Jamba, Inc. F1Q08 (Qtr End 04/22/08) Earnings Call Transcript

Jamba, Inc. (JMBA)

Q1 2008 Earnings Call

May 27, 2008 5:00 pm ET

Executives

Jake Bodden – VP Investor Relations

Paul Clayton – CEO

Don Breen - CFO
Paul Coletta – Sr. VP Marketing and Brand Development

Analysts

Brian Moore - Wedbush Morgan Securities
Nicole Miller - Piper Jaffray

Presentation

Operator

Good day everyone and welcome to today’s Jamba, Inc. first quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Jake Bodden, Vice President of Investor Relations; please go ahead.

Jake Bodden

Good afternoon I’m Jake Bodden, Vice President of Communications and Investor Relations for Jamba. Presenting on today’s call are Paul Clayton, Jamba’s CEO, and Don Breen, Jamba’s CFO. Paul Coletta, Jamba’s Senior Vice President of Marketing and Brand Development will participate in the Q&A. During today’s call Paul Clayton will discuss Jamba’s strategy for the future and then Don will review our first quarter 2008 financial performance.

I’d like to remind all listeners that this call is being broadcast and recorded live over the internet at www.jamba.com. The webcast is available on our website and a replay will be available via telephone until June 10, 2008.

This conference call will include forward-looking statements within the meaning of the securities laws. These forward-looking statements will include projections, expectations of restaurant comparative store sales trends, the number of stores we intend to open and certain statements of our expectations and plans. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements that are contained in the company’s filings with the SEC including the risk factors section of Jamba’s 2007 10-K.

With that out of the way I’ll hand it over to Paul to take us through Jamba’s strategy and execution.

Paul Clayton

Thank you Jake. On May 15 we announced a reorganization of Jamba’s support functions resulting in an approximate 19% reduction in non-store level personnel. This decision results from slowing our growth in an effort to be highly focused on improving the performance of our existing stores. Many talented and devoted team members have been impacted and our gratitude and appreciation go out to them for their numerous contributions to making Jamba the brand it is today. We wish them nothing but the best for the future.

Since November, 2006 when we became a public company, our comparable sales performance has been volatile to say the least. In 2007 we were up in quarters one and three and down in quarters two and four. This year we started with a negative quarter. It’s likely that our stores have been impacted by the economy, particularly in markets where the housing crisis has been the greatest. For a significant number of our customers Jamba is a highly discretionary purchase. Our initiatives have been focused on changing this.

It’s also likely that weather had both a negative and positive impact on our sales depending on the market and the time of the year. Finally it may also be the case that smoothie categories maturing in established markets like California and that the Jamba brand is not transforming as fast as it should.

While we’ve been easing off the growth accelerators since the third quarter of 2007 when we first announced soft sales in California, we’re now completely focused on transforming Jamba from a smoothie chain to a healthy living company and improving our store performance. Our plan is fairly simple. Number one; grow comparable store sales sustainably through products which are more relevant to a healthy lifestyle. Number two reduce store level costs through better efficiencies and value engineering. Number three right-size our G&A to reflect our current store performance and growth. Four, close 10 under-performing stores and terminate the leases on seven yet-to-be built stores.

Our intensified focus on improving our store performance will allow us to accelerate our transformation process. In 2007 according to Mintel, the made-to-order smoothie market was $2.29 billion and had grown by 52% since 2005. Jamba is far and away the leader in this category with over $427 million in Jamba brand system wide sales. Nobody else comes close. Jamba’s leadership position is evidenced by its more than 2x average unit volumes and more than 500 company-owned and operated stores.

In fact most of the other recognized smoothie chains don’t have company stores. I believe that we have created a uniquely attractive brand by combining the concepts of fun, healthy and on-the-go. This simple combination has attracted broad mainstream customers and has allowed us to grow faster and further than the competition. We believe that no competitor in the category can come close to matching our combination of purchasing power, marketing clout, resources, and people culture and world class partnerships. It is our intention to leverage these strengths and the brand going forward.

With all these advantages however, Jamba’s store level performance has declined over the last year or so. Soft traffic in our core California market combined with higher commodity and labor costs has squeezed margins. On top of this we added 99 new company stores in 2007 ending the year with 501 stores, which is an increase of more than 25% new stores in one year. While many of these new stores are performing consistent with how stores have opened in the past, low initial sales with positive ramp, they have not met our expectations and have adversely impacted our profitability.

Our purpose to inspire and simplify healthy living remains very much in tact. Jamba is well positioned to take advantage of major mainstream consumer trends around healthy and active living. Our strategy of becoming increasingly relevant to our core customers’ healthy lifestyle and making the Jamba brand more accessible or easier to use is also very much intact. However we’re not pleased with the performance of our new and existing stores and as such we’re slowing new store growth considerably until store-level performance improves.

The operating metrics for success or positive sales momentum, better store-level margins and returns and corporate profitability. The key to improving our store performance is to profitably drive our top line revenues by increasing traffic and frequency of customer visits. Our strategy here is simple too. Build a larger base of highly loyal customers by ensuring we remain relevant to their healthy living journey and by making it easier for them to enjoy Jamba. The more we help our customers with their personal healthy living journey, the more we develop a stronger more meaningful connection with them. By strengthening this connection Jamba becomes more then just an occasional treat. This strategy is very well aligned with consumer trends for healthy living.

We have four priorities for growing sales. Number one focus on the customer first. Two, innovate product and menu offerings. Three build relevance and awareness through effective marketing communications. Four, create a vibrant, fun and easy to use store environment. First, Jamba’s focus has always been on satisfying the customer. We have listened to our customers and are focusing initiatives on improving speed of service. Earlier this year we trained all of our general managers on how to improve through-put and have provided them with new tools that will allow them to measure speed of service and through-put daily and by day.

We are also analyzing our tests of mobile hand held point-of-sale devices. Once that test is complete we plan to utilize this technology to further improve the customers’ experience. Second, we have built new product platforms that will serve as a foundation for making Jamba more relevant beyond flavors to customers looking for healthier eating options as part of their healthy living journey. Last year as part of our product innovation efforts, we one, enhanced [job alike] platform which were smoothies under 180 calories. Number two, we re-launched the all fruit, no sugar added, and non-dairy platform. And by the way the Pomegranate Paradise was the most successful new smoothie introduction in recent Jamba history.

And three, we overhauled the Jamba booths and functional smoothie platform. We saw product mix for these platforms reach record levels, largely at the expense of our classic smoothies. Today these three platforms account for 30% of units sold while classic smoothies account for 48% of units sold. Since the beginning of 2007 the combination of functional and all fruit smoothies have gained 8.5 percentage points while the classic flavors have lost about 8.5 percentage points.

In late February we rolled out our cold breakfast meals to all stores. Breakfast is the most habitual meal of the day. While many QARs are introducing products in the breakfast day part, none that we’re aware of are targeting the healthy attribute. Jamba offers nutritious breakfast meals that combine fruit and yogurt and organic granola and are eaten with a spoon. We aggressively promoted breakfast with our free breakfast day on April 8. Early results indicate the breakfast platform is being well received. Since its introduction in late February, the breakfast day part mix has grown from 18.6% of sales to 21.3% of sales.

Also since introduction the breakfast day part comp sales has increased 3.2 percentage points. In the markets that we’ve had breakfast the longest, we’ve seen full day comps increase as well. In Hawaii, which introduced the Acai cup in July, 2007 we’ve seen the market go from flat to negative comp growth to about 5% comp so far in 2008. In New York, which launched breakfast in third quarter of 2007 we’ve seen comp sales increase more than 7% since the introduction of breakfast.

While the correlation would suggest the connection between the introduction of breakfast and increasing full day comp sales, we are still analyzing this matter and hope to provide more definitive results in the future. We’re confident with this exciting new opportunity particularly with the introduction of toppings and a spoon which allows us to continue to develop Jamba as a credible, healthy meal.

The third area of focus to drive sales is to drive awareness to the Jamba brand and our relevant message through affective marketing communications. In 2008 we’re spending 80% of our marketing communications budget outside of our stores which is a reversal from 2007 when the vast majority was spent in store. We are utilizing outdoor advertising, radio, online and sampling through events such as with Nike. Our messaging has shifted from being about products which it historically has been to being about platforms and the Jamba brand.

The fourth area of focus is to simplify the unique Jamba store experience. We have now rolled out our menu board to all of our company stores. This new menu board is intended to improve speed of service and clarify the benefits of each of our platforms. For example, the all fruit platform is positioned as no sugar added, and dairy free.

Improving store performance also requires us to focus on our operating costs. Even with severe pressure on commodities, Jamba’s focus on store level profits has led to reduce cost of goods sold as a percentage of sales. This has been driven by new distribution agreements, a focus on reducing waste in the stores, lower [orange] costs and numerous packaging optimization initiatives. Our supply chain team is working more closely with our strategic suppliers to identify and implement more efficient ways to produce, package, store and move product. We believe a more deeply integrative relationship with strategic suppliers can lead to quicker product innovation at lower costs.

Labor was impacted by deleveraging of comp stores in our existing stores, the early spring time hiring and training because of our breakfast promotion, particularly the free breakfast day, and a rise in the minimum wage. We have a solid history of labor controls and we have no further planned incremental costs in training so I believe our labor costs for the second half of 2008 will really come down to what happens with top line comp sales.

Commensurate with slowing our rate of store development growth, we have taken aggressive action to right-size our G&A to bring costs in line with our slowed growth rate and reflect our existing store performance. We have reorganized these support functions to better focus on improving the performance of our existing stores rather than focusing on aggressive development of new stores. The right-sizing resulted in the loss of 53 team members and open jobs representing approximately 19% of our support team.

We announced that we will be closing 10 underperforming stores. In conjunction with these closures we will terminate the leases on seven yet-to-be-built stores. We have further moderated our growth in new stores. We’ve opened 17 stores in the first quarter of ’08 and have signed leases to finish the year with around 35 to 40 new company stores for the year. This range represents a further reduction from the guidance that we provided at the end of fourth quarter 2007. We will open very few company stores in 2009 until we’re convinced that store performance will yield an appropriate return on invested capital.

We continue to focus our franchising strategy on non-traditional store formats such as in airports, universities and store-within-a-store concept such as what we have with Safeway. These stores help grow awareness of the Jamba brand and make it more accessible to more customers. We opened 10 franchise stores in the first quarter, seven of which were non-traditional formats, two universities, and five Safeway’s. We plan to open 35 to 45 new franchise stores in the full year 2008 including about 15 to 20 universities and airports combined with another 10 to 15 Safeway’s.

Jamba’s greatest asset is its brand. As we’ve discussed we’ve leveraged the strength of the Jamba brand through a partnership with Nestle to develop a line of ready to drink products. The line up will include six SKUs; three of them juicies and three of them smoothies and they will compete directly with [Odwala, Naked Juice, Bolthouse] and others. Key grocery accounts are beginning to receive and shelve the products. Nestle will launch a marketing push in June to build awareness that will include TV and radio spots in select markets, outdoor marketing and a media tour.

In early May we teamed up with Dole, the world’s largest producer and marketer of fresh fruit to launch Jambafruit.com an online portal where customers can blend and share their own smoothie recipes. As part of the program Dole placed tens of millions of stickers that read, “I want to Jamba” on bunches of bananas.

Jamba will continue to explore other opportunities to leverage the brand outside of our stores. With all that said, I’d like to now hand it over to Don Breen, our Chief Financial Officer, who will take us through the financial performance in the first quarter.

Don Breen

Thanks Paul. First of all I’d like to remind everybody that our first quarter is 16 weeks long followed by three 12-week quarters in 2008 and this compares to 16 weeks in the first quarter, 12, 12 and then 11 weeks in the fourth quarter of 2007.

Now as Paul discussed we have right-sized and reorganized our support center team. Restructurings are always difficult and when you have to let good people go but it was imperative we appropriately size our staff functions to reflect our reduced development targets and the necessity to correspondingly reduce overhead operating expenses.

As a result we will take a pre-tax restructuring charge of approximately $750,000 in the second quarter associated with the reorganization of our support functions. When fully implemented we expect these overhead reduction actions to result in $7 million to $8 million in costs savings on an annual basis. We also announced several other cost cutting measures including closing 10 underperforming company-owned stores and terminating seven leases for un-built stores.

We have only just begun to contact the landlords for these affected locations. Once we have an estimable amount for these lease termination costs, we’ll update our disclosure. Now let’s turn to core quarterly operating results compared with prior year. As we had previously announced in our revenue release, company-owned comparable store sales were negative 4.2% during the first quarter of 2008, as compared to a positive 4.2% for company-owned comparable stores sales in the first quarter of 2007. System wide comparable store sales were negative 3.5% for the quarter compared to a positive 3.8% for system wide comparative store sales last year for the same quarter.

Our comps are significantly influenced by California where we have more than 75% of our comparable store sales base. In California company-owned comparable store sales were negative 5.6% for the quarter while outside of California we were positive 0.6%. Now this compares to positive 4.9% in California and positive 1.8% outside of California last year during the same quarter. As we’ve previously discussed California stores have a significant impact on our consolidated results. California has over 28% of the foreclosures tracked nationally in the top 500 foreclosure zip codes.

In addition certain other real estate impacted states such as Florida, Arizona, Nevada, are also being affected by tough economic conditions. Being more specific, we have 73 company-owned stores located in the top 500 zip codes in areas of home foreclosure. These stores generate about 13% of our company store revenue and affected our comp number by approximately 70 basis points in the first quarter. Now how much the broader market is impacted by the housing market, higher gas prices and increased unemployment is really hard for us to quantify but we believe the combination has negatively impacted sales.

Turning to new stores, Jamba opened 17 new company-owned stores in the first quarter including 14 outside of California and one non-traditional mall location. At the end of the quarter the company operated 515 company-owned stores. On the franchise front, franchisees opened 10 stores in the first quarter including two college campuses, [Ducane] University and Brigham Young. In addition we also opened five grocery store-within-a-store to bring the total Jamba Juice store count to 726.

For the quarter, total revenue increase was driven by 14.5% growth in revenue from company-owned stores. Franchise revenue was down approximately $300,000 as the company acquired 34 stores from franchisees during 2007. The increase in revenue from company-owned stores was primarily driven by the opening of 99 new company-owned stores and store acquisitions from franchisees. Although revenue was up approximately 14% store level operating costs were significantly impacted by the deleveraging affect of negative comp store sales and poor new store sales performance.

The most significant impact on margin from these affects was on labor and occupancy. Margins were also impacted by the timing of our marketing spend which was accelerated to support the launch of our breakfast campaign. The most significant quarterly change in margin came in labor where there was a 500 basis point increase. Lower comp store sales affected labor by about 150 basis points, minimum wage contributed about 130 basis points and deleverage from new store sales contributed about 80 basis points. The balance of approximately 150 basis points was due to labor management in part due to support free breakfast day.

The 90 basis point change in occupancy is similarly affected by the deleveraging affect of comp stores and new store sales. New store affect was about 20 basis points with comp store sales impacting occupancy by the remainder with higher fair market value rents as a result of lease renewals contributing modestly to the increase. Store operating expense which includes our marketing expense was $14.1 million or 14.3% of company store revenue, compared to 12.8% in the first quarter of 2007.

Now much of the increase is due to timing of marketing and advertising costs. This year we accelerated several marketing programs toward the end of the quarter for the breakfast launch and to gain momentum going into our all important summer selling season. Marketing for the quarter was 3.9% of sales or about 80 basis points higher then the comparable period last year. Now this is a timing difference. As I previously disclosed marketing on an annual basis will be a little bit less as a percentage of sales then last year.

We did see a nice step in the right direction in the quarter on cost of goods sold. Cost of goods was $26.4 million for the quarter or 26.7% of company-owned store revenue and that compares to 27.3% in the first quarter of 2007. The 60 basis point decrease in cost of sales as a percentage company store revenue was driven primarily by product mix including lower orange costs and improved waste and yield control through our new food cost system. Those savings were partially offset by higher juice and dairy costs.

Depreciation and amortization expense was $7.8 million compared to $5.3 million in the first quarter of 2007 and the increase as a percentage of total revenue is due primarily to the deleveraging results from lower average unit volumes on the 99 new company stores. G&A expense for the quarter was $15.3 million or 15.1% of total revenue compared to 16.8% of total revenue in the first quarter of last year. Now these numbers clearly do not reflect any of the cost savings initiatives we outlined earlier. These actions should on a fully implemented and annualized basis reduce G&A down to the 10% to 11% of revenue range.

And this puts us in a better position to continue to reduce overhead to a single-digit percentage of revenue in the future. Store pre-opening expense was $1.1 million or 1% of total revenue compared to 1.3% of total revenue in the first quarter of last year. We opened 17 new company stores in both the first quarter of 2008 and 2007 and the actual nominal dollar cost was roughly equal in both years.

Other operating expenses have been broken out with more detail this quarter. As you can see we booked approximately $4 million in store impairment and approximately $3 million of that is the write-down of net book value associated with the underperforming stores we’ve decided to close.

The operating loss was $20 million or negative 19.3% of total revenue compared to a loss of $8 million in the first quarter. This was largely driven by the margin compression I previously discussed and the expenses we have begun to accrue to implement our cost reduction and restructuring plan. As of the end of the first quarter we had approximately $11.1 million in cash and equivalents and an additional $4.3 million of restricted cash and investments with no long-term debt.

On April 17, 2008 we closed a five-year line of credit with Wells Fargo Foothill. With our reduced development plan we do not intend on using this facility to fund growth. It has been secured to backstop outstanding letters of credit for seasonal working capital needs. Availability on the line is based on a multiple of adjusted trailing 13 period annual EBITDA.

Now looking forward, with the economic environment still uncertain, oil prices continue to climb and unemployment is expected to continue to increase. Given the uncertainty we will continue to pare back development. Our annual comp guidance has been negative 2% to positive 2%. This is one of the more difficult areas for us to forecast. Our comp store sales are clearly subject to short-term fluctuations and we still believe that that range is appropriate; however given the backdrop that I just described, we believe that it is more likely to be in the lower end of that range.

As we’ve also previously announced, we are reducing the store development to a range of 35 to 40 company stores, down from our prior guidance of 45 to 55 company stores and in light of all that, we believe it’s appropriate to become more cautious with our margin assumptions. We previously indicated we thought store level EBITDA would be greater than 14% of company store revenue. Given the current trends in our new store sales, oil price increases and consumer uncertainty, we believe it’s prudent to reduce that range to 12% to 14%.

Due to the actions we’ve taken to right-size G&A we’re guiding that G&A as a percentage of total revenue to be in the 10% to 11% range on a fully implemented and perspective annualized basis.

With that I’d like to hand the call back to Paul for his closing remarks.

Paul Clayton

Thanks Don. Before we turn it over for questions and answers, I want to emphasize that Jamba is on a journey to simplify healthy living and in order to be the leader in the markets we choose to serve. Our core strategy to transform Jamba from a smoothie chain into a healthy lifestyle company remains intact. But we are slowing the rate of growth of new stores and will focus intensely on improving our store level performance. This starts with improving our comparable stores sales. Our initiatives to build a loyal core customer base through building relevant products are taking hold. We’re shifting the mix away from our classic smoothie flavors into our healthier options. Our breakfast launch has shown positive early indications. We continue to develop new product innovation pipeline and we’re turning up the volume on our marketing outside of our stores in order to build awareness in Jamba for our [inaudible] customers. We’re committed to improving the store experience for our customers with initiatives like the new menu board.

On the operating cost side, we’ve made progress on costs reductions in a difficult environment and will continue to do more. We recognize that our labor costs were challenged in the first quarter but we’re confident these will return to earlier levels. We have right-sized our G&A in order to be more in line with our current growth objectives and this will positively impact our corporate profitability. We’re the clear leader in the smoothie market today. It is from this front runner position that we’re currently transforming to be able to become a leading healthy lifestyle company. The Jamba brand is at the cornerstone that anchors our belief in this transformation. We recognize the challenges in front of us and as we’ve demonstrated in the past, we have the leadership team in place to lead through our strategy that will continue to position Jamba as the leader in the markets we choose to serve in the future.

Thank you for your time today and I’d like to now turn the call over to the operator so that we can take any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Brian Moore - Wedbush Morgan Securities

Brian Moore - Wedbush Morgan Securities

On Nestle, can you talk to how many doors that product is in today and as well as how many company stores the product is available?

Paul Coletta

I think the press release does a good job of outlining the accounts that we are currently shipping to but as of today, we have approximately 1,100 doors that are currently stocked and selling the RTD range. We are projecting 3,200 doors by mid July.

Brian Moore - Wedbush Morgan Securities

On breakfast a question related to the test of hot breakfast, any learnings there and timing for planned rollout of that product?

Paul Coletta

As you know we are piloting breakfast in two regions; New York and L.A., a hot breakfast where we’ve rolled out the new Turbo Chef Ovens and we’re continuing to refine the formulations of those products and the positioning and merchandising of them. I still think we have much work to do. We think it’s a promising platform but I think it’s too early to call it a success. We’re still refining as I say how we present the platform and how we formulate it.

Brian Moore - Wedbush Morgan Securities

Discounting seems to be a pretty common theme in the industry right now, I’m wondering what you might have for Q2 or the balance of the year in terms of promotional activity, discounting or loyalty programs to perhaps drive traffic.

Paul Clayton

I think our primary effort will be to continue to create value through marketing these product platforms and the benefits associated with these product platforms. Last year we did a variety of discounting tactics with mixed results. Mixed being that we were able to generate some initial redemption through these tactics but we didn’t see them from a sustainable customer traffic standpoint. We continue to look at it as a tactic but not sure it’s something that we’re going to aggressively jump into.

Brian Moore - Wedbush Morgan Securities

Don, I really do appreciate the detail on the labor deleverage, those four buckets, I’m hoping you can repeat those and then also speak to the status, I think you were working on a labor model and related to the 150 basis points related to the breakfast rollout, might some of that fall off for the balance of the year or will that be maintained?

Don Breen

I think that’s going to fall off. As we look at it, the lower comp store sales affect was about 150 basis points, minimum wage was about 130, deleverage from the lower new store sales and that’s from the stores that we opened in the prior year contributed about 80 basis points and then the balance was everything else including some support of free breakfast day as well as some labor management and some very volatile weather timeframes and we would expect that piece to start to fall off as we manage labor a little bit more tightly.

In terms of the new labor management module, it is continuing in development as we speak. It’s expected to be piloted in new stores late this year, probably late summer. So it is on track from a timing standpoint but still very much in development.

Brian Moore - Wedbush Morgan Securities

Trying to understand the flexibility of your new development as we look to 2009, particularly under your refined site selection process, could you maybe talk to how many letters of intent are currently signed for ’09 and then perhaps what the drop dead date might be in terms of opening units for Q1 of ’09, when would you have to have those leases signed by?

Paul Clayton

We did a pretty extensive review of our real estate pipeline and made every effort to make sure that as we go into 2009 that we don’t get out ahead of ourselves because our focus and priority really has to get our existing store portfolio and performance right. And so from a commitment standpoint for 2009 its very light. Again as I said before, we’re not going to build on that portfolio until we see better evidence that our existing stores are performing in direction that we want them to go in. In terms of lead times to affect change, I think typically you need six to 12 months to really build the right kind of pipeline to open new stores in any kind of significant number or significant way.

Operator

Your next question comes from the line of Nicole Miller - Piper Jaffray

Nicole Miller - Piper Jaffray

Can you go over the store closures and openings by quarter, how that’s going to play out for the rest of the year?

Don Breen

Our expectation is that the store closures will occur during the second quarter. We’re going through all the leases making sure that we don’t violate any continuous clauses, those kinds of things. We would expect the balance of those, or certainly the majority of those to close during the course of the second quarter.

The second quarter is going to be heavily weighted with probably a good 75% or so of the remaining stores and then tail off dramatically into the third quarter with probably very few if any in the fourth quarter.

Nicole Miller - Piper Jaffray

And what was the write-off you said that you did, happened in the second quarter again?

Don Breen

That’ll be about $750,000 for the restructuring charge associated with overhead reductions. And then –

Nicole Miller - Piper Jaffray

Is that pre or after-tax?

Don Breen

That’s pre-tax. And then as we get a better estimate of the lease termination costs, it’s at that point in time that we’ll disclose those. I would expect that to happen, we’re making those contacts now and I would expect that we’ll have that during the course of the second quarter.

Nicole Miller - Piper Jaffray

And is this to be thought of as two quarters kind of two quarters in nature or do you suspect to be closing more than these 10 stores?

Don Breen

Our expectation now is that we’ll close these 10 stores and we’ll obviously continue to evaluate performance but our expectation is that it will be 10.

Nicole Miller - Piper Jaffray

And what’s the revised CapEx given the revised development?

Don Breen

It’ll be about $25 million to $30 million is probably the number. That would include new stores as well as some of the things we’ve done; new menu boards, and some of the new labor management.

Nicole Miller - Piper Jaffray

You mentioned a number for ’09 development, did I hear that right?

Don Breen

No, no we said that there would be very few until we had the store right.

Nicole Miller - Piper Jaffray

So when you say very few, is it like half or zero or just, is it just a few?

Paul Clayton

Somewhere between zero and 20.

Nicole Miller - Piper Jaffray

I’m trying to reconcile the G&A savings, 10% to 11% according to my math, but that’s more than $7 million to $8 million that you mentioned that you’d save.

Don Breen

On an ongoing perspective basis, this year it will be higher then that because obviously we’ll only get about half of that.

Nicole Miller - Piper Jaffray

So but even if I were to take it all out of ’09, and none out of this year, even if my starting number is not right, well maybe I guess that’s what you’re saying is, maybe ’08 is going to come down quite a bit in the back half. Is that kind of what you’re thinking?

Don Breen

Yes.

Nicole Miller - Piper Jaffray

Okay so my starting point might be off.

Don Breen

That’s why I said on a fully implemented and prospective basis.

Nicole Miller - Piper Jaffray

What’s the [influction] point that leads to profitability?

Paul Clayton

Sustaining comp store sales growth because it will help our store economics and get our store level margins back to where we want and it will help us leverage our G&A.

Operator

At this time it appears that we have no further questions. I’d like to turn the program back over to Mr. Paul Clayton for any additional or closing comments.

Paul Clayton

Thank you. I have no further comments other then to say we’re working hard to continue our transformation from smoothie chain to healthy living company and we’re very focused on getting our store level performance where it needs to be, where it’s been in the past and where we’re confident it will be in the future. Thanks for your time and attention today and we look forward to seeing you soon or talking with you soon. Thank you.

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