While a number of small cap stocks have been afflicted due to the recent slump, Jamba (NASDAQ:JMBA) remains one to be amongst the few companies which have survived. The company is well known for its subsidiary, Jamba Juice, which sells smoothies and drinks throughout the United States.
While the company has experienced a slight decline in trading, it has still been able to outperform the Russell 2000 in the past 6 months, adding 13.6% in comparison to the 4.9% loss experienced by the iShares Russell 2000 Index ETF.
Performance Of The Company
Keeping in mind the weak performance of other stocks in the same capitalization level, Jamba certainly has shown a good level of performance. In its earnings report for August, the company earned 44 cents per share while analysts had expected this figure to have been at a value of 38 cents for the quarter. Furthermore, the EPS was a sign of profitability for the company due to it having lost one cent/share.
The earnings estimates of the company seem bullish as these have been increasing greatly, suggesting the company's EPS to have positive prospects. Keeping the current and next year under consideration, estimates have remained well within the consensus produced. At present, the consensus stands at $0.43 per share with figures for next year expected to reach $0.80 per share.
During its latest quarter, revenues for the company increased to $64.4 million on a year-over-year basis which was seen to be a decline of 6.1%. The decline however was not due to the poor performance of the company's stores as these experienced positive growth rates. The decline was due to the refranchising strategy recently undertaken by the company, reducing the number of stores owned. At the same time, the company managed to reduce its operating expenses by 6%, allowing its operating margins to improve. This further allowed Jamba to produce earnings per share of 22% greater than their last quarter.
Refranchising Strategy, Acquisitions and New Lines
With the refranchising strategy the company is currently in the process of, direct revenues have been experiencing a loss. This trend is however expected to last only up until the model is fully implemented and once it is complete, revenue figures will begin rising. For the company, franchising is a much more viable option as it is a profitable venture. Comparable store sales growth achieved through franchised stores valued at 2%, a 65% increment from last year's growth rate.
Jamba Juice has also signed a deal with Nescafe recently to gain control of Jamba All Natural Energy Drink and acquiring the product formulation. With the energy drink being sold by Nescafe throughout the Northeast, the reach of Jamba will widen further. This move has begun stirring the comparison of Jamba to Starbucks (NASDAQ:SBUX) which took back control of Kraft last year. With moves by both companies turning out to be similar and with Jamba making a name for it, questions are rising as to whether or not Jamba can be considered the new Starbucks.
Jamba is working on turning its brand into one of the major players in the industry. Packaged products of the company are found everywhere with various lines delivering products for kids as well. With the lines being licensed to third parties, royalties for the company are likely to reach a value of $3 million this year.
Another source of revenue is being aimed at by the company called JambaGo. Through a deal made with Target (NYSE:TGT) for having 1,000 units installed in their café, the company will gain further expansion. With the brand mostly found in California, this strategy will help the brand reach out to other states of the U.S. and break into newer markets at affordable prices. With lower operating costs, extra revenue will be earned by the company. Schools, cafes and various stores is also JambaGo's target which estimates the total number of machines to reach 1,500. With an average of $2,000 per year being earned in gross profits through each machine, the installation of 1,500 machines would allow the company to experience an increase in annual gross profits by $3 million.
What Jamba must keep in mind however is that the smoothie industry is a seasonal business, and customer preferences tend to change with changes in the climate. With the weather becoming cooler, a decline could be experienced in the sale of smoothies, which has been experienced in the past as well. In order to compete more effectively on a global scale, the company needs to continue in the future with food items in order to prevent its growth from being hampered in cooler months.
With the national presence of Jamba on the rise and with new business strategies being put into effect, the growth of Jamba in the future looks positive. With the ability of the company to increase their margins and bring about innovative products, their future seems bright.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.