The Case for Jamba Juice 12 comments
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I own some Jamba Juice (JMBA) shares and averaged down, recently at 97 cents. My cost basis isn't high enough to make me worried, but I wonder if JMBA at under a dollar a share is worth a look. The company releases earnings on August 21, 2008, and for the past month, has been pulling out all the stops in getting traffic into its stores. It simplified its menu design, introduced brand-new breakfast items like granola poppers, and introduced a lower-priced orange refresher with the entertaining repartee, "Where's the Fruit?"
Here's the case for Jamba:
First, Jamba's stock price is below its book value.
Second, traffic has increased as a result of the marketing blitz. I have personally noticed traffic increase in its stores, at least in the Bay Area.
Third, competition is sparse. Starbucks' (SBUX) new drinks taste terrible--BusinessWeek's David Kiley agrees with me about the taste--he said one drink had a "chemical taste."
The better competition is from Jack-in-the-Box's (JBX) smoothies, which actually taste good but probably have no nutritional value (too much sugar).
Fourth, the prices for oranges has decreased. Jamba spends a lot of money of strawberries and oranges. With the recent good weather, Jamba's costs should decrease.
Fifth, most of us in California have had a very hot summer. Hot weather helps Jamba's business for obvious reasons.
The case against Jamba:
1. Service is slow. No matter how many songs their workers sing in the stores, Starbucks makes a drink faster. I see lines all the time at Jamba. This means traffic has increased, but their service model needs to be changed to increase efficiency. There is no reason people should be waiting 6 minutes or more for a drink. Also, I never get a receipt at Jamba unless I ask for one. This means customers and employees have no record of what they ordered, making some fraud inevitable. I saw someone recently tell an employee he ordered a pretzel. No one had any records. She had to give it to him. That situation also slowed down service for other people.
2. Jamba continues to be lackluster in finding good locations. A frozen yogurt place just opened up in downtown San Jose next to a new Popeye's. Both places probably got money from the city's redevelopment department. Why didn't Jamba get one of those locations? I am willing to bet Jamba doesn't even know a Redevelopment Agency exists in San Jose. This is Jamba's main problem--in food services, location is everything because if consumers can't easily get to you, they will just go across the street to someone else.
3. Jamba may be losing money on its orange refresher. To compete with Starbucks, Jamba introduced a new drink costing $2.95. If someone only orders that drink, Jamba may not benefit from all the increased traffic. (From what I saw, however, people were ordering many different drinks.)
4. Management continues to be non-responsive. I sent a detailed letter to Jamba's management several months ago after their annual meeting. I did not receive even an acknowledgment they received it. I understand that Jamba cannot respond to every inquiry, but a postcard confirming receipt of detailed letters might be a good idea.
5. Jamba has not used the futures market to lock in fruit prices. With orange prices being relatively low right now, Jamba is foolish not to consider using orange futures.
6. As far as I know, Jamba's warrants haven't expired yet. Explore previous Jamba posts for more on this issue.
7. If Jamba's stock price stays below a dollar for a certain period of time, it may be pink-listed or taken off the NASDAQ. That would make its shares harder to trade.
What's my conclusion? Skip the Vegas trip and put your play money on Jamba--if earnings disappoint on August 21, 2008, only then will I give up on Jamba.
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This article has 12 comments:
They should reduce the size of their drinks by 35% and cut their prices by 25%...Increasing operating margins by 10% and volume on a lower price point.
While I concur with some of your points, most of your points are too anecdotal or tactical to make a case for Jamba either way.
There is a lot of pessimism built into the stock, at this level, the numbers don't mean much, the fact that it trades below book is meaningless, there are lots of micro-caps that fit that profile (e.g., VIMC, FMD come to mind).
Nonetheless, I think it comes down to three things:
Unique Value Proposition (UVP): The fact that MCD, SBUX, Dunkin, and everyone else has jumped into the smoothie business simply validates the Product category and exposes more people to the smoothie concept. Competition is alive and well, it may be in very fragmented market but it is there, and lets not forget all the near perfect substitutes in the ready to drink market. So the question is can Jamba create a UVP that can help differentiate itself and help grow their biz. model. My answer is maybe. I think serving quality drinks is a great start, but they have a bit to go in the in-store experience, your example of the 6min. brings to light the in-store issue.
Management: Contrary to other's opinion, I think management is quite competent. Their marketing is stellar, they understand operations and are lasered focus on creative a memorable customer experience so that they increase customer frequency (a key metric). Scoring the Nestle distribution deal in the RTD market by leveraging their brand was a stroke of genius. They are keenly aware of service, throughput, sizing/pricing and are working hard on fixing them. Unfortunately, that leaves little time and money to respond to indiv. shareholder letters. Judging Management responsiveness by the fact that they did not respond to your letter is a bit... petty.
Profitability: It is absolutely critical for Jamba to figure out how to make money on a $2.95 drink and still fulfill the brand promise and deliver a UVP. The scalability of the business, the mass market appeal, and most importantly the ability to make money over the long haul rests in making the $2.95 drink work for the business. This is where the futures market could come into play, along with some tight controls over operations and cost containment.
Bottomline, we are clearly in long-term speculation territory. At the next earnings meeting, pay attention to the three things above, everything else is short-term noise.
I too sent an email and made similar comments and suggestions to several Jamba representatives with no response and seemingly little understanding on their part.
It was clear to me then that rather than open up a bunch of new stores, they needed to first make the drink ordering and preparation process more efficient which they still haven't done.
Second, they needed to simplify and tweak their product menu which they have done to some gegree.
Third, they needed to pick better and more profitable locations which I haven't seen much evidence of. There are plenty of them out there!
While the stock is cheap and the potential is there but I haven't seen enough positive moves by current management to make me a serious purchaser of the stock.
I was in and out of this stock in the 3s and took a small loss. Management has no plan to address the real problems....over zealous expansion into a market that is in the middle of the worst housing bust in ages and expanding competition. Until management has a plan for that and doesn't get surprised by a $200something million dollar charge again, I'll pass.
On a general note, can anyone that buys shares in a company post positive comments about that company on Seeking Alpha? - :-)
Cheers
On a general note, can anyone that buys shares in a company post positive "articles" about that company on Seeking Alpha? - :-)