Caribou Coffee Overview
On July 6 I wrote an article regarding Caribou Coffee (NASDAQ:CBOU). In the article I argued that Caribou, despite a run-up in the stock, was trading at a reasonable valuation. By way of background Caribou Coffee was founded in 1992 and is the second largest company-operated premium coffeehouse operator in the United States behind Starbucks (NASDAQ:SBUX). As of January 2, 2011, Caribou had 541 coffeehouses (131 franchised) located in 20 states, the District of Columbia and nine international markets. In addition, Caribou through a licensing arrangement with Green Mountain’s Keurig business offers K-cup single-cup cartridges.
Jamba Juice Overview
If you ask someone about Jamba Juice (NASDAQ:JMBA) they usually know the company and have, at one time or another, been a customer. Jamba in its 10-K defines itself as “a leading restaurant retailer of better-for-you beverage and food offerings.” Its offers include smoothies, juices and teas, hot oatmeal made with organic steel cut oats, probiotic fruit and yogurt blends, Whirl’ns frozen yogurt, wraps, salads, sandwiches, California Flatbreads, and a variety of baked goods and snacks. As of April 19, 2011, Jamba had 741 locations in the United States consisting of 307 company owned stores, 434 franchise stores, and two international stores. As of December 28, 2010, Jamba had nine license agreements in place covering a variety of consumer packaged goods.
Jamba and Caribou Coffee
First, what are the similarities between Caribou and Jamba.
Both are involved in the food/restaurant industry with Caribou being known as a coffee house (despite moving into breakfast foods, etc.) and Jamba being associated with smoothies although they also have moved into breakfast foods.
Both are small cap companies. Jamba, with a share price of $2.09, has a market capitalization of $140mm and a net cash position of $21mm. Caribou’s stock price is $13.25 implying a market capitalization of $276mm. Caribou has $25mm in cash and no debt on its balance sheet.
Both are turnaround stories. Caribou hired their current CEO Michael Tattersfield from Lululemon in August 2008. Mr. Tattersfield had been Lululemon’s Chief Operating Office. He also had significant experience in the food industry spending 13 years with YUM! (NYSE:YUM) Brands in a variety of capacities. Prior CEO Michael Coles stepped aside after failing to generate profits despite growing the top line. At Jamba Juice, James White was brought in as CEO in December 2008 to turn around the company. His biography is spelled out in Jamba’s proxy statement . Prior to Jamba, Mr. White was senior vice president of consumer brands for Safeway, Inc. with responsibility for brand strategy, innovation, manufacturing and commercial sales.
Both have licensing arrangement that are important parts of their growth story and value. Caribou, through its Keurig K-cup licensing agreement with Greenmountain Coffee (NASDAQ:GMCR) offers K-cups, which are an important component of its commercial business. Jamba, had nine license agreements in place covering a variety of consumer packaged goods including an energy drink with Nestle that Nestle is heavily promoting and smooth kits available at grocery stores. Pages 28-33 of Jamba’s May 2011 investor presentation lays out these opportunities and the economics to Jamba.
Both companies have growth opportunities ahead of them that require successful execution. With coffee being a higher profile category, Caribou has gotten noticed of late and the stock is up over 30% year-to-date. Jamba, on the other hand, has seen its stock decline by approximately 8% year-to-date. Caribou is further along in its turnaround and is now profitable allowing investors to think about valuation metrics and growth opportunities together. Jamba, on the other hand, is not yet profitable, but the company is at an earlier stage of the turnaround and therein is the investment opportunity.
Investors can be rewarded for getting in early. This year Jamba completed the refranchising of company-owned stores, multiple international franchise agreement, and have seen their license agreements being to generate revenue. This licensing revenue should grow considerably and is almost 100% margin to Jamba. While Caribou is still in its growth phase to some degree the stock already reflects the potential for that growth especially given the recent run-up. Jamba, because it is earlier in its evolution and has yet to demonstrate success via profitability, is higher risk but higher reward. An investor willing to think long term may end up doing very well by investing in Jamba today, before the market catches onto the story. And whether you invest or not I highly recommend Jamba’s smoothie kits located at your local grocery store as a quick and easy way to make yourself a refreshing low-cal fruit-based beverage.
Disclosure: I am long JMBA.