Jamba, Inc. (JMBA) is a quick-service restaurant focused on healthy food and beverages, including fruit and vegetable smoothies, juices, and teas, hot oatmeal made with organic steel cut oats, wraps, salads, sandwiches, and a variety of baked goods and healthy snacks. As of July 12, 2011, Jamba Juice had 746 locations in the United States consisting of 436 franchise-operated stores and 310 company-owned stores and had six international stores.
Jamba’s CEO 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. (SWY) with responsibility for brand strategy, innovation, manufacturing and commercial sales.
Jamba’s turnaround story as detailed in its August 2011 investor presentation is focused on 5 actionable priorities that include:
- Expense reduction,
- Building and expanding its beverage and food offerings across all day-parts.
- Building a customer first culture.
- Accelerating the development of franchises.
- Building a licensing growth platform.
Second quarter 2011 earnings were released after the close on August 16th. The company earned $0.05 cents per share with strong same-store sales growth. The performance this quarter suggests that Jamba is well on its way to achieving its goals.
Let’s focus on each item in turn:
In the second quarter general and administrative expenses declined 14.1% from the prior year period and management reaffirmed its guidance that G&A expenses for the full year on a dollar basis will be consistent with 2010 levels
Building and Expanding Beverage and Food Offerings Across All Day-Parts
Jamba achieved comparable store sales growth in its company-owned stores of 4.3% for the quarter. This was the third consecutive quarter of positive company-owned comparable stores sales growth and sequential improvement in eight of the last nine quarters. Franchise stores also saw same-store sales growth for the second quarter of 1.4% on top of 4.1% same-store growth in the first quarter.
The company’s additional menu offerings such as oatmeal, salads, vegetable smoothies, and sandwiches are having an impact on growth. Combined with a price increase in the second quarter and less promotional activity and Jamba is poised for continued same-store sales growth.
Accelerate the Development of Franchises
The company has completed is refranchising plan with 42 company owned stores sold to franchisees this year. Further, as part of the deal the franchisee agrees to open additional stores. During the quarter the company also opened its first Maryland store, which is a joint venture with tennis player Venus Williams.
The JV will open 5 stores in the D.C. market over two years. Jamba’s Korean master developer opened four Jamba Juice locations in South Korea during the quarter and the company expects them to open additional stores over the balance of the year. In addition, stores in both Canada and the Philippines are expected in 2011.
Build a Licensing Growth Platform
Jamba branded consumer products have now secured approximately 25,000 points of distribution in a broad range of retail channels across all 50 states. The company expects this to increase to more than 30,000 points of retail distribution by year-end. In the second quarter high margin licensing revenue increased to $425,000 from only $78,000 a year ago. This revenue should continue to grow at a rapid pace. As CEO Jim White stated on the earnings conference call:
During the first half, our licensees launched five lines of Jamba branded products. They are Zola Superfruits Shots, Johnvince Trail Mix, Nestlé Energy Drinks, Sundia Fruit Cups, Jamba branded O.N.E Coconut Water, our partner for the add-on smoothie kits Inventure also launched an additional flavor and received excellent visibility for the line with a segment profile on the July 2nd, Food Network program Unwrapped. The Jamba branded line with a greatest potential is our Nestlé Energy Drinks, which is performing very well in the $8.5 billion energy drink sector.
Nestlé is investing heavily in this product launch, which is currently available in the Northeast and our progress doesn't stop there. We are pursuing agreements with potential new licensees in additional categories and expect more announcements in the coming months. The Jamba brand is strong and strengthening on all fronts.
Jamba’s stock price is $1.92 per share. This equates to a market capitalization of $126 million and an enterprise value of $104 million. Jamba has $22.9 million of cash on its balance sheet and no debt. Jamba generated $7.1 million of EBITDA in the second quarter. On a run-rate basis this implies annualized EBITDA of $28.4 million, an enterprise value to EBITDA multiple of only 3.7x.
While there are no true perfect comparable companies to Jamba, consider the following coffee/restaurant companies and respective multiples. Caribou Coffee (CBOU) trades at 10.3x, Einstein Noah Restaurants (BAGL) trades at 7.0x, Krispy Kreme (KKD) trades at 18.8x, and Panera Bread (PNRA) trades at 10.8x. This makes Jamba’s 3.7x look very inexpensive.
Jamba is executing on all fronts and with $0.05 cents of EPS in the second quarter and over $7 million of EBITDA the company has turned profitable. Continued execution should lead to further growth and leverage from the cost structure will lead to strong earnings and cash flow generation. The company is at an inflection point and investors may be be well served to get in now.