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Jamba predicts strong finish to 2010

Sales turned positive after 3Q declines, execs say

After reporting a third-quarter loss, executives at Jamba Inc. predicted a “solid finish to a year of transformation,” saying in a call to analysts that sales turned positive at the tail end of the quarter and momentum is expected to continue into the fourth.

Officials at the Emeryville, Calif.-based company also announced plans to move into Canada for the first time under a pending development agreement to open 125 units there over the next 10 years.  They also highlighted continued expansion of the smoothie chain’s licensing program with a new line of fruit-based energy drinks soon to debut

For the quarter ended Oct. 5, the Jamba Juice parent reported a net loss of $1.4 million, or 2 cents per share, compared with year-ago profit of $2.1 million, or 4 cents per share. The decline included non-cash charges of $1.4 million related to Jamba's ongoing refranchising effort and the closure of seven stores during the quarter.

Jamba faced obstacles that hurt sales in the third quarter, including the introduction of smoothies by McDonald’s, cold weather and the weak economic climate in California. Revenue for the quarter fell 16.3 percent to $66.1 million, reflecting declining sales and a reduction in corporate stores.

Same-store sales dropped 2.7 percent at corporate locations, but showed sequential improvement throughout the quarter, turning positive in September. Company officials said the first four weeks of the fourth quarter have also been positive.

James White, Jamba's chairman, president and chief executive, said the company expects same-store sales for the year to range between flat and down 3 percent. By the end of the year, 30 to 40 new franchise locations will have open, and the chain will be 60-percent franchised.

The outlook for 2011 calls for same-store sales to rise between 2 percent and 4 percent and the opening of 50 to 70 new Jamba Juice locations in both traditional and non-traditional and express formats, the company said.

At the end of the quarter, the Jamba Juice chain included 742 locations, including 364 corporate locations.

More highlights from the call to analysts:

• McDonald’s launch of smoothies in August impacted Jamba’s third-quarter sales by about 100 basis points, but White said the long-term impact will be positive.

The quick-service giant’s offer of smoothies “validates” the consumer demand, he said, adding that “McDonald’s will introduce new consumers to smoothies and drive sales across the category.” As the category grows, he said, “those new consumers will trade up to the better-for-you whole fruit smoothies we offer.”

• Jamba’s long-awaited ready-to-drink product with Nestle USA is a line of all-natural energy drinks, which are scheduled to debut in the Northeast early next year.

Hoping to steal a piece of the estimated $8.5 billion energy-drink category, the product marks the ninth licensing agreement for Jamba, which also announced plans during the quarter for a line of fruit-flavored coconut water drinks, “functional wellness” shots, and a new fruit cup product. Licensed products introduced earlier included Jamba Juice-brand frozen novelty bars and home smoothie kits.

White said the company is aiming for $1 billion in retail sales across its consumer product platform, which has the potential of bringing in roughly $500 million in royalties. “Over time, this will be an attractive form of revenue,” White said.

By the end of 2010, licensed product royalties are expected to contribute 5 percent to 10 percent of earnings before interest, tax, depreciation and amortization, or EBITDA. In 2011, licensing revenue is expected to triple, and White said more licensed products are in development.

• Jamba announced plans to enter Canada, its second international market, saying it has signed a letter of intent with International Franchise Inc. to open 125 stores over the next 10 years. Earlier this year, the company said it had signed a franchise agreement that included plans to open about 200 stores in South Korea over 10 years, with the first of those scheduled to open in early 2011.

• The continuing introduction of food has boosted the average ticket and traffic trends are improving, though guest counts remain negative. During the quarter, the rollout of organic brewed-by-the-cup coffees, teas and other hot beverages — now available in 360 stores — have complemented sales of the chain's popular oatmeal, officials said. The chain also introduced a seasonal pumpkin smoothie and yogurt-and-granola offerings with fresh fruit.

• When asked about the impact of rising food costs, Jamba officials said they expect commodity costs for next year to stay flat or only slightly higher.

Contact Lisa Jennings at [email protected].

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