Jamba Inc. (JMBA) remains on track to expand further in its first international market, South Korea. It recently announced the opening of its fifth store in that country. The store is located at Seocho, a popular residential and commercial district in Seoul near the South Korean Supreme Court, which makes the site strategically fit for business expansion.
In the second quarter of 2010, Jamba had signed a huge international agreement with SPC Group to develop up to 200 stores in South Korea over the next 10 years. The first Jamba store in South Korea was opened at Incheon International Airport in January. Subsequently, Jamba accelerated the store openings as the brand was well received by Koreans.
SPC Group, a large South Korean conglomerate producing food and confectionery products, boasts of local market as well as restaurant industry knowledge. However, the company faces stiff competition in that country. Well-known American restaurants like Outback Steakhouse, Bennigans, Coco's, Tony Romas, Sizzler and T.G.I. Fridays are already popular in the South Korean market. Moreover, fast food outlets like Pizza Hut, KFC of Yum! Brands Inc. (YUM), McDonald’s Inc. (MCD) and Burger King also have their businesses in that country.
Jamba is in an expansion spree in the overseas market. Another South-east Asian market that Jamba is binging on is the Philippines. In partnership with Max’s Group of Companies, Jamba will develop 40 restaurants in that country over the next 10 years. The first Jamba Juice location in the Philippines is slated to open in late 2011.
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 through this year.
Jamba’s loss narrowed in the recently concluded first quarter from the year-earlier period. 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 2% to 4% and operating margin between 18% and 20%. Jamba currently retains a Zacks #3 Rank (short-term 'Hold' rating). We are also maintaining our long-term Neutral recommendation on the stock.
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