Jamba Inc. F1Q10 (Qtr End 04/20/2010) Earnings Call Transcript

May.26.10 | About: Jamba, Inc. (JMBA)

Jamba Inc. (NASDAQ:JMBA)

F1Q10 Earnings Call

May 26, 2010 5:00 pm ET

Executives

Karen Luey – SVP & CFO

James White – President & CEO

Analysts

Jeff Farmer – Jefferies & Company

Greg McKinley – Dougherty and Co.

Ed Comeau – Four Rivers Capital Management

Michael Demaray – Elevated Capital

Buzz Zaino – Royce & Associates

Operator

Welcome to the Jamba’s first quarter 2010 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Ms. Karen Luey, Senior Vice President and Chief Financial Officer. Please go ahead, ma’am.

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 first quarter financial results. James will follow with an update on our 2010 progress against plans. 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 a replay will be available via telephone until June 16, 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 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 factors section in our Form 10-Q. 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. Welcome to our first quarter conference call. Jamba had several key objectives for 2010 and I am pleased to say today that our first quarter performance puts us on track to meet them.

The turnaround momentum we achieved last year continued in our first quarter and is accelerating as we enter the second quarter. We are on target with our strategies and I am especially pleased with the sequential quarter-over-quarter improvement in our comparable sales and store traffic improvement which came in spite of negative weather impact. Among the drivers of this gain is our expanded food menu, our new hot beverages and our value menu offering.

While Q1 EBITDA at the corporate and store levels was lower than a year ago it is important to note two things. First, one factor was our increased marketing investment which will be an important contributor to growth as we move through the year. Second, we reduced our net loss by almost $5 million versus a year ago. We expect we will continue to face the challenges of slow economic growth and high unemployment but we feel very good about our fundamentals; our new business model, our growth drivers, our culture of discipline and continuous improvement and the transformative vision that guides us.

We are on our way to change Jamba from a made-to-order smoothie company to a healthy active lifestyle company. Our strategies are sound, our focus is sharp and we have strengthened and added depth to our management team which gives us even greater executional firepower.

With that brief overview I will now ask Karen to take us through the financials and then I will return to provide details about our strategic initiatives and accomplishments.

Karen Luey

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

We continue to be very focused on delivering against our BLEND Plan initiative announced in early 2009 and the targets that we set for 2010. Just to remind you the full-year financial targets are; to deliver a positive comparable store sales for 2010, to achieve store level EBITDA margins at 15-17% and consolidated margins at 5-7% of revenue and to reduce G&A by 10-12%.

Our results for the first quarter are consistent with our plan for the year and at this time we remain confident in our full-year outlook. One of our key commitments for this year is the completion of our refranchise initiative which will facilitate the repositioning of our business model and accelerate the growth of Jamba as a healthy, active lifestyle brand. Since the inception of the initiative through the first quarter of 2010 we refranchised 47 locations which will have an impact on comparisons to the prior year.

As part of our discussion today I will be reviewing actual results as well as adjusted results that shows the impact refranchising had for the current and prior year quarter store and consolidated EBITDA results. Our refranchising initiative plays a significant role in our strategic turnaround and acceleration of our growth. As we move through the transition to become a more franchised organization it will impact our business model in multiple places. We have increased cash on the balance sheet that allows us to continue to right-size our general and administrative structure and during the transition quarters it will impact our income statement.

Our actual store level margins decreased by $2.4 million to $9.7 million. After adjusting for the impact of our refranchising initiative store level margins decreased by $1.4 million. The decrease is due primarily to marketing investments made to introduce new products such as our hot blends and new food offerings and to increase our brand awareness. Adjusted store level margins before marketing investments would have been 14.8% for the quarter compared to 14.7% in the prior year. Our actual consolidated EBITDA results for the first quarter decreased by $1.6 million to negative $1.2 million. After adjusting for the impact of refranchising the decrease is $600,000.

One of the factors in the improvement is the reduction in our general and administrative costs as we continue to right-size our organization. Our refranchising initiative has also strengthened our balance sheet. Net cash proceeds from refranchising totaled $9.2 million through the end of the first quarter. We continue to make progress on narrowing our net loss. For the quarter our net loss improved by $4.9 million to a loss of $5.3 million as compared to a loss of $10.2 million in the first quarter of 2009.

Our comparable store sales improved by 200 basis points on a sequential basis over the fourth quarter of 2009 to a decrease of 3.3%. Adjusted for weather, comparable store sales decreased approximately 1.2%. In addition, as we noted on our year-end call our traffic continued to improve on a sequential basis. We see this trend continuing into the second quarter.

As we also mentioned on our year-end call we started to increase our marketing investments with the intent to drive traffic but also to educate our customers about the expansion of our food and beverage platforms including our better-for-you food offering across all day parts and our hot blended beverages. We will continue this level of marketing investment spend throughout the year to ensure that our brand message is delivered and to continue to drive the trial and awareness of our new product offerings.

With respect to our cash position we ended the quarter with $29.2 million in available cash. During the quarter we refranchised 20 locations for $5 million in cash proceeds. Our capital expenditures for the quarter were $2.5 million related to; the opening of one company-owned store location, the remodel of two of our key stores, investments in our Hot Blends initiative and investments in our information technology platforms. As we substantially complete our refranchising initiative this year and generate positive EBITDA we expect our cash balances to increase.

Total revenue for the first quarter decreased 9.5% to $80.4 million and company store revenue decreased 9.8% to $78.5 million as compared to the same prior-year quarter. For the quarter our refranchising initiative impacted company store revenue by $7.1 million. The components of comparable store sales include an increase in our average check of approximately 640 basis points due to the addition of food and the price increase that was taken during the first half of 2009. We will anniversary that price increase in the second quarter. We also estimate that weather negatively impacted our comparable store sales by approximately 210 basis points.

As discussed previously our traffic continues to improve on a sequential basis which we attribute to our marketing programs such as our Feel Good campaign, local offerings and $1 Oatmeal Wednesdays, all designed to make the consumer feel good and drive traffic and awareness for all of our product offerings. Our $1 Oatmeal Wednesday value promotion drove significant traffic into our stores. For example, on average all of our New York City stores sold between 200-300 units on Wednesdays during the promotion and the attachment rate to a beverage was approximately 35%, significantly higher than our current average rate of approximately 10%.

Late in the first quarter we announced our anniversary campaign with everyday feel good specials designed to entice our customers with special value offerings and keep them coming back throughout the week. Our franchise and other revenue increased by 10.7% to $2 million compared to $1.9 million from the prior-year quarter. The increase was due to the increase in royalties related to the increase in the number of franchise stores partially offset by reimbursements in the prior year that did not occur in 2010.

We have started to recognize revenue from our frozen novelty bars and frozen smoothie kits which hit retail shelves late in the first quarter. The revenue recognized is not significant this quarter but as we have indicated in the past it should become a significant contributor to consolidated EBITDA over time. We are extremely pleased with our progress as our consumer packaged goods pipeline continues to build.

During the quarter we opened one new company store, refranchised 20 locations and closed one store at natural lease expiration. We opened 7 new franchise locations in non-traditional venues. This brings our store count at the end of the quarter to 745 stores with 458 company-owned stores and 287 franchise locations.

Our cost of sales for the first quarter decreased 9.9% to $19.1 million compared to $21.2 million for the same prior-year quarter. This was achieved primarily through our cost saving initiatives implemented in 2009 and the decrease in the number of company-owned stores partially offset by the cost of our food offerings. As a percentage of company store revenue these costs were 24.4%, flat compared to the first quarter of 2009.

Labor costs decreased 13.3% to $27.7 million and as a percentage of company store revenue decreased to 35.3% compared to 36.7% in the same period last year. We will continue to optimize our labor through efficient labor management even in a de-leverage environment. We will continue review and implement initiatives to further reduce labor costs in 2010.

Occupancy costs decreased 5.7% to $13 million due primarily to the decreased number of company stores. As a percentage of company store revenue occupancy costs increased to 16.5% compared to 15.8% 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 lower sales. Store operating expenses increased 11.4% to $11 million and as a percentage of company store revenue increased to 14% compared to 11.3% for the same period of the prior year.

Our marketing spend increased 139% to $2 million or 2.6% from 1% of total revenues to drive traffic and awareness to our Feel Good marketing program and to promote new offerings such as our Hot Blended beverages and the five-fruit frenzy smoothie. Our marketing spend helped drive our continued improvement in traffic. Depreciation and amortization decreased 19.2% to $4.9 million for the first quarter and as a percentage of total revenue decreased to 6.1% compared to 6.9% 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 2009.

We reduced G&A by 7.2% for the quarter to $10.9 million. The decrease is due primarily to reductions in payroll and payroll related expenses from headcount reductions in 2009 and from our refranchising initiative, bonus payouts, professional fees, travel and entertainment and consulting services. We continue to closely monitor our G&A expenses. For the first quarter of 2010 as a percentage of total revenue, G&A increased to 13.5% as compared to 13.2% in the prior year.

For the first quarter interest expense decreased to $200,000 from $1.8 million in the same period of the prior year. During the second quarter of fiscal 2009 we paid off our senior notes. We recorded $800,000 related to cash dividends on the $35 million convertible preferred transaction we entered into during June of 2009. The dividend rate is 8% and as the preferred shareholders convert into common shares the cash dividend outflow will be reduced accordingly. For the first quarter the impact of the converted shares on our common stock outstanding created an additional 1.3 million shares on a weighted average basis. For those of you modeling the business on a fully converted basis assuming all of the preferred shares are converted into common stock we would have approximately 84 million shares outstanding.

We recorded non-cash impairment expenses related to store impairments of $200,000 for the quarter compared to $3 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 $200,000 for the prior year same quarter. Included in other operating expense are store lease termination costs of $300,000 and a gain of $1.6 million from our refranchising initiative.

For the full-year our effective tax rate is 0.3% and we continue to have a full valuation allowance against our deferred tax assets. While the operating environment continues to present challenges we feel good about the progress we have made to transform the company into a healthy active lifestyle brand. Momentum is building and we are making solid progress against the targets we set for 2010.

I would like to now turn the call back to James.

James White

Thank you Karen. As you know Jamba is guided by strategic priorities that we call our BLEND Plan. They are straightforward and are focused on reducing costs and expenses, ensuring a customer-first operationally focused service culture, increasing food and day part offerings, accelerating the development of franchise and non-traditional franchise stores including the completion of our refranchising initiative and building a consumer products growth platform.

As Karen has detailed our focus continues on cost management, expense reduction and improving productivity. We will increase attention on these areas as a result of important addition to our management team. The first is Bruce Schroder who has joined Jamba in the new position of President of Stores. Bruce has a broad-based operations management and financial background with over 15 years of experience in restaurants, consumer products and financial services. He brings a depth of experience and breadth of knowledge that are exceptionally well suited to our needs.

Store level gains on improving productivity and lower costs are essential to maintaining our sustainable growth oriented business model. We must have a cost structure that is right for our revenues. We must eliminate all unnecessary costs that stand in the way of profitable growth and we must do this without compromising quality, service or any of the other attributes that define Jamba Juice with our customers. Efforts in these areas are a top priority.

Let’s now turn to the other strategic areas that are essential for Jamba’s transformation. Our core strategic focus on customer-first, service, culture, store improvement and community engagement are areas where we are making significant progress. We now have in place programs that train our associates to make each customer’s visit a true Jamba experience. Our associates are engaging and welcoming yet efficient. They are an extension of Jamba as an energizing experience and a place where you can get great tasting, better-for-you food and beverages.

Our tracking and standardized metrics allow us and our store teams to know how well we are meeting our shopper expectations. With our new President of Stores at the helm, we will build a sales and service culture second to none. Another part of this effort is our store refresh program. To upgrade the look and feel of our stores to reflect the vibrant, fun and uplifting culture of Jamba, last year we completed 88 store refreshes and over the course of this year we except to complete another 20-30 stores.

Along with our store refresh we have also improved the customer-facing in-store elements of our operation. Our menu boards highlight offerings, communicate critical information, simplify consumer decision making and enabling customers to more easily navigate our portfolio of offerings and to find the right product.

Let me also discuss our community based sales initiative. Last quarter we announced the launch of our Jamba goodness on-the-go catering program. As of Q1 catering is available through more than 500 locations nationally and we will continue to accelerate the expansion of this program. By the end of Q2 we will offer the convenience of online ordering in over 300 outlets. Catering provides a way for Jamba to offer businesses, community organizations, schools and event planners a full menu option of our better-for-you products.

This is an area where best in class peers generate 5-6% or more of their total revenues from catering. This is an area of significant opportunity with our expanded menu and better-for-you products and our increased access into schools as a result of our association with the National Parent Teacher’s Association and our school lunch program. We will continue to find ways to broaden our reach as a brand within local communities we serve. Our goal is to gain incremental sales as well as drive increased awareness and increased traffic for our stores.

Moving to food, our progress and gains continue in this area. In Q1 2009 we launched oatmeal nationwide. We followed that highly successful product introduction which greatly strengthened our morning day part with our extended menu of grab and go foods including salads, sandwiches and wraps plus California flatbreads. We continue to enhance and optimize our food platform.

During the quarter we introduced four delicious grab and go salads, two hearty entrée salads and two pasta side salads. We also launched our hot beverages platform, an innovative offering of four organic, uniquely Jamba blended beverages that we describe as Hot Blends along with six organic teas. Hot beverages are now available in almost 400 of our stores. As a perfect complement to our hot beverages we introduced two all-natural scones to our baked goods portfolio.

As an extension to our hot beverages platform we are testing hot coffee in two key markets. This line includes two organic hot blended lattes and two organic, brewed to order coffees. We are pleased with the initial results. Our stores are fully capable of supporting coffee from an operational perspective. We anticipate a broader rollout in the fall.

Overall, while still early hot beverages are meeting our expectations. Over time we expect them to provide an ongoing, steady stream of incremental sales. The role of food and other menu extensions provide Jamba with a sustainable growth oriented business model that already is contributing to Jamba’s results. Obviously it takes time to gain awareness, trial and repeat purchases. We expect as our marketing and promotional efforts take hold and as customers gain more awareness of our offerings that our results will continue to improve.

We have a very capable and experienced marketer, Susan Shields, our CMO leading our brand building efforts. We are restoring our marketing spend to levels that will better enable and support our efforts. We celebrated our 20th anniversary with the launch of everyday feel good specials providing customers with daily deals highlighting a wide range of Jamba products and further enticing customers to come back throughout the week to try something new at a value price.

We continue to develop innovative partnerships and work with organizations that reinforce our positioning as a healthy lifestyle brand and that share our goals to strengthen schools, education, improve health and wellness, increase sports and physical fitness and advance smart, sustainable solutions. A few examples include the National PTA relationship and our recently announced relationship with the National Gardening Association.

In June we will launch our summer campaign focused on healthy eating and being active. Jamba will sponsor a series of races in 10 key markets in addition to participation on a website that promotes living an active and healthy lifestyle, active.com. We know that 17% of our customers eat food with their smoothies. They also welcome having food at our stores and 95% who try our food say they will do so again. Our current attachment rate is about 10% and our goal over the next two years is to reach 30% attachment.

We are excited about our progress on food and hot beverages in the past year. We are in the early innings but good progress overall. We view food as an enabler. It is opening and strengthening new day parts for Jamba and importantly food has helped narrow the comparable store sales declines this quarter to minus 3.3, a 200 basis point sequential improvement. As we move through the year we expect overall positive comps fueled in part by incremental food and hot beverages sales.

Our marketing program uses value features of food and beverages combined to drive traffic and awareness and our catering program benefits greatly by offering businesses, community organizations and others a full menu of food along with smoothies, fruit infused teas and freshly squeezed juices. Food is an exciting part of Jamba’s transformation and an important part of our broad strategy to become a healthy active lifestyle brand. We continue to accelerate our product innovation and continue the expansion of food and hot beverages.

Let’s move to our franchising and refranchising efforts which are designed to accelerate our growth, increase our brand presence and market share and improve our overall margin by limiting our capital needs. We had several important developments during the quarter. Just last month we appointed Richard Coats as Vice President Franchise Operations. Richard has over 25 years experience in multi-unit restaurants and franchise operations and will be a major asset in our efforts to build a world-class franchise operation.

Richard will be working closely with Bruce Schroder, President of Stores and our veteran Jamba associate Steve Atkins, SVP of Store Op Services and will work to accelerate our overall infrastructure build out in support of our franchise growth. During Q1 we completed the refranchising of 20 stores. We have signed initial agreements to sell an additional 37 stores. These sales build on the 27 outlets we will refranchise in 2009, in total 84 stores. With the anticipated close of these deals we have accomplished almost 60% of our goal of refranchising up to 150 stores by year-end.

We also opened eight new stores during the quarter; one company store and 7 franchise units including three campus locations, one unit in each, a traditional store, a mall location, a theme park and a convention center. Our pipeline continues to fill. One of our franchisees, the Creative Food Group, recently announced they will open four new, nontraditional units this year. One at the Newark Airport, another at New York’s Penn Station and two additional locations in New Jersey shopping malls.

So we are very pleased with our accelerated progress in franchise development including our refranchising initiative which is now almost 60% complete and we fully expect to open up to 50 new units in 2010, primarily franchise driven.

Our final area is brand extension or licensing which broadens our opportunity to engage consumers with Jamba beyond the in-store experience in multiple channels including supermarkets, club stores, mass merchandisers and even online. Our efforts in this area are very strong. We had success last year with the introduction of the Jamba branded toy blender for children in distribution at almost 600 Toys R Us locations, and the Jamba gift card pack at Costco. We have demonstrated our ability working with two strong partners to move from development to launch in record speed.

Earlier this quarter we announced the launch of two innovative Jamba branded consumer products. A line of novelty bars from Oregon Ice Cream and three Jamba branded frozen smoothie kits from the Inventure Group. Altogether these two newest license products are now in distribution in over 3,000 retail outlets and we expect the Jamba branded smoothie kits will be available in distribution in over 5,000 retail outlets by the end of the second quarter.

Just last month the Jamba branded line of active lifestyle apparel launched in mass specialty and upscale retailers as well as online and of course coming to the Jamba stores in early June. Our progress will not stop there. We are continuing to pursue agreements to develop additional Jamba branded products in multiple categories and expect to have more to announce in the coming months. We believe licensing has the potential for significant growth that will create an important incremental revenue stream for Jamba.

We continue to evolve and refine our relationship with Cormark and plan to enter the convenience store market in late 2010 with fresh and premium offerings. The growth of our CPG platform is a top priority and our hire of veteran brand marketer, Julie Washington, to lead this effort signifies our intent to accelerate and advance this initiative. Ms. Washington brings over 15 years of brand management, licensing and sponsorship experience to Jamba.

The Jamba brand is strong and strengthening. Our brand score card for Q1 shows gains in important categories such as consumers who would recommend Jamba, consumers who feel Jamba inspires healthy living and consumers who feel Jamba has healthy products that make them feel good. The strength of the brand fuels our optimism about the future. As I said at the start it puts us on track to deliver on our promises for 2010 which include positive comparable store sales for the full year, reducing G&A by 10-12% excluding share based compensation, delivering consolidated EBITDA of 5-7%, delivering store level EBITDA of 15-17%, adding 30-50 franchise stores, completing the refranchising of up to 150 company stores, expand into one international market in 2010 and execute additional license agreements in relevant categories.

I continue to be pleased with our progress. We will keep our promises and deliver on our commitments. We are focused, driven and staffed with an exceptionally talented team that will get the job done. It is an exciting time for Jamba.

Before I conclude I would like to welcome our new franchise partners into the Jamba system. I would also like to thank the Jamba team members across the system for their continuing efforts and commitment to transforming our brand. As I have said in the past, the brand is bigger than the company and several of today’s announcements showcase its potential. I will now turn the call back to the operator and open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) The first question comes from the line of Jeff Farmer – Jefferies & Company.

Jeff Farmer – Jefferies & Company

I am curious if your 5-7% EBITDA margin guidance includes gains from the sale of these franchise units?

Karen Luey

No it does not include the gain or loss on any franchise units.

Jeff Farmer – Jefferies & Company

A little bit more complicated question. I am just hoping for any color you can provide. In terms of just walking us through the refranchising economics in terms of the units you are selling, what is an average type of unit volume you are seeing? What type of EBITDA margin were those units putting up? On the flip side, once you sell the units what type of royalty are you looking at? What type of franchise fees are you collecting? Again anything in terms of helping us model how all of this refranchising is going to impact the P&L would be helpful.

James White

I guess I will make a couple of big picture points to really frame up the program. We announced about a year ago 150 store refranchising effort. Again with today’s announcement we are about 60% through that total program. The way I frame up kind of the big picture is we have about four significant deals remaining at about 70 stores before we complete the program in total. We expect to complete the program by the close of this year. The overall strategy going in was for us to be able to deploy capital in a more efficient fashion was our first priority. More importantly the program was constructed for us to be able to accelerate growth of the brand. I will have Karen now walk you through the way to think about the financials.

Karen Luey

The way to think about the financials is for average AUV the guidance we gave in the fourth quarter call of roughly $600,000 average AUV would probably hold true. Store level margins of last year’s percent of 15% is probably something to look at for this year. As you noted or as we noted in prior calls we recognized about $10.3 million in proceeds which is note and cash proceeds from all the deals. So you can estimate what the average cash proceeds are from each store on average. I would just use an average royalty stream going forward. I think we say in our [FDD] and all the documents out there that royalties are in the 5-6% range.

Jeff Farmer – Jefferies & Company

Any franchise fee on that? Is it treated as if it is a brand new unit or do you not get a fee for that?

Karen Luey

We don’t get a franchise fee for the refranchise stores but along with selling these company-owned comes the development rights to develop up to 100 new stores in these markets.

Jeff Farmer – Jefferies & Company

That is booked up front. How is that booked to the P&L in terms of when you see that revenue?

Karen Luey

We usually recognize initial fees or the signing on franchise fees half up front when the deal is signed and half when the store is opened.

Jeff Farmer – Jefferies & Company

Sorry to be long-winded here but in terms of same store sales obviously a big mix tailwind over the last three quarters. Mid single digit positive. In the back half of the year you are going to begin to lap sort of the heart of your food introduction from last year. Having said that do you think you can hold onto that let’s call it 5-6% or so mix benefit to the average check in the back half of 2010?

James White

We are actually very excited about the back portion of the year given the initiatives we have in place. We have optimized our food. Overall we will be adding to the lineup in a significant fashion our hot blends and as we look at the marketing programs we have put in place they are gaining significant traction so we are actually very confident with the guidance we have given for positive comps for the full-year.

Jeff Farmer – Jefferies & Company

Obviously a lot of G&A cost control here. I think you cut it by almost 20% in 2009 and you are targeting 10-12% in 2010 excluding stock based comp. As you get into 2011 is there still some low hanging fruit out there or do you think that potentially you will see a year in 2011 where your absolute G&A might actually flatten out or be up year-over-year?

James White

It definitely will not be up year-over-year. You will see it flatten out and come down but you will see us accelerate overall growth as we move forward. I think the perspective I would leave you with, we will actually get to leverage the G&A more aggressively as we build momentum around the programs we have launched up to this point.

Operator

The next question comes from the line of Greg McKinley – Dougherty and Co.

Greg McKinley – Dougherty and Co.

You mentioned on a couple of occasions your marketing initiatives and your marketing investment and I think it sounds like a combination of promotional effort but also making people aware of what has changed in the stores with food and blended beverages, etc. Can you give us a sense for how much that investment has changed from 2009 to the Q1 here? How we should expect you to continue to spend on marketing for the remainder of the year?

James White

The perspective we would share if you looked at Q1 2009 versus 2010 there is about 160 basis point incremental investment. We spent at about 2.6% in the quarter. We think kind of on a normalized basis we will spend roughly 3% for the year is the way to think about it. That is about 100 basis point increase from 2009.

Greg McKinley – Dougherty and Co.

In terms of how that money is being spent, is it simply improved store level marketing and promotions? Is it direct…I mean how are you spending that money and how is the consumer seeing it?

James White

It is a combination of heavy investment in social media. This brand particularly lends itself to online and kind of viral kinds of activity so there has been a significant investment. There is one data point, we have almost half-million Facebook fans and that is up almost 400,000 plus from a year ago is one example. Heavy PR and sponsorship types of activities. The brand again works incredibly well on a local market base so we are very focused in a 2-3 mile radius around our stores is where we have significant investment. We most recently introduced some value offerings from a promotional perspective which are gaining significant traction.

The example I would give is the oatmeal Wednesdays for $1 where we created a significant buzz and just great traffic into the stores. We have most recently launched a value menu across every single day to really expose consumers to all of the new things we have added to the menu. A couple of examples would be we have introduced a $3 all fruit smoothie Fridays is one example. We have continued to work on oatmeal at $2 and on Mondays we have exposed consumers to our Ideal Meals for the breakfast occasion at $3 as well.

Greg McKinley – Dougherty and Co.

I am wondering if you could help us a little better understand some of the way you are measuring the success of your early efforts with some of the license products in the grocery stores. Is there anything you can share with us in terms of feedback you have had from your grocery partners? Sort of your level of success or their interpretation of it in terms of the inventory turnover or anything we can use to sort of understand how that product has been received so far?

James White

I think it is early days at this point. The message would be there is significant interest from a retailer perspective. I point to the smoothie kits with Inventure. They have almost doubled their expectation from a selling perspective. We have almost 5,000 points of distribution that will be in place by the end of the second quarter. So that is one data point. From one major retailer on the Jamba novelty branded products we are moving at almost 2X of our expectations on a sell through basis. Those are anecdotes. It is certainly early on but the selling is going as planned, if not better.

Karen Luey

The other key anecdote to our frozen smoothie kit is the expansion into the many doors are nationwide expansion. I think that is pretty relevant.

Operator

The next question comes from the line of Ed Comeau – Four Rivers Capital Management.

Ed Comeau – Four Rivers Capital Management

More of a broad question about same store sales. Over the last year you have done quite a bit in terms of product introduction in the store, spending money on marketing, etc. I guess, given the easy comparisons even in this quarter I guess I am still a little surprised the same store sales and comparable store sales haven’t improved at a faster rate. Faster rate. I know they are tracking towards your goal for the year and you are comfortable with positive comps for the year but still even in this quarter given everything that has happened with the company over the last year even in the last couple of quarters I would have guessed with an easier comparison we might have seen better comparable store sales. I was wondering if you could shed a little light on that or give us your thinking?

James White

I guess for us I point everyone back to the guidance we gave for the year. We are actually very committed to the guidance we have given for the total year and we move to positive comps. But more important point I would make I think same store sales is but one metric to use to evaluate this company. You have to be clearly focused on the key initiatives that are in place to really transform this brand. We moved a year ago from a turnaround story and this is a significant transition year. You have to take a look at the shift in the business model. I point to the work we are doing around refranchising. Also the work to really fine-tune and extend the menu really changes the complexion of the company.

We have always stated this is a multi-year transformation and again comp store sales is just one metric. We are doing exactly what we said we would do. We continue to show sequential improvement and that is on plan.

Ed Comeau – Four Rivers Capital Management

I guess as I look at it you are sort of comping up against kind of a low to mid-teen’s same store sales and comparable store sales number. One would guess you should comp positive against that considering the transition the company was in last year and also considering all of the strides you have made this year. It would seem almost like a lay up to at least turn positive this year and I guess given all the successes you have had and the money you have spent on marketing that we haven’t seen…I don’t know if it is traffic, pricing or menu or a number of those things but typically when you are going up against a low to mid teen’s decline in comp sales unless something has changed you would comp nicely against that.

James White

There is nothing that has changed with the overall economy so we are operating in an environment of heavy unemployment and the other backdrop is the significant impact of weather across the quarter, almost 200 basis points. But that said we are still confident in the guidance we have given for the year and we continue to execute against the plan.

Operator

The next question comes from the line of Michael Demaray – Elevated Capital.

Michael Demaray – Elevated Capital

I missed this in your script. Can you go back over…I think you mentioned the average check size. I am curious to know if that went up year-over-year or if it was down.

Karen Luey

The average check size increased year-over-year and if you look at it from a comp perspective between mix, average check and the price increase we are anniversarying against the total was about 640 basis points.

Michael Demaray – Elevated Capital

I guess more generally and broadly if you can talk about how you are seeing things after the refranchising is complete do you project you could be operating I guess EBIT positive even without additional revenue coming in from all the licensing deals or is the idea here that you essentially need those licensing deals to break-even at a corporate level?

Karen Luey

I would just reiterate our full-year guidance on the consolidated EBITDA line we have committed to a 5-7% of total revenue EBIT line. Then I would also take you up to where we have committed on a store level EBITDA margin of 15-17%. I think that would tell you we are planning on being cash flow positive.

Operator

The next question comes from the line of Buzz Zaino – Royce & Associates.

Buzz Zaino – Royce & Associates

What is the new experience in terms of efficiencies with adding food items to the menu and other items to the menu? It seems as I visit the stores they tend to be a little busy to begin with.

James White

For us from a strategy perspective as we build our food platform we were looking for additions to the menu that would be easier from an operational perspective than executing against a made-to-order smoothie so that is kind of the first point I would make. So we have launched things like grab-and-go food items, hot blended beverages and also things that leverage our Turbo Chef ovens. Come in and prepared in a minute or less through the Turbo Chef oven and all of those from an operational perspective are much simpler than a made-to-order smoothie. So we built the entire platform from an operators perspective back to ensure from a labor perspective we would be more efficient and have greater productivity than a made-to-order smoothie.

Buzz Zaino – Royce & Associates

If you expect to be cash flow positive and you are emphasizing franchising as opposed to building yourself and you have positive cash on the balance sheet as we speak, at what point do you have to make a decision what to do with the cash? What would you do? Would you buy back stock? What would you do?

James White

Again on an ongoing basis as you can imagine our board is always looking at the best use of cash. For right now we are staying very focused on the game plan we have outlined for the year and as things come up we will continue to revisit our cash position and uses of cash.

Buzz Zaino – Royce & Associates

But what are the options for the cash other than buyback stock? What would you do?

James White

We haven’t disclosed that at this point.

Operator

Mr. White, I am showing no further questions in the queue. I will hand it back over to you for any further remarks.

James White

I would like to close by saying thanks for all of those who have participated. I will make just a final couple of comments. We think we have the right strategy in place. We have a strong management team and the Jamba brand continues to strengthen and I think you can see us well positioned for future growth. Thanks and we will see you on the Q2 call.

Operator

Ladies and gentlemen that does conclude the Jamba Inc. first quarter 2010 earnings conference call. Thank you for your participation. You may now disconnect.

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