Jamba, Inc. has a market cap of about $530 million, cash of about $67 million and no significant long term debt.
On June 11th Jamba announced earnings for the first quarter of 2007 of $11.9 million or 20 cents per share versus a year ago loss of $81.5 million or -$3.88 per share. Although these first quarter results included a pre-tax gain of $15.2 million, after backing out this gain the results still handily beat analyst expectations. Revenues increased 22% year over year coming in at $89.4 million.
Jamba opened 26 new stores in the first quarter of 2007. Although Jamba is already expanding at a brisk pace, the long term goal for Jamba is to open over 5,000 stores worldwide. Jamba says that this number can be reached without cannibalizing existing stores by expanding to new areas with residential density of 15,000+ within one mile, average household incomes over $50,000, and strong vehicular and pedestrian traffic counts. Fueled by these expansion plans and increasing same store sales, Jamba is forecasting revenues of at least $600 million a year by 2010.
We think that yesterday’s weak market conditions helped create a rather subdued movement in shares of Jamba after the company reported excellent results for the first quarter. At this point, shares of Jamba are only about 0.5% higher than they were before the first quarter results were announced even though Jamba beat top line expectations by 30% and it appears that Jamba’s growth is accelerating faster than expected.
Currently, 42% of Jamba’s revenues come from “light” users. These light users visit Jamba Juice stores 1 or 2 times a month. If Jamba can entice these light users to visit Jamba Juice 1 more time per month, total company revenues would rise by 10%.
In order to increase the frequency of customer visits, Jamba is implementing various new initiatives designed to compliment Jamba’s core competency of healthy, fun, and on-the-go product offerings. A healthy version of a stuffed pocket breakfast product will be offered at select locations starting this summer. A ready to drink bottled product is also in development and should be ready in the second half of 2007.
One of the Jamba Juice stores located in the Bahamas recently started selling salads and other pre-packaged healthy food options. Jamba has reported that sales at this location have been brisk and that the additional food offerings have helped increase customer retention rates and customer visit frequency. Jamba is currently evaluating options for including similar healthy food options in at many Jamba Juice locations.
On the marketing front, Jamba recently partnered with Nike to promote Jamba Juice at marathons and other sporting events. This cross promotion with Nike is typical of Jamba Juice marketing which tends to shun traditional media outlets in favor of grass roots campaigns and viral marketing opportunities.
Jamba hopes to become the world’s leading brand focusing on what the company calls “healthy energy”. The core of the healthy energy concept revolves around fresh fruit high in antioxidants, vitamins, minerals, natural sugars, and fiber. Consumers in the US are increasingly health conscious and although fast food chains have attempted to increase healthy food options, Jamba Juice is well positioned to become the market leader for healthy drinks, snacks, and light meals. Jamba does not have to reposition itself to appeal to the health conscious consumer, healthy drinks and food are part of the core concept of the Jamba Juice brand.
Recently companies like Chipotle (CMG) and Buffalo Wild Wings (BWLD) have seen their stock prices soar due to increasing revenues and profits largely fueled by aggressive expansion plans. Jamba Inc. could be poised to follow in the footsteps of these companies. Revenues jumped in the first quarter of 2007 and analysts expect Jamba to become profitable (without one time gains) in the seasonally strong second quarter.
At Wall Street Mayhem we think that the risk/reward ratio for shares of Jamba is excellent at this point. Jamba’s growth should continue to accelerate due to expansion and recent initiatives designed to drive customer frequency rates. Additionally, over 30% of Jamba shares are held short. As seen by the recent moves in Wall Street Mayhem picks Cree (CREE) and Taser (TASR), high short percentages can create quick surges in share price when companies receive positive news or increased investor attention.
Jamba is poised to report an excellent 2nd quarter for 2007. Revenues exploded in the first quarter and traditionally the 2nd quarter is much stronger for Jamba Juice due to favorable weather conditions. Now is a good time to buy shares of Jamba Juice before the second quarter results and before the short covering starts to accelerate.
The board of directors and the management at Jamba Juice have made quality strategic decisions and they have an exceptional pedigree. Although Jamba is a small company from a market cap perspective, management has extensive experience in food and beverage retail. CEO Paul Clayton is the former President of Burger King (BKC) North America while Board member Craig Foley was the early lead investor in Starbucks (SBUX) and Costco (COST) and was on the board of directors at Starbucks for 15 years. Other Jamba board members also serve on the boards of Ebay (EBAY), Burger King (BKC), and P.F. Chang’s (PFCB).
Jamba Inc. is a growth story in its early stages. Although Jamba must increase customer frequency rates to become a highly profitable company, recent initiatives including pre-packed bottled beverages and healthy food products should open Jamba Juice to a wider range of customers while increasing visit frequency for current customers.
With a market cap of only $530 million, rapid growth, and a healthy brand image, Jamba has the makings of an appealing takeover target. If Starbucks wanted to extend their dominance of the beverage industry while improving their appeal to health conscious consumers, Jamba seems like an excellent fit.
BUY JMBA near $10.02
JMBA 1-yr. chart: