Jamba Juice: If You Build It, Will They Come?

Jamba Juice (JMBA) is a colorful, fun brand with plenty of room for store growth. The current base is 707 stores of which 71% are company owned and the rest franchised. Suffering from lousy same-store-sales and depressed consumer spending, especially in California where the company has most of its stores, the stock is trading under three bucks. It was at ten last May.

Despite respectable store-level cashflow margins of 13.5% (and long term targets of 20%), the company as a whole has been struggling to reach sustained profitability. But growth seems to be the mandate and Jamba has been opening new stores at what I consider an aggressive pace, steadily burning through what once was a sizeable net cash balance.

Unfortunately, the new store openings aren't always winners from the get-go. On the last conference call analyst Roger Sachs (Societe Generale) put to CEO Paul Clayton, "I wonder if it makes sense to almost have very little, almost no expansion during '08."

You can read Clayton's full response here, but the part I want to highlight is, "We have a long history--and I want to make this really clear--that we have a long history of stores opening low and ramping over time. And there's no reason to believe that, wow, some of these new stores will open lower than our expectations, that they won't ramp. In fact, they've opened consistent with our historical performances, so therefore it's my view that they will ramp like stores have in the past." I think I've heard Clayton make that point elsewhere as well.

If he's right, Jamba's stock could rocket. If he's wrong . . .

PS - Some stats worth mentioning (source: JMBA presentation): The 2007 made-to-order smoothie market is estimated at $2.25 billion, growing at a 13% CAGR through 2010. The 2007 ready-to-drink (pre-packaged) market in which Jamba also competes is estimated at $655 million, growing at a 25% CAGR through 2010. Jamba's fiscal '07 revenue was $317 million.

PPS - I want to buy a restaurant stock! Please send me your suggestions. Must be cheap and not levered.

Comments

[Pouya:]

Jamba Juice is not learning from Starbucks' mistakes. I would say that the stock will continue to nose dive, but it has performed so poorly that it may have actually bottomed in mid-March. I actually don't like the entire Retail-Restaurants industry, so I am reluctant to recommend any. But if you are SET on finding one, the strongest stocks in the industry are RRGB, BKC, CMGB or CMG (solid fundamentals for the Chipotle stores).

2008 Apr 11 09:33 AM

[Yazz:]

You know, Jamba fits your own criteria of cheap and not levered. Maybe it's worth a shot? (I'm not talking about a wheatgrass shot)

2008 Apr 11 09:48 AM

[valueinvest...:]

Restaraunt ideas: GCFB,KONA,MRT

2008 Apr 11 09:57 AM

[robert99:]

I own a very small position in JMBA - It's a lottery stock. If we drop into a bad recession, JMBA will likely go bankrupt. If not, they will recover nicely. Hedge your bets accordingly.

2008 Apr 11 01:07 PM

[anastos:]

I agree. Given a large portion of their stores are in California, where the subprime mess is hitting hard, it's a tough call. I own a few hundred shares I got below $3 and will just wait and see what happens.

2008 Apr 11 03:57 PM

[daemonali:]

good for you guys - argh - i've been in since around the $3.50 buy point in December - since then things haven't been going so well - but it's been creeping back as of late and all the high volume on the down slope is done - and it's true, the smoothie revolution is in full effect - especially judging by the long lines at their store openings in NY - can't wait for the summer's bounce back - i'm averaging

2008 Apr 11 05:15 PM

[Dan Jacome:]

gotten too burned on this one, staying away. We are in defensive names now - MCD, just picked up GE on today's tumble.

2008 Apr 11 06:10 PM

[Dan Jacome:]

CMG is a solid story based on unit economics, but it is too expensive. 36x PE means they have to crush the next call and then some.......

2008 Apr 11 06:10 PM

[gman199:]

I like LWAY better than JMBA. Lifeway has a similar type of product and will be opening up its first retail test store in a matter of days. This is more of a retail product, not restaurant, but read the latest quarterly reports for each. It seems to me that LWAY is a more optomistic for future growth.

2008 Apr 12 09:47 AM

[bearfund:]

Jamba Juice is not a life essential, so forget it. This kind of stuff is among the first things people with negative net worth, reduced access to credit, and insecurity at work stop buying - and already have, as weak earnings and a depressed share price reflect. Any recovery is years away, if bankruptcy doesn't claim them first.

America's growth industries over the next 5 years include bankruptcy lawyers, auctioneers, car repo outfits, bus and streetcar manufacturers, slum landlords, and urban apartment owners. The lower risk/lower reward opportunities are in commodities. Fruit smoothies? Ask me again in 2012.

2008 Apr 12 09:21 PM

[authentic:]

If this product is expensive as compared to its competition then this operation could go under if we experience an extended recession.

2008 Apr 12 10:00 PM

[seattle_seven:]

jmba- do you think they can over come- poor store layouts, loud blenders and the lack of a classic cool look ?

2008 Apr 12 10:33 PM

[Randoggle:]

Poor economic times are not good for any business. However, if Americans no longer have the ability to pay a few bucks for a radical drink in the summers swealtering heat I think our main concern should be self preservation. At less than three dollars a share I think it is a great "aggressive" buy.

2008 Apr 13 01:08 AM

[valueinvest...:]

Everyone seems to overlook the deal they made with Nestle. I often wonder if this is because they made the deal with Nestle and not a company based in the U.S. like PEP or KO. Nestle is a fantastic company that is brilliant at distribution. In the lng run, that deal should provide significant benefits to Jamba

2008 Apr 13 08:32 AM

[Mexx:]

Agree with valueguy123. The Nestle deal is JMBA's biggest wild card. Although the deal is slated to start out slowly in select distribution markets, if Jamba Juice catches on at supermarkets and other retailers, the Jamba stores will almost become a rounding error for the company. This alone is worth a gamble at current JMBA prices.

If you are looking for a good restaurant stock, take a look at BWLD.

2008 Apr 18 04:44 PM

[pmix:]

Paul Clayton states that unit economics raising to 20% cash flow is coming. They certainly are on the high end of what someone is willing to pay for a smoothie and with commodity prices continuing to raise and minimum wages pushing higher I can't see that becoming a reality. The real problem is that Jamba is in the smoothie business, which is dying. They need to be in the health and wellness business which would allow them to grow and develop alternate products and services. All they create are new smoothies which is a deteriorating concept.

2008 May 19 03:11 PM

[Poor Jim:]

Start by reading their annual report -- the usual two-bit-corporation 10-K wraparound. The letter from the chairman, Paul Clayton, is as fatuous a Chairman's letter as you will ever read. It starts out:

"Fruit is good. It fuels our body and mind with necessary vitamins and nutrients, and it tastes great!"

Further quotes: "Even though we've grown and are now a public company, Jamba's purpose and core concept have not changed one bit from the early Juice Club days. We aspire to simplify healthy living for each and every customer, built on a foundation of great tasting , fresh fruit with a kiss of California. We know that this is a journey more than a destination, but everything we do will be grounded in our beliefs as we proceed on the journey. We believe in the goodness of real, whole fruit. We believe in all-natural products. And we believe in living a balanced life, centered on good nutrition, being active, and having fun!"

Two pages of that flapdoodle!

This is a company that has no apparent focus, with stores that deliver no "experience" (vis-a-vis,say, Starbucks), stores with no visual appeal inside or out, whose employees apparently just sit or stand around waiting for customers to walk in.

There's one not far from me, in an upscale sort of goodsized strip mall, with a mix of upper-middle and up retailers, and with a similar one across the street. If I were running that store, I'd be delivering "Fresh-Fruit Breakfasts" to the many hundreds of employees who work in those retail stores -- and "Re-Fruit and Re-Fresh" mid-afternoon pick-me-ups, too.

The management and Board appear to include several former upper and middle managers of various franchise chains such as Burger King, P.F Chang's China Bistro, Brinker International (Chili's, etc.) and the like. Two or three directors look like you'd like to have them on the board of company you owned, but overall it looks like a pretty chummy group. Maybe tired and re-tired; bet they play a lot of golf.

Some 2007 numbers:
Net profit (loss)............. ($113,296) NEGATIVE
Net cash flow................($... NEGATIVE
Top five execs' pay........ $4,030,000
Audit fees.....................
Directors' compensation....$1,403...

Expansion (opening new stores) is a HUGE part of Jamba's
operating expenses. Given the present economy, if I were running this company I'd cut way back, maybe entirely, on new stores, until I had a much sharper idea of how to make money (1) selling their all-fruit smoothies, and (2) looking for ways to get more sales from their present stores.

On the positive side (surprise!), they have a very good product-- so good that the best food company in the world, Nestle, is starting to sell that product as a packaged food in supermarkets.

But unless Jamba turns around its retail stores operation, Nestle,
won't have to pay more than $5 or so to take it over, which will leave a lot of shareholders still under water.

Which is why I sign myself,

Poor Jim

2008 May 24 11:36 AM