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Jamba says turnaround efforts paying off

Chain to expand hot coffee test and breakfast offerings

After swinging to a profit in the second quarter, Jamba Inc. said turnaround efforts will continue, including the expanded test of hot coffee to 300 stores this fall and the possibility of adding drive-thru locations.

Traffic and same-store sales trends for the 743-unit Jamba Juice chain improved sequentially, though they remained negative for the July 13-ended quarter, the Emeryville, Calif.-based company said.

However, economic challenges and cool summer weather in the chain’s primary market of California, along with litigation costs, caused the company to downgrade same-store sales projections for the year at corporate stores to between down 3 percent and flat. In May, Jamba had projected positive sales for the full year.

Still, James White, Jamba's chief executive, told analysts Tuesday that “the Jamba brand is strong and strengthening.”

“The strength of our balance sheet, along with positive cash flow, increased our financial capability which allowed us to make investments to accelerate our growth and advance our agenda,” White said. “At some point, the adverse weather will end and the economy will improve, but our growth drivers will continue.”

White is the architect of the chain’s “Blend” turnaround plan, which for more than a year has included cutting costs, expanding the smoothie brand’s food offerings, refranchising stores, and building brand awareness with licensed products.

White told analysts the strategies were paying off.

Jamba reported net income of $1.6 million, or 2 cents per share, for the second quarter, compared with a year-ago loss of $5.3 million, or 10 cents per share. Jamba credited the improvement to decreased impairment charges, a reduction in interest expense and gains from ongoing refranchising efforts.

Revenue for the latest quarter decreased 10.9 percent to $74.1 million, primarily because of fewer corporate locations and declining sales, the company said. Same-store sales for corporate stores dropped 2.4 percent for the quarter, an improvement over the 13.7-percent decline reported in the second quarter a year ago.

Jamba said it plans to quicken the pace of development of branded products in retail stores. This year the company launched smoothie kits and ice cream novelties in stores, and more branded products are coming, such as a line of Jamba clothing. White said the chain is also closer to a branded ready-to-drink beverage under development with Nestle USA.

New food offerings are also expected — including a new “healthy breakfast” menu item soon to be announced, White said.

Jamba Juice’s sale of oatmeal during the morning daypart has been “by any measure, an absolute home run for the company,” said White.

The chain has been testing the sale of hot coffee in 45 stores in two markets, and White said coffee will be rolled out to 300 stores in the fall.

“Coffee has been a perfect pairing with the oatmeal, which will help mitigate the seasonality of our business,” White said.

Jamba has rolled out its grab-and-go sandwich wraps and salads, as well as its new blended hot beverages, to about 400 stores.

“Food is an enabler,” White said, noting that about 17 percent of guests order food with their smoothies.

But he noted that new smoothies will continue to be added to the chain’s lineup. During the second quarter, the chain introduced five new smoothies, including two cold coffee-flavored blends and three “super fruit” flavors.
The chain is also looking to boost convenience, and White said offering drive-thru locations is under consideration.

Referring to McDonald’s rollout of fruit smoothies this summer, White said that the fast-food chain’s entry into the category will only introduce new consumers to the drink.

“People will trade up to the better whole-fruit smoothies that Jamba Juice offers,” he said.

During the second quarter, Jamba signed an agreement with a franchisee in South Korea, who plans to develop up to 200 Jamba Juice locations. The company said it expects to close a deal with another international franchisee before the year is out.

The company has also reached a milestone of refranchising 102 stores, leaving only three deals remaining to complete its goal of selling 150 corporate stores to franchisees before the end of 2010, White said. Of the 743 Jamba Juice locations, 432 were company-owned at the end of the second quarter.

With the opening of 30 to 50 new franchised locations before the end of the year, the chain will be 60 percent franchised, White said.

Contact Lisa Jennings at [email protected].

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