Divining Jamba's Future Under New CEO David Pace

| About: Jamba, Inc. (JMBA)

Summary

March 14, 2016 was an eventful day for Jamba Juice. It was new CEO David Pace's first day on the job, and also their 2015 annual report and analyst call.

I listened to the call. In this article, I attempt to "read between the lines" of what Pace said, and what it may mean for Jamba's path forward.

I also share recent activity related to 5% or greater shareholders.

As can be surmised from my chosen pseudonym, my personal portfolio as well as my main work for Seeking Alpha focuses on building low-cost, diversified portfolios using ETFs (Exchange Traded Funds).

However, as outlined in this article, I still dabble a little in individual stocks. In fact, as of this writing, they comprise 10.85% of my overall portfolio. In that article, I revealed that Jamba, Inc. (NASDAQ:JMBA) was my one "long shot," a company that, I believe, has the potential to at least double over the next 3-5 years. In this article, I will take a brief detour from my main focus and offer my perspective on recent developments at Jamba. If you wish to learn more about Jamba's recent history, it's all there in the article I share above, via links to previous articles I have written.

That article concluded at the point in time when then-CEO James White had announced his retirement (you are free to read between the lines as you choose) and the company was searching for a replacement. On January 22, Jamba issued a press release announcing their selection of David Pace.

Pace has served on the Jamba board since 2012. He was hired away from Bloomin' Brands (NASDAQ:BLMN), where he had served as Executive Vice President and President of Bloomin's Carrabas Italian Grill chain. Further detail about Mr. Pace can be found in the press release I linked above.

On Monday, March 14, JMBA released annual results for 2015 and held their Earnings Call. This also happened to be Pace's official first day as CEO. I eagerly joined the call, hoping that he would be present to share some early thoughts. As it turns out, he was.

For the rest of this article, I will share thoughts on three key areas that jumped out at me. I will offer direct quotes from Pace's comments along with my own thoughts as to historical context and what Pace's vision may mean for the company going forward.

Please note that these comments may not be in chronological order. Some were in Pace's prepared comments, others in the Q&A portion. Rather, as mentioned above, I will arrange them by key area of focus.

Key Area #1: Renewed Focus on the STORES

First of all, here are the thoughts expressed by Pace.

. . . My focus is going to be on reestablishing our internal focus on being a store centric organization and a customer centric organization. We have to be successful at the store level in order to grow the business going forward. And so I want us to make sure that that's our primary focus and other growth initiatives [are] . . . going to be secondary relative to the stores.

I think related to that, if you talk about store businesses, any store business in this industry is successful if they drive transactions, they drive customers in and they drive top-line.

Finally, we will review all other organizational activities and initiatives to ensure that they align with our store eccentric focus and we will evaluate our long-term direction from that perspective. As a result after a recent review of our ready-to-drink cold-pressed juice line, we've determined that it was not sufficiently adding to the company's bottom-line or top-line and thus we've decided to put this initiative on hold and redeploy our resources to grow the core store business.

Our review will also include an evaluation of how we use other initiatives like JambaGo and CPG as growth platforms within the portfolio.

Here's my takeaway. Former CEO White came from more of a retail background. He had helped to develop various product lines, particularly for Safeway, from where Jamba hired him.

Under White, Jamba appeared to spend a lot of focus on the CPG area, working to develop "sideline" products that could be sold, for example, in grocery stores. Early on, they partnered with Oregon Ice Cream to develop a line of Frozen Fruit and Sorbet bars. Later, they joined forces with Inventure Foods, Inc. (NASDAQ:SNAK) to develop Jamba Smoothie Kits, which allowed the consumer to blend their own smoothies at home. These are but two examples of several similar initiatives, which also included things like experimenting with frozen yogurt and the acquisition of Talbott Teas.

However, a review of Jamba's financials will show that, at best, these items have been marginal contributors and, at worst, total disasters never to be heard about again. For example, I cannot recall any recent mention of Talbott Teas or what they are doing (or not doing). The last time I saw the ice cream bars in a store? In my local Grocery Outlet, selling for pennies on the (original) price.

Pace appears to be saying "Enough is enough. Let's get back to basics." I applaud the priority on the stores, where my experience has been that the quality of both the Jamba product and service is all over the map. Great one day, sub-par the next.

Key Area #2: When It Comes to International Stores, One Size Does Not Fit All

Again, let's hear directly from Pace.

I spent more than half of my career on the international businesses. . . . I think one of the things that you will see from us is a slight change in approach to how we think about international. And I think historically the company is looked at international as how do we lift the California model and drop it pretty much in its California form into international markets.

And I think what the organization has been experiencing . . . is that . . . to be successful, it requires us to modify both the footprint of the stores, the product offering of the stores, the messaging of the stores as well as how we provide supply chain . . .

Reading between the lines, it appears that Jamba may have taken the view that simply replicating a California store was all it took to serve an international market. I have already been impressed with the quality of partners Jamba has lined up in various countries. I hear Pace to be saying that they need to listen to and work with these partners to come up with whatever is the unique, winning combination for each market.

Key Area #3: Financial Projections That Are Actually Met

Really, there was only one brief comment on this, but it really caught my attention.

My philosophy toward investor communications is to provide realistic, fact based expectations build from the bottom up that you can count on this team delivering. . . . I ask you to please give me four to six weeks to . . . quantify and review the . . . key initiatives I've just outlined on our plan, and to then put some[thing] in front of you that you can hold us accountable for.

As I noted in the article I linked at the outset of this piece, I sold all my shares in Jamba some time back, before deciding to get back in based on new events. One of the biggest reasons I got out, quite frankly, was because of hearing incessant hype about the "next new thing" (see above) over and over again, only to have sub-par results later explained away with any one of a number of convenient "reasons" or, in some cases, the initiative rarely or perhaps never mentioned again.

With that in mind, I eagerly wait for the Q1 earnings call to see what sort of communication Pace delivers.

Financial Projections and Large Shareholders

For purposes of this article, I am not going to make any personal attempt at offering a financial projection for the company. Over the past couple of years, Jamba has undergone a significant transformation to a franchise model. As one reference point, as of the 2012 10-K, company stores still comprised 37.2% of total outlets (301 of 809). As of the just-released 2015 10-K, only 70 company stores remain, or 7.8% of total outlets.

Needless to say, this has made financial comparisons very difficult over the last few years, as the total revenue and expense streams of those company stores has been replaced by franchise royalties.

However, for those interested, here are links to two recently updated financial estimates:

In conjunction with this, Jamba reiterated on the earnings call that the run rate for G&A expenses would be $26.5 million for 2016, reflecting significant cost-cutting at headquarters and the outsourcing of many administrative functions. Of course, it is imperative that such costs remain in line with the lower revenue streams generated by the franchise model.

Finally, interested investors may wish to check out recent SC 13G filings related to entities revealing 5% or greater ownership in the company. Here is a link to the SEC Filings page on the Jamba website. Some key filings you may wish to review are as follows:

  • BlackRock, Inc. (NYSE:BLK) - 1/28/16 & 3/10/16
  • Morgan Stanley (NYSE:MS) - 2/05/16
  • Wellington Management Group - 2/10/16

Summary and Conclusion

For better or worse, I look at this as the start of a new era for Jamba. I hope that the information and viewpoints I share here are helpful to you in forming your own conclusions as to whether you wish to invest any money in this company.

As you do, here is one last piece of information for you to consider. At the same SEC Filings link I provided above, you will find a Form 8-K dated 1/22/16 which outlines the employment agreement with Mr. Pace. Here is the paragraph I found most interesting (bolded text is mine, for emphasis):

The Employment Agreement provides that Mr. Pace will receive equity awards consisting of: (NYSE:I) nonqualified stock options to purchase up to (NYSE:A) 150,000 shares of the Company's common stock at an exercise price per share equal to the closing price of the Company's common stock on the date of grant and (NYSE:B) 50,000 shares of the Company's common stock at an exercise price per share equal to $19.50 (, the "15% TSR Option"), in each case vesting annually over three years subject to his employment; and (ii) an award of 350,000 restricted stock units of which 150,000, 100,000 and 100,000 would vest upon achievement of stock price targets of $19.50, $24.00 and $28.50, respectively (the "15%, 22.5% and 30% TSR RSUs"), so long as Mr. Pace remains an employee of Jamba Juice Company and/or its affiliates.

So, the good news is that Mr. Pace has great incentive to get the stock price up quite a ways from the $12.48 at which it trades as I write this sentence.

Whatever your decision, as always I wish you . . .

Happy investing!

Disclosure: I am/we are long JMBA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: 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, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.