Back on May 5, 2013, I wrote an article featuring Jamba, Inc. (NASDAQ:JMBA) entitled Jamba - Morphing From Turnaround To Growth Story. The next day the market was open, May 6, the stock closed at $2.91, or the current equivalent of $14.55 following its subsequent 1-for-5 reverse split. Exactly a year later, on May 6, 2014, Jamba closed at $10.81. Clearly, the intervening year didn't do much to support my "growth story" thesis. Since that time, however, the stock has risen to the point where it closed at $12.43 at the close of normal trading today, July 23, and then jumped an additional 3.78%, to $12.90, in after-hours trading. What gives?
It appears that the sudden move upwards may be attributable to two things:
- Jamba's recent decision to accelerate the rollout of their new "Fresh Juice" platform.
- Entry of a new investor into the stock, revealed in a Form SC 13D filing today.
Acceleration of the "Fresh Juice" Platform
On January 3, 2014, Jamba announced the rollout of their Whole Food Nutrition smoothie offerings as well as "fresh juices made with straight from the earth, whole food ingredients."
In subsequent earnings calls, the company explained that their popular Santa Monica location had been selected as the "beta" location for this initiative. During the Q1 2014 earnings call, held on May 8, CEO James White stated that: "Our sales gains with the platform are consistently strong, adding 300 to 400 basis points with 60% to 70% incrementality." Based on these early, positive, results, they went on to state their plan that, "[during] the balance of the year, we'll add juice to another 370-or-so locations, for a total of 500." As of May 8, then, the announced plan was to roll out the juice platform to 500 stores by year-end, or December 31, 2014.
However, on May 22, a mere two weeks after the Q1 earnings call, Jamba surprised the market by announcing that "its expanded fresh-squeezed juice menu will be available in over 500 Jamba Juice stores nationally, as of June 2." Further, in an interview with Nation's Restaurant News, CFO Karen Luey shared the additional detail that "Rather than balking at the remodel investment, Jamba's franchisees are standing in line to do the refresh" and that "about half of the 500 units scheduled to offer the fresh-juice platform by June are franchised locations, indicating strong franchisee buy in."
One can only surmise from these events that the results from the juice platform in the trial locations were solid enough that Jamba decided to accelerate the spend for the rollout in time to benefit fully from the favorable summer season.
A New Investor
In an SEC Form SC 13D filing released today, Jamba revealed that various legal entities reporting up to Engaged Capital Holdings, LLC recently acquired a total of 1.2 million shares, or 7.0% of Jamba's outstanding shares. What I found most enlightening was that this new investor explains its investment thesis in the section "Purpose of Transaction," as follows:
The Reporting Persons acquired the Shares because, in their opinion, such Shares are undervalued and represent an attractive investment opportunity. The Reporting Persons believe the Issuer possesses multiple paths to value creation, including: (NYSE:I) right-sizing the Issuer's G&A cost structure, (ii) eliminating the earnings drag from the Issuer's unprofitable New York City locations, (NASDAQ:III) eliminating the spend on the Issuer's unprofitable non-core growth initiatives; and/or (iv) refranchising a significant portion of the Issuer's owned locations. The Reporting Persons have had, and expect to continue to have, discussions with the Issuer's management and board of directors ("the Board"), shareholders, and other interested parties relating to such matters.
The most fascinating of the above reasons, to me, is one that I have believed to be the case for a long time; namely that Jamba's G&A costs are way out of line for a company of its size. I came to that conclusion some years ago by comparing it with other companies of similar size, for example Peet's Coffee (NASDAQ:PEET) at the time when it was still a publicly traded company. While the company had made some progress since that time, apparently this investor believes it has not been enough.
I also can't help but note their third point, that of eliminating spending on "unprofitable non-core growth initiatives." Again, as one example, Jamba concluded their much advertised acquisition of Talbott Teas (of "Shark Tank" fame) on February 17, 2012. And yet, almost 2-1/2 years later, I have yet to hear any definitive and concrete explanation of the growth plan for that entity.
Summary and Conclusion
There is no doubt that Jamba's stock price has floundered in the year since I wrote the article linked in the introduction. If the market's response reflects their view of Jamba's progress to-date, this implies that Jamba has floundered as well.
Still, the two recent events I have highlighted in this article, I believe, make Jamba worth a second look at this time.
Disclosure: The author is long JMBA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. I am not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.