Jamba Inc. (JMBA) reported second quarter 2011 earnings of 5 cents per share, surpassing the Zacks Consensus Estimate of 3 cents as well as the prior-year earnings of 2 cents. Jamba benefited from the efficiencies in its cost structure, which offset the decline in revenue.
The top line of the company continues to struggle, with consolidated revenues falling 20.5% year over year to $58.9 million. The revenues declined primarily due to the shift from company-owned store sales to royalties and franchise fees as a result of the refranchising initiative, partially compensated by system-wide comparable restaurant sales growth of 2.9%. Fruit & Veggie Smoothie, coconut Water Refreshers, hot breakfast wraps, and frozen yogurt helped drive the attachment rate higher in the second quarter of 2011 as well as comparable-store sales.
Inside the Headline Numbers
Sales at company-operated restaurants were down 22.7% year over year at $56.0 million due to a reduction in the number of restaurants in operation. However, franchise and other revenues more than doubled to $2.9 million, fueled by an increase in the number of franchise stores.
Jamba, the leading restaurant retailer of food and beverage offerings, experienced positive company-owned comparable store sales for the third consecutive quarter since 2007, increasing 4.3% in the reported quarter from a negative 2.4% in the year-ago quarter. Same-restaurant sales at franchise stores growth was a positive 1.4% versus a decline of 3.6% in the year-ago quarter.
During the quarter, Jamba witnessed a steep decline in its cost structure. On a year-over-year basis, cost of sales declined 25.1% to $12.8 million, labor costs fell 22.4% to $16.6 million, occupancy costs plunged 28.7% to $6.7 million and store-operating expenses fell 22.2% to $7.7 million. Depreciation and amortization and general and administrative expenses also dropped 17.1% and 14.9% to $2.9 million and $8.0 million, respectively. This resulted in Jamba’s non-GAAP adjusted operating profit margin increment of 360 basis points to 25.6% in the second quarter of 2011.
Store Update
During the second quarter, 21 stores were opened, among which 7 were company-operated and 9 were franchised. A total of 12 stores were closed, of which company-owned and franchised were in equal numbers. As many as 42 stores were refranchised in the second quarter. This brought the total number of stores to 752, of which 436 were franchised and 310 company owned.
In 2011, the company expects to open 50 to 70 franchise stores.
Financial Position
The company ended the quarter with cash and cash equivalents (excluding $1.4 million of restricted cash) of $21.9 million and $62.7 million of total liability.
Outlook
Based in Emeryville, California, the company continues to expect comparable store sales in the range of 2–4% for fiscal 2011 and adjusted operating margin in the range of 18−20%.
Our Take
We remain impressed with Jamba’s slow-but-steady turnaround. Apart from the domestic market, Jamba is in an expansion spree in the overseas market. Countries Jamba is currently binging on are Korea, Philippines and Canada. Among them, Jamba brand has been well received by Korean customers, encouraging Jamba’s Korean partner to accelerate store opening. Jamba anticipates retail distribution to grow from 25,000 to more than 30,000 by this year end.
Along with expansion, the company is also on track to innovate a new beverage line and a value-based menu offer. Jamba witnessed increases in all 4 day-parts for the first time in the last four years, including the dinner day-part, which was aided by the frozen-yogurt platform. The company’s cost containment effort also augured well for its earnings.
However, while management is taking all possible measures to grow further, the company’s revenue is still lagging indicating that Jamba still has a long way to go. Additionally, Jamba competes with the sector behemoth McDonald's Inc. (MCD) in the smoothies segment. McCafe Real Fruit Smoothies and Frappes as well as McDonald's value-based offerings have a strong presence in the U.S. market. Jamba currently retains a Zacks #4 Rank (short-term Hold rating). We are maintaining our long-term Neutral recommendation on the stock.
JAMBA INC (JMBA): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment