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A Healthier Way to Juice Your Portfolio
By Michael Brush
Exclusively for InvestorIdeas.com
September 13, 2007
Lots of consumer trends get their start in California. Now, a retail juice bar called Jamba Juice
(JMBA) hopes that will be the case with fresh fruit drinks.
Originally launched in 1990 as a single outlet called Juice Club, Jamba Juice now boasts nearly 650 outlets offering fruit blends like the Jamba Smoothie, the Jamba Boost vitamin and herbal mix, and fresh squeeze juices.
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These concoctions are served up in a colorful and friendly atmosphere, to the whir of blenders and the hustle and bustle of busy employees who customers watch as they cut, squeeze, blend and mix the fresh juice drinks.
Jamba Juice, of course, hopes to capitalize on a growing national health and fitness trend. So you have to forget for a moment that the company is headed up by a chief executive, Paul Clayton, who spent virtually his entire career at Burger King (BKC), finishing up as president of Burger King North America in 2000.
Jamba Juice has other apparent problems, beyond this incongruity.
Top on the list: Sales slipped over 3% in the second quarter, thanks in part to lower traffic on its home turf in California. Meanwhile, costs went up and you can’t blame it all on the oranges. Even the kinds of costs that a well-run company should have under control -- operating expenses -- were on the rise.
All of this has left Jamba Juice stock looking like a spent orange in the trash can. The stock has fallen to $7 from around $12 at around the turn of the year.
The insider buying
But down here, insiders are loading up shares with a gusto that suggests they expect their stock will soon get a Jamba Boost. Two directors, the finance chief and a senior vice president plowed over a quarter million dollars into the stock at around $6.80 to $7 in the first week of September. I can see why these insiders think the market has Jamba Juice wrong, in selling the stock down so low.
First off, the company readily admits its sales are volatile – in part because of unpredictable weather. “When the weather is 100 degrees, I have a smile on my face,” Clayton said in the company’s most recent conference call. When temperatures are below normal, he could have a weak quarter. So the California slump may not necessarily be a sign of an emerging negative trend in that state – its biggest market.
Second, while slower traffic in California pulled down overall performance, when you dig into the numbers you can find an encouraging trend: Same store sales outside of California were positive. This suggests that the Jamba magic is catching on outside of California – in areas where the company is trying to win over new customers.
That’s key, because a big part of the Jamba story going forward is about conquering new territory and diversifying away from its California base. As of late July, the company had 645 locations and 348 of them, or 53%, were in California.
But around 70% of the 27 new stores it opened in the second quarter were outside of California. The company plans to open 90 new stores this year. Jamba Juice recently had $63 million in cash, or enough to keep expanding for a year without raising more funds, the company says. Besides California, the company’s stores are mainly in Colorado, Illinois, New York and Washington.
Besides conquering new territory, Jamba Juice hopes to grow in the following ways.
Extend the brand. Earlier this month the company launched Jamba Breakfast in New York and Los Angeles. Jamba Breakfast is “blended breakfast in a cup,” with names like Granola Toppers, Chunky Smoothies, and Green Caffeine Boost made from green tea. Next, the company will release a ready-to-drink line to be sold in retail stores.
Increase store revenue. Here, Jamba wants to bring occasional visitors in more often, by rolling out a bigger variety of products like Boosts and Shots, and “Functional Smoothies,” which are drinks with a nutritional wallop.
Reduce costs. The company is also working to reduce costs. But some cost reduction may occur naturally since Jamba made a lot of infrastructure and overhead investments to help it morph into a public company. A lot of those expenses are one off, the company says. They’ll fade, but the benefits will remain.
The bottom line: Sure this company faces competitive threats like the Smoothies rolled out by Starbucks (SBUX), which are darn tasty. But any success Starbucks has with Smoothies may actually help Jamba Juice, by focusing more consumer attention on Jamba’s Smoothie space.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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