey

Hi, Scott, this is Karen. I think the things to think about with respect to refranchising is the fact that it accelerates our growth in the franchise arena as well as it accelerates the growth of the brand across the domestic United States. With respect to the financials, what it does add right away to the balance sheet is it does add cash to the balance sheet, which we could use to deploy into various other initiatives that we have going on here. Sales driving initiatives. That will be one point.

The other point would be from a P&L perspective, as we said in our prepared remarks, if you anticipate that one-third of each of these trends, the remaining stores will be sold in each quarter, you can compute the impact to revenue based on the 400 store location estimate that we’d average for the entire year.

Scott Van Winkle – Canaccord Adams

I was just thinking of anything that’s going to happen. If you get a big number in one quarter is there something we should watch out for? And with the licensed deals, obviously, the timing of launch becomes the challenge and when you forecast royalties, is there any delay in the receipt of royalties to cover start-up costs. If you have something that’s meaningful that starts on July 1, is royalty being calculated or do you have to kind of help cover some of the initial start-up costs and hold back on the royalty receipt until some certain point or some volume level?

Karen Luey

So Scott, to answer the question from the licensing perspective, all of ours are pure licensing arrangements, therefore, there are no start-up costs that the Company needs to incur. So, we will start recognizing revenue as soon as the retailer sells through to the consumers.

Scott Van Winkle – Canaccord Adams

Great, thank you much.

Karen Luey

Okay. Thanks, Scott.

James White

Thanks, Scott.


Thank you. And our next question comes from the line of Todd Ammons with Global Capital Partners. Please go ahead.

Todd Ammons – Global Capital Partners

Hi, two questions for you. First, was there any differentiation in comps across the geographies and so could you help us with that? And then secondly on a different note can you give us an update on the availability of franchise smoothie and the grocery store? Thank you.

James White

In terms of branded smoothie kits I want to make sure I understand your question.

Todd Ammons – Global Capital Partners

I was thinking more in terms of the progress that you have ongoing with Nestle in terms of bringing a smoothie actually into the store.

James White

Yes, I would make two points as it relates to the Nestle relationship. The relationship continues to be a strong one. As I’ve talked about over the last several quarters, we continue to make progress in the commercialization of beverage item. The point I’d make is it won’t necessarily be a smoothie offering going forward, but there are a number of concepts that we’re both very excited about and you can expect to hear about significant progress in that relationship as it gets to the back half of 2010 and that’s we’ve talked about for the last couple quarters.

The only other point I’d make to underscore the Nestle relationship. As it relates to larger partners, those are going to take a little bit longer in terms of development, but on the other end, the commercialized products are going to have much greater potential upside for the company. So we’re willing to make that weight in the investment in time.

Karen Luey

And Todd to answer your question about geographical comps they were pretty consistent across the domestic United States.

Todd Ammons – Global Capital Partners

Great, thank you.

Karen Luey

You’re welcome.

James White

Thanks, Todd.


Thank you. (Operator instructions) And our next question comes from the line of Ed Comeau with Four Rivers Capital Management. Please go ahead.

Ed Comeau – Four Rivers Capital Management

Just a follow-up question on comp sales. Do you anticipate that the improvement in comps to get the positive will occur, let’s say this quarter, and kind of stay steady through the year or is it something that builds or can you give us a little bit more color on when you would turn positive? And then secondly on the traffic, I think you commented that the traffic would be less and negative. At what point would you hope the traffic turns positive and do you have an objective to traffic in 2010?

James White

We feel good about the trends. We think the trends will be impacted in Q1 by our launch of hot blends and foods. We think both of those will have a positive impact. The test that we’ve been running around our value menu ideas related to oatmeal has been very encouraging, but we’re not at a place where we call what the quarter will be. The statement we’d make is that we’re confident that we’ll turn positive in 2010, which is what we’ve signaled in our prepared remarks.

Karen Luey

Ed, the other thing that we contribute to our comps would be the catering press release. We put out a press release on our catering progress yesterday so we’re rolling out catering in all of our store locations across California.

James White

So I think what we’d say is we’ve said the critical initiatives in place that would give us a great chance to turn the comps positive. How that plays out in Q1 given the just awful weather that many folks have already reported for the early part of this quarter we won’t call that, but we think we’ve got the right elements in place to drive positive comps in 2010.

Ed Comeau – Four Rivers Capital Management

I don’t mean to drill down too much on it, but just to clarify, is it that you would anticipate the comps would turn positive sometime in 2010 or are you forecasting positive comps for the entire year? Doesn’t have to be the first quarter but when the whole year is completed –.

James White

We will conclude the year with positive comps.

Ed Comeau – Four Rivers Capital Management

And then any comments on traffic or objectives for traffic?

James White

We haven’t stated an objective for traffic, but the one perspective I share with you, we don’t see any easing in the operating environment. We think it’s still incredibly difficult. We learned a lot in Q4 and early Q1. And you’ll see us sharpen our value offering. We gained a lot of incredible learning with the dollar oatmeal that we ran for about seven weeks and the incremental traffic that we drove on Wednesdays has allowed us to create Jamba event, especially, as we’ve added our hot blended beverages.

We’ve added a breakfast day part event and you can expect that we will replicate that kind of value deliver, which we think will also have a significantly positive impact on traffic really across day parts and days.

Ed Comeau – Four Rivers Capital Management

All right, fair enough, thank you.

James White

Thank you.


Thank you. And our next question comes from the line of Michael Demaray with Elevated Capital. Please go ahead.

Michael Demaray – Elevated Capital

Good afternoon. Question on the EBITDA margin objective for 2010, do you see that is a transitional target or more of a long-term target.

James White

We make two points. We view the 2010 EBITDA margins as a transition, if you’re talking about store level margins. Our historical margins were as high as 20 and that’s really what we’re focused on getting to in the longer-term. So the 15% to 70% store level margins are really a near-term 2010 transition and really our ambition and what the team is squarely focused on is getting back to 20% margins at the store level.

Michael Demaray – Elevated Capital

And then on the consolidated basis?

James White

If you think about the flow through that’s going to be really the same story.

Michael Demaray – Elevated Capital

Okay, thank you.

James White

All right.

Karen Luey



Thank you. And Mr. White, there are no further questions at this time.

Please continue with any closing remarks you may have.

James White

I close by saying Jamba is well-positioned for future growth and we’re squarely focused on delivering on the 2010 outlook that we provided. Thanks and we’ll look forward to spending time with you on the Q1 call later this year.


Ladies and gentlemen, this concludes the Jamba Incorporated fourth quarter 2009 earnings conference call. Thank you for your participation. You may now disconnect.

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