5/1/2013
By David Urani

Jamba (JMBA) was sold off to Services Acquisition Corp in 2006 and went into a tailspin thereafter. However, recent performance in the company suggests turnaround efforts have been gaining traction. To this day it remains the top name in the smoothie space, and one of the most recognized brand names in the health food arena.

History
Founder Kirk Perron was always an entrepreneur, in high school instead of sports he raised $12,000 from various people he knew to invest in real estate. He worked his way to a manager at Safeway, and often got smoothies after exercising, he was a health advocate; he decided to open his own store. Kirk got together a team of people he knew in the foodservice industry, and opened the first store in 1990 called “Juice Club”. It had a profit by the second year and they decided to grow through franchises, and had 16 by 1994.

Perron decided franchises were not the way to go, they lowered quality which was a big part of customer loyalty. He set out to build more company-owned stores and was able to find big time investors including Howard Schultz of Starbucks. They went on to rebrand to Jamba and roll out new stores. In 1997 they partnered with Whole Foods to open bars in the stores. By 1999 they had 125 stores and acquired Zuka which had 100.

2006 was when the company was acquired by Services Acquisition Corp for $265 million, and Perron left the board.  The company went into decline in 2008 and they moved to expand to wraps, sandwiches, and salads, and to go international.

It took a while for the new ownership’s efforts to turn the ship around, but the company appears to be on the right track.

Strategic Overview
• Still #1 smoothie brand
• 774 stores, mostly in the West, in 30 states
• Wants to grow from smoothie shop to full lifestyle brand, expanding products, refreshing many stores.
• Started JambaGo which is a self-serve juice machine inside other stores (including school cafeterias), sold 30 in 2011 and expects 1,400-1,500 in 2013.
• Started selling products in grocery stores like fruit chips and energy drinks (expects $4-5 million in FY13)
• Recently went international, with 41 stores in Korea, Philippines and Canada. Entered franchise agreement for 80 stores in Mexico over 10 years

1Q13 Highlights
• 1Q EPS -$0.02, in line with consensus, revenues +3.8% to $55 million, in line
• 1Q added 8 US stores, 6 international
• Company-owned comps +3.6%, franchise comps -0.9%. Expects 4-6% company-owned comps in FY13 but doesn’t mention franchise (479 of 779 stores are franchise)
• Operating margin +70 basis points
• Running at a mild loss still ($1.2m) but has $23m cash and no debt, should go profitable in 3Q

Comps declined from 11.8% in 1Q12 to 0.6% in 4Q12, but they were back up to 1.3% in 1Q13. The comps turned from negative to positive in 2010 and then really accelerated in 2011; through 2012 the comps were against difficult comparisons so they slid, but increased again in 1Q13, indicating the company remains on track.

With a brand refresh, new products, entry into new selling channels, and a tapping into the international markets, JMBA seems back on its way to achieving the strong promise it had seven years ago. In fact, 2012 represented its first year of positive net income since going public. That being said much of the company’s turnaround does seemed to be baked into the stock already. Valuation-wise, JMBA trades at a bit of a growth premium at 21 forward PE, but 5-year expected EPS growth is 20% so it’s virtually in line with expectations.

Nevertheless, the company still seems to be in the early innings of a wide expansion of products and geographies; if management can stay on track look for a lot more out of this stock.

David Urani
Wall Street Strategies