Jamba Inc. (JMBA) recently signed a long-term development agreement with Max’s Group of Companies to expand in the Philippines.
Per the deal, Max’s Group will develop 40 Jamba Juice restaurants in that country over the next 10 years, through the franchising method. The terms of the deal were not disclosed. The first Jamba Juice location in the Philippines is slated to open in late 2011.
Max’s Group of Companies boasts of local market knowledge and runs three brands in the Philippines, including Max’s Restaurant, a popular casual dining restaurant chain that presently has over 100 locations and is expanding oversees. This restaurant and franchise chain operator has 120 restaurants in the Philippines and nine in Canada and the U.S.
The deal affirms Jamba management’s intent to make the Philippines one of the prime markets for international expansion.
In late-February, another U.S.-based restaurant company Wendy’s/Arby’s International Inc., a subsidiary of Wendy’s/Arby’s Group Inc. (WEN) signed a development agreement with Wenphil Corporation to expand in the Philippines. Through this deal, Wendy’s will increase the total number of locations in the Philippines to 75.
Jamba is in an expansion spree in the overseas market. In the second quarter of 2010, Jamba signed a huge international agreement with SPC Group to develop up to 200 stores in South Korea. The first Jamba store was opened in South Korea at Incheon International Airport in January.
Fulfillment of the company’s current expansion plans would widen its global presence considerably. Jamba Juice also expects to add up to 50 to 70 new domestic traditional and non-traditional franchise locations in 2011.
Although the company signed a franchise development agreement for international growth, the scale of most of its peers, such as McDonald’s Inc. (MCD) and Wendy’s/Arby’s, are larger. A wider scale provides these companies with greater operational strength.
However, Jamba recently completed its franchise development initiative, which was originally announced in May 2009. We believe refranchising has also aided Jamba, with its loss narrowing in the recently concluded fourth quarter from the year-earlier period. The company also saw positive company-owned comparable store sales growth, the first time since 2007.
In our opinion, Jamba’s results will gradually enter into the positive territory with such a planned business model. For fiscal 2011, management expects comparable store sales in the range of positive 2% to 4% and operating margin between 18% and 20%. Jamba currently retains a Zacks #4 Rank (short-term 'Sell' rating). We are also maintaining our long-term Neutral recommendation on the stock.
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