Jamba Inc. (JMBA), the leading restaurant retailer of food and beverage offerings, reported a loss of 3 cents per share in the first quarter of 2012, better than the Zacks Consensus Estimate of a loss of 6 cents as well as the prior-year loss of 11 cents per share. Efficiencies in the company’s cost structure were primarily responsible for the improvement during the quarter.
The first quarter of 2012 included 13 weeks of operation while the year-ago quarter included 16 weeks of operation. However, after the adjustment of disparity in number of weeks of operation, total revenue climbed 4.7% to $53.0 million. The upside in revenue was driven by system-wide comparable restaurant sales (comps) growth of 11.6%, partially offset by lower company-owned store sales on the back of refranchising initiative.
The upside in comparable store sales was driven by menu expansion with a number of food and beverage items and product innovation in the breakfast and evening day parts.
Quarter Highlights
Sales at company-operated restaurants were up 3.7% year over year to $50.0 million, due to comps growth resulting from higher traffic and franchise. Franchise and other revenues surged 29.6% year over year to $3.0 million, fueled by an increase in the number of franchise stores and higher comparable store sales.
Jamba experienced positive company-owned comparable store sales for the sixth consecutive quarter since 2007. Comps grew 12.7% in the reported quarter versus a rise of 2.2% in the year-ago quarter. The rise in company-owned comps was driven by an upside in transaction count and average check. Same-restaurant sales at franchise stores grew 10.5% versus a growth of 4.1% in the year-ago quarter.
Jamba remains focused on reducing costs and driving productivity enhancements and during the quarter, Jamba succeeded in lowering its cost. On a year-over-year basis and 13 week of operation for both the quarters, cost of sales plunged 2.5% to $11.6 million, labor costs decreased 12.7% to $15.4 million, occupancy costs declined 11.2% to $7.4 million and store-operating expenses fell 1.4% to $7.9 million. Depreciation and amortization expense dropped 10.6% to $2.9 million, but general and administrative expenses rose 2.8% to $8.6 million due to higher performance-based compensation expense. This led to a 6.2% rise in Jamba’s adjusted operating profit margin during the quarter.
Store Update
In the first quarter, the company opened 10 franchised stores. A total of 6 stores were closed, of which 2 were company owned. This brought the total number of stores to 773, of which 468 were franchised and 305 company owned.
For 2012, Jamba plans to open 40-50 new stores in the U.S and 10-15 new stores internationally.
Financial Position
The company ended the quarter with cash and cash equivalents of $19.3 million, zero debt and total liability of $62.8 million.
Outlook
The Emeryville, California-based company continues to expect company-owned comparable store sales growth of 3-4% and adjusted operating margin in a range of 20-22%.
Our Take
Jamba is turning around at a slow but steady pace. The company has been successful in achieving the objectives of BLEND Plan 1.0, which focused on cost reduction, better service to attract customer, expand menu across day parts; accelerate franchise growth and build a robust consumer products portfolio through licensing. Jamba is now focusing on BLEND Plan 2.0, to grow from a smoothie company to a globally recognized healthy and lifestyle brand. Moreover, apart from the domestic market, Jamba is in an expansion spree overseas. The countries that Jamba is currently eyeing are Korea, the Philippines and Canada. The company has also completed the acquisition of Chicago-based Talbot Teas, which will provide further impetus to its beverage line-up.
Jamba, which competes with McDonald's Inc. (MCD) and Starbucks Corp. (SBUX), currently retains a Zacks #1 Rank, which translates into short-term Strong Buy rating. We are maintaining our long-term Neutral recommendation on the stock.
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