Jamba - Morphing From Turnaround To Growth Story

| About: Jamba, Inc. (JMBA)

Jamba, Inc. (NASDAQ:JMBA) recently finished releasing Q1 2013 results in the form of their 10-Q as well as their quarterly investor call. (Transcript)

Overall, I believe Q1 was a good, if not explosive, quarter. In a previous article, I shared a brief history of the company as well as highlighted key points from their 2012 results and projections for 2013. That article summarized what might be described as Jamba's turnaround story.

In this article, I will discuss high points from Q1 as featured both on the earnings call and in the 10-Q, address a few questions I have seen posted on message boards, and explain why I believe Jamba is now well along in their metamorphosis from turnaround to growth story.

Highlights From the Q1 2013 Results

Here are just a few highlights:

  • Systemwide same-store-sales (hereafter SSS) increased 1.3%. This broke down into a 3.6% increase for company stores, offset somewhat by a .9% decrease for the franchised stores. The 3.6% increase for company stores was comprised of a 1.3% increase in traffic (number of transactions) and a 2.3% increase in average check amount.
  • The company opened 144 new JambaGO locations, moving from 404 as of the end of 2012 to 548 as of Q1. The company restated its outlook of having 1,400-1,500 JambaGO locations in operation by the end of 2013.
  • Total revenue for Q1 2013 increased by approximately $2 million, or 3.8%, over Q1 2012. This broke down to approximately $1.1 million for company stores and $.9 million in franchise and CPG revenue.
  • Four-wall store margins for the quarter were 14.6%, a little lower than the 20% the company had guided towards for 2013. This was due to increased marketing efforts, but management reiterated that they still expect to hit the 20% target for the full year.
  • The balance sheet remains strong, with $23 million in cash and no debt.

Let me next briefly address a couple of queries I have seen from various sources.

What's So Hot About the SSS Increase?

On the surface, a 3.6% SSS increase, while solid, might not appear exactly breathtaking. Further, the .9% decrease for franchise stores might appear troubling to the casual observer. Allow me to quickly share two thoughts with respect to these results.

  1. Jamba was comping against an extremely strong prior-year Q1. California experienced unseasonably warm weather during Q1 2012. Since a large percentage of Jamba's company stores are in CA, this translated to blowout SSS results of 12.7% for company stores and 10.5% for franchise stores. Given these factors, the results for Q1 2013 are actually quite impressive. In fact, on the earnings call, White made the observation that SSS are up 15.3% over the past two years on a "stacked" basis.
  2. There has been concern over the past couple of years that efforts by major competitors, including Starbucks (NASDAQ:SBUX) and McDonald's (NYSE:MCD) would actually result in erosion of Jamba's smoothie sales. As the results demonstrate, this has not been the case.

Where Did $8 Million in Cash Disappear?

I have seen this question posted by multiple individuals on one particular message board I follow who apparently noticed that Jamba's cash balance dropped from $31 million as of the end of 2012 to $23 million as of Q1.

Happily, the answer is actually quite easy to find if one simply reads the 10-Q. During the quarter, Jamba reduced their Accounts Payable and Accrued Expenses by approximately $7 million and also spent approximately $2.9 million in capital expenditures, a large part of which went to their store-refresh program. Jamba undertakes a significant amount of this in Q1 to have their stores as ready as possible for the busy summer season. Combined with their $1.2 million loss for the quarter, this depleted their cash to some extent. However, if last year's pattern follows, Jamba should be significantly profitable in both Q2 and Q3, likely restoring their cash closer to ending 2012 levels.

Other Tidbits

I would also like to share a few minor tidbits I picked up; a couple from the earnings call and one from the 10-Q. First, from the earnings call.

Scott Van Winkle - Canaccord Genuity, Research Division

James, last call, we talked about the comps this quarter and I think the term you used was "slightly positive" or "modestly positive" when you gave us an indication of how trends were against that tough comparison. Does this imply that March was just a bang-up month?

James D. White - Chairman, Chief Executive Officer and President

I think what I say, Scott, is we improved really across the quarter. I mean, we certainly got stronger as we worked across the quarter and we started the quarter modestly positive, but we strengthened as we worked across the quarter.

So, it would appear that Jamba's sales comps accelerated through the quarter, which should bode well for Q2.

Next, with respect to the recently-expanded fresh juice and store refresh initiative, this exchange gives a little insight as to the direction the company is going, and the associated potential:

Gregory J. McKinley - Dougherty & Company LLC, Research Division

And then maybe just on that topic with adding the vegetable offering, you talked about 30% to 40% incrementality. Can you just help me understand what exactly that means in terms of an overall sales lift that these stores, where you've done the tests?

James D. White - Chairman, Chief Executive Officer and President

Yes, so the context and I shared a little bit of this on the last call, so if I just isolate the Santa Monica store, which is one of the flagship locations, 3% of our sales in that store would've been fresh juice before we expanded the lineup and refreshed the store. That now stands at about 12%. But if you look at it in total, about 40% of that is incremental. And as we factor that into the overall store performance and extrapolate out, we expect a 300- to 400-basis-point improvement overall.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Okay. It went from 3% to 12% and you're saying 40% of that delta...

James D. White - Chairman, Chief Executive Officer and President


Gregory J. McKinley - Dougherty & Company LLC, Research Division


James D. White - Chairman, Chief Executive Officer and President

But what we like about that more importantly of that consumer is a more habitual consumer. So it'll have an annuity factor over time that I would describe as much like breakfast. So the same things that make us excited about the breakfast day part and what we did with oatmeal, we know fresh juice as we build awareness. And all of this, to date, is really with no marketing in any of those locations. I thought it was just adding the new environment and the new products.

Finally, check out this little tidbit from the 10-Q:

In 2012, the Company entered into a Trade Credit Agreement with a California advertising agency to provide product from the Company's wholly owned subsidiary, Talbott Teas, Inc. ("Talbott"), in exchange for future advertising credits ("trade credits"). The trade credits will expire in November 2017. During the 13 week period ended April 2, 2013, the Company exchanged Talbott product for $0.6 million of trade credits. At April 2, 2013, trade credits of approximately $0.5 million are remaining and are included on the consolidated balance sheet in prepaid expenses and other current assets. These trade credits are charged to expense as they are used to purchase advertising services. The transaction was recorded at the fair value of the Talbott products provided to the advertising agency on the date of the transaction.

So, it appears that Jamba did an innovative little deal to essentially trade some of its Talbott Teas product to obtain some marketing spend.

Summary and Conclusion

As proposed in the introduction, Jamba appears to have clearly turned the corner from turnaround to growth story. With two years of solid SSS increases under their belt, and an ever-expanding range of innovation, from an expanding fresh juice program to JambaGO, Jamba appears ready to "juice" the returns of investors.

Disclosure: I am 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: 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. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

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