Q2 Review:
The quarter was abysmal. Jamba (JMBA) missed consensus EPS by over 50%, citing cool May temperatures in California as a headwind. The actual miss relative to analyst expectations was much higher.
The amended 8-K filing today shows that the stores from the delayed Vitaligent transaction contributed $3.0 million of operating income in Q2 (see 8-K/A filing,"July Disoposal 2" YTD operating income of $4.7 million minus $1.7 million Q1 operating income from those stores yields Q2 operating income of $3.0 million). This represents 92% of Jamba's total non-GAAP operating income in Q2.
Management made no mention of the material tailwind from the delayed transaction that was meant to close during Q2, part of a very determined effort to paint a pretty picture of Jamba's past, present and future that is not consistent with the grim reality.
Amended 8-K Filing And New 8-k Error
After four days, Jamba finally amended the material errors I pointed out in their August 3 8-K filing. The original filing overstated March quarter revenue from the stores sold to Vitaligent by 119%. Similarly, the actual pro forma revenue from remaining company-owned stores was 257% higher than the original filing. Whoops.
Original Filing:
Amended filing:
I continue to be amazed that an error of this magnitude occurred and then took four days to fix. One would have thought that such a massive error would have led to thoroughly proofread future SEC filings. Wrong! There is yet another mistake in a subsequent filing.
Excel incompetence and poor proofreading have struck again (with a nefarious undercurrent thrown into the mix). As I am not compensated to identify and fix errors in Jamba's filings, I am going to leave it to them this time. Frankly, there are two ways to fix this error. As I mentioned, this error has troubling implications so it will be interesting to see how it is addressed. Let's see how it is fixed and how long it takes.
Proceeds: Overstated Grossly
The $43.1 million refranchising proceeds cited by management on the conference call are gross proceeds. We don't care about what the seller paid, we care about what Jamba gets. Jamba gets net proceeds (after transaction fees); the kind of proceeds that can be used to buy back stock or pay a dividend.
Per the 8-K, the net cash proceeds from the refranchising transactions discussed on the call are $37.6 million, 13% lower than the figure cited by management. We are left to assume "proceed" guidance of $60-70 million is also a gross number in need of adjustment. A 13% haircut would generate $52-$61 million in net proceeds. The bulls need to lower their buyback expectations.
Further, if any of the bulls actually read the filings thoroughly, they would see that the profitability of the remaining stores is dramatically lower than the stores that have already been sold. This will further pressure proceeds on the remaining refranchising transactions (and/or means performance of the roughly 30 Midwest and New York stores not being sold in 2015 are much worse than what is in analyst models).
Disclosure: I am short shares of Jamba.
