Jamba, Inc. (JMBA) posted mixed second-quarter 2014 results wherein earnings beat the Zacks Consensus Estimate, but revenues missed the consensus mark.
Jamba's adjusted earnings of 44 cents per share beat the Zacks Consensus Estimate of 38 cents by 15.8%. Further, the figure was higher than the prior-year figure of 36 cents, mainly due to comps growth and decline in total costs and operating expenses.
However, the company's revenues declined 6.1% year over year to $64.4 million. It also missed the Zacks Consensus Estimate of $65 million by 0.9%. The decrease primarily resulted from the reduction in the number of company-owned stores due to Jamba’s refranchising strategy, partially offset by 2.5% increase in comps.
Inside the Headline Numbers
System-wide comps increased 2.2% in the quarter, better than the prior-year quarter’s growth of 1.7% and the prior quarter growth of 0.3%. This was primarily led by comps growth in both the franchised as well as company-owned units, owing to strong demand for its fresh-squeezed juice. Franchised stores posted comps growth of 2%, much higher than prior-year growth of 1.2% and the prior quarter growth of 0.1%.
Company-owned stores posted comps growth of 2.5%, higher than prior-year growth of 2.2% and the prior quarter growth of 0.6%. Despite lower traffic during the quarter, company-owned comps benefitted from higher average check. Traffic in the quarter declined 1.6%, which was more than offset by 4.1% rise in average check.
Total costs and operating expenses were $57.6 million, down 5.9% year over year.
The company’s operating margin improved 60 basis points year over year to 10.3% for the second quarter of 2014.
Store Update
Jamba is on track to reach its 2014 target of 60–80 unit openings. During the quarter, Jamba opened 13 domestic franchise-operated stores, of which five are non-traditional and eight traditional, and six international franchise-operated stores. No new company-owned stores were opened during the quarter, while 16 stores were closed globally.
At quarter-end, Jamba had 809 stores in the United States, of which 551 were franchise-operated and 258 were company-owned. Franchise-operated stores include 34 Jamba Smoothie Stations, the company’s limited menu express format.
During the quarter, 376 stores — 120 company-owned and 256 franchise-operated — launched fresh-squeezed juice. As of Jul 1, 2014, 508 Jamba Juice stores offered the fresh-squeezed juice platform.
2014 Guidance
The company expects to achieve comps growth in the range of 2–4%. Additionally, store-level margin is expected between 18% and 19%, while operating margin is projected in the range of 2–3%. Apart from the 60–80 stores that the company plans to open in 2014, it is also focused on installing around 1,000 JambaGO machines. JambaGO is a self-serve machine that can be installed at cafeterias, schools and convenience stores.
Our Viewpoint
We are encouraged by Jamba’s strategy to move to a more asset-light model with greater emphasis on franchised stores rather than company-owned locations. Although this is going to impact revenues in the near term, we believe it will considerably lower the company’s expenses over the long-term.
Additionally, we are encouraged that the company has managed to turn in comps growth, which was primarily affected by inclement weather in the prior quarter. With warming weather, the company looks poised to benefit by its innovative product launches and higher traffic at its stores.
Jamba currently carries a Zacks Rank #3 (Hold). Some other stocks that are performing well in the restaurant industry include BJ's Restaurants, Inc. (BJRI), Chipotle Mexican Grill, Inc. (CMG) and Papa John's International Inc. (PZZA). While BJ's Restaurants and Chipotle sport a Zacks Rank #1 (Strong Buy), Papa John's carries a Zacks Rank #2 (Buy).
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