The Healthy and Active Lifestyle Take of Jamba
Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In a January 14 press release, Jamba Juice Company (NASDAQ: JMBA), the country’s leading smoothie chain, announced an initiative for changing the store format and design that truly reflects the “active and healthy lifestyle” concept that the company wishes to promote. The new design will cover new limited menu Smoothie Stations, drive-through facilities and Juice bars. Existing stores are to be refreshed in the next four years.
The health concept of Jamba made Starbucks (NASDAQ: SBUX) add juice bars in its outlets, and McDonald’s (NYSE: MCD) added smoothies to its coffee house style outlets, McCafe. Starbucks was already serving smoothies before it included juice in 2011 with the acquisition of Evolution Fresh, an American company known for, among other things, artisanal super-premium fruit juices.
With multi-billion dollar companies entering the field, many people thought that it was just a matter of time before Jamba Fruit prepared its farewell speech or was taken over. But it was not to be. Instead, fruit juice in the world’s largest burger chain and the king of coffee houses worked to make people, and with it the market, aware of the potential of the “health concept.” Just as Starbucks did wonders with coffee decades ago, inclusion of juice in its outlets gave fruit juice the premium label that it deserved.
Evolution Fresh was acquired on November 10, 2011, and as if by a signal, the Jamba stock started its uphill journey almost from that date. From Nov. 11, 2011 to March 5, the day of the earnings call of its Q4 and fiscal year 2012 results, the stock has appreciated 67.25%.
Fourth Quarter/Fiscal Year 2012 Earnings
For the first time since it went public, Jamba reported a net income for the full year in its annual report for the fiscal Year 2012, released on Feb. 5, 2013.
Loss in the fourth quarter was of $6.9 million. This was however, less than the $9.8 million loss reported for Q4 prior year. Sales at company-owned stores declined by 1.2%, whereas franchise operated stores reported an increase of 2.3% in sales. Revenue for the quarter was almost the same as Q4 prior year – $44.2million.
However, revenues were up from $226.4 million in the prior year to $22.8.8 million in the fiscal year ended Jan. 1, 2013. The 1% increase was due to a 5.1% increase in sales in company-owned stores. Net income for the full year was $0.3 million as compared to a loss of $8.3 million in the previous year, mostly due to an increase of 5.1% in system-wide and franchise-operated store sales.
Although Jamba menus include warm drinks, the problem is that the focus product is more of a seasonal business – mostly spring and summer. As such, instead of quarterly, annual results are more reflective of the company’s financial performance.
In a true sense, there is no public listed company apart from Starbucks that can be termed as Jamba’s competitor. Other competitors include privately owned companies like Maui Wowi Franchising and Smoothie King.
Even Starbucks is too big a company to be compared with Jamba. With a market cap of $42.34 billion, it is almost 200 times the value of Jamba (market cap: $221.17 million). Juice, for Starbucks is but one segment and a new one at that. In March 2012, it opened its first store, named Evolution Fresh, centered on juice instead of coffee for which Starbucks is famous for. A writer at USA Today termed the event as "Goodbye grind, welcome squeeze."
Maui Wowi Franchising operates more than 600 franchised Maui Wowi Hawaiian locations serving several varieties and flavors of blended smoothies, coffee, espresso drinks and other snack beverages. The chain is made up of retail outlets in high-traffic areas, drive-thru locations and mobile carts.
Smoothie King Franchises is a chain (600 outlets) of franchise smoothie stands offering blended fruit and juice drinks. Available in 50 flavors, its drinks can be fortified with dietary supplements. Smoothie King stores also carry energy bars, sports drinks and sports nutrition items.
For Starbucks, the stake is the $50 billion world of health and wellness, made up of premium juices, vegan and veggie dishes that its Evolution Fresh stores will sell. Its target is well heeled customers other than those who patronize its gourmet coffee shops. Last month, when the company reported earnings, it reaffirmed its positive outlook for 2013.
Jamba’s priority is relatively low-end and school-centric locations. However, the entry of Starbucks and McDonald's in the health drink segment has indirectly given Jamba the recognition that it badly needed. Jamba’s healthy and active lifestyle concept got yet another major boost from the developments in the caffeinated energy drink sector, which came under fire from regulatory authorities for higher than normal caffeine content.
The company’s initiative of moving an express and smaller version of its offering to non-traditional locations where healthy and quick serve are a necessary component of menus, such as K-12 schools and college campuses, has proved to be a hit. The company announced the opening of its 404th JambaGO location in January this year.
In 2013, Jamba plans to add 60-80 more stores to its existing 788-store chain and is targeting 1,000 JambaGo locations. The focus is on its healthy lifestyle brand while keeping a low key with consumer packaged goods sold through distributor relationships. There is nothing there to doubt that these will be met. The long term positive outlook on the stock is intact.
However, the stock has experienced a phenomenal rise in the last 5-6 months. Moreover, the company’s business remains primarily seasonal, indicating that earnings are likely to remain cyclical across the quarters as before. Although Jamba’s fiscal year 2012 earnings were in line with Street expectations, the stock fell 5.59% in afterhours (March 5, 2013) after the results were declared.
To me, this indicates that the stock is ready for a small correction in the coming days.
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