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JMBA > SEC Filings for JMBA > Form 10-Q on 5-Nov-2012All Recent SEC Filings

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Form 10-Q for JAMBA, INC.


5-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this report. Except for historical information, the discussion in this report contains certain forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. In some cases, you can identify forward-looking statements by terminology, such as "may," "should," "could," "predict," "potential," "continue," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate," "forecast" and similar expressions (or the negative of such expressions.) Forward-looking statements include, but are not limited to, statements concerning projected new store openings, 2012 revenue growth rates, and capital expenditures. Forward-looking statements are based on our beliefs as well as assumptions based on information currently available to us, including financial and operational information, the volatility of our stock price, and current competitive conditions. As a result, these statements are subject to various risks and uncertainties. For a discussion of material risks and uncertainties that the Company faces, see the discussion titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended January 3, 2012.

JAMBA, INC. OVERVIEW

Jamba, Inc., a Delaware corporation (the "Company") owns and franchises Jamba Juice stores through its wholly-owned subsidiary, Jamba Juice Company. Jamba Juice Company is a leading restaurant retailer of better-for-you, specialty beverage and food offerings, which include great tasting, whole fruit smoothies, fresh squeezed juices and juice blends, hot coffee and teas, hot oatmeal, breakfast wraps, sandwiches and mini-wraps, California Flatbreads™, frozen yogurt, and a variety of baked goods and snacks. As of October 2, 2012, there were 788 store locations globally. There were 301 Company owned and operated stores ("Company Stores") and 454 franchise operated stores ("Franchise Stores") in the United States, and 33 international franchise stores ("International Stores"). Jamba-branded consumer products ("CPG") for at-home enjoyment are also available through select retailers across the nation and in Jamba outlets in the United States.

EXECUTIVE OVERVIEW

Key Overall Strategies

The BLEND Plan continues to guide the Company's strategic plan to become a globally recognized healthy, active lifestyle brand. The key components of our plan for fiscal year 2012, are driving brand strength, improving store economics, accelerating store or unit development and expansion of our CPG program, and are captured in our BLEND Plan 2.0:

• make Jamba a top-of-mind healthy food and beverage brand;
• embody a healthy, active lifestyle at store level and broadly across the enterprise;
• accelerate global retail growth through new and existing formats;
• build a global CPG platform in Jamba-relevant categories; and
• pursue new ways to reduce costs and drive productivity.

Change in Fiscal Quarter

Effective for fiscal 2012, the Company changed the end of its fiscal quarters. Each quarter has 13 weeks, resulting in a 12 period fiscal year. Prior to fiscal 2012, the first quarter had 16 weeks and each of the three subsequent quarters had 12 weeks. The Company's year-end continues to be the Tuesday closest to December 31.

The prior year comparative financial and other information reported in the financial statements herein continue to be presented based on our prior year fiscal quarter end calendar. Our results for the third quarter of fiscal 2012, which was the 13 week period ended October 2, 2012, are compared to our results for the third quarter of fiscal 2011, which was the 12 week period ended October 4, 2011. The comparison of these two quarters is primarily affected by the difference of one week between the third quarter of fiscal 2012 and the third quarter of 2011. There were 39 weeks in the first three quarters of fiscal 2012 and 40 weeks in the first three quarters of fiscal 2011. The most significant impacts of the fiscal quarter change occurred in the first fiscal quarter.

Although we have not submitted financial information for the 13 week period ended September 27, 2011 in this Form 10-Q, pro-forma information for the 13 week period for the prior year is included in the press release dated November 1, 2012.

2012 Third Quarter Financial Highlights

· Company Stores comparable sales increased 3.9%, Franchise Stores comparable sales increased 1.0% and system-wide comparable store sales increased 2.5%. System-wide comparable store sales, non-GAAP financial measure, represent the change in year-over-year sales for all Company and Franchise Stores opened for at least one full year.

· Net income was $4.1 million, and represents $0.04 diluted earnings per share for the third quarter, compared to net income of $4.1 million or $0.05 diluted earnings per share for the prior year third quarter.

· Investment during the quarter was accelerated in targeted customer value price promotions and several growth initiatives, including JambaGO®.

· General and administrative expense increased to $9.7 million from $7.4 million, resulting from the accelerated investment in growth initiatives and an additional week of expenses included in the 2012 fiscal third quarter.

· Cash and cash equivalents was $31.9 million as of October 2, 2012.

· Cash generated from operations for the 39 week period was $17.0 million, compared to $2.6 million for the 40 week period ended October 4, 2011.

· Eight new Franchise Stores were opened in the U.S. during the 13 weeks ended October 2, 2012.

· Four new International Stores were opened by our international partners during the 13 weeks ended October 2, 2012.

2012 Third Quarter Business Highlights

Make Jamba a Top of Mind Healthy Food and Beverage Brand

During the 13 week period ended October 2, 2012, sales at system-wide Jamba Juice Stores opened more than one full fiscal year increased 2.5% reflecting increases of 3.9% for Company Stores and 1.0% for Franchise Stores. For Company Stores, this increase represents two consecutive years of Company Store comparable sales growth. The increase in Company Store comparable sales during the quarter includes a 510 basis points increase in traffic and a 120 basis points decrease in average check as a result of our targeted "Dollar Days" marketing investment, designed to provide added consumer value during an ever challenging economy. The company continues to see sales growth in all four day-parts.

Product innovation continues to play a critical role in offering the consumer more relevant and habitual products. Make It Light™ smoothies were extended throughout the system, Talbott Teas® offerings and new food options including a toasted bistro sandwich were rolled out to Company Stores.

On October 1, 2012, we announced our first ever major theatrical motion picture partnership with Summit Entertainment, a LIONSGATE® company, for the release of its fifth installment of the TWILIGHT SAGA film franchise, "THE TWILIGHT SAGA:
BREAKING DAWN - PART 2" in November 2012. We have planned special activities designed to engage fans, including special screenings and social-media promotions where one person could win a Grand Prize trip for two to attend the Los Angeles premiere of the movie on November 12. Additionally, we have created a nutritious and exclusive, Limited Time Only (LTO) movie-themed smoothie for fans to enjoy during the promotion period. Fans who purchase the LTO smoothie during the promotion period will receive a free special movie-branded premium item.

Embody a Healthy, Active Lifestyle

In August 2012, we announced the enhancement of our comprehensive eco-sustainability strategy. We formed a strategic relationship with the Global Green USA's Coalition Recovery (CoRR), an industry working group dedicated to accelerating waste diversion programs. Our alliance with CoRR is expected to help us reduce waste and energy consumption and increase use of more environmentally friendly materials. We plan to collaborate with CoRR during our work to phase out the use of polystyrene cups, currently used for cold beverages, during 2013.

Accelerate Global Retail Growth

We continue to grow our restaurant concept primarily through the development of new Franchise Stores. As of October 2, 2012, the Jamba system, globally, is comprised of approximately 62% Franchise Store locations and 38% Company Store locations. As of October 2, 2012, we had 788 Jamba Juice stores, globally, represented by 301 Company Stores and 454 Franchise Stores in the United States, and 33 International Stores.

Domestic

During the 13 week period ended October 2, 2012, franchisees developed and opened eight Franchise Stores, all of which were non-traditional stores. These new stores included our 21st airport location at McCarran International Airport in Las Vegas. All our recent new store openings are consistent with our initiative to launch flexible, non-traditional franchise formats in travel hubs, grocery outlets, malls and college and universities.

We also announced expansion plans into five new markets and five existing markets with new and existing franchise partners, to develop a total of 32 new Jamba Juice store locations in ten states, including New York, Wisconsin, Kentucky, California and Connecticut over the next five to seven years. We expect to open 40 to 50 stores in fiscal 2012 primarily through franchisees. During the 39 week period ended October 2, 2012, 19 Franchise Stores were opened. The actual number of openings may differ from our expectations due to various factors, including franchisee access to capital and economic conditions.

The expansion of our new growth concept, JambaGO, continued to progress in a variety of locations, including K-12 schools, convenience stores and grocery stores. This concept has enabled us to provide a healthy alternative for schools seeking solutions to combat childhood obesity. As of October 2, 2012, there were 169 JambaGO locations and we expect to open 400 to 500 locations during fiscal 2012.

International

During the 13 week period ended October 2, 2012, our master developers opened a total of four international locations, one in South Korea, two in Canada and one in the Philippines. We opened 16 international Jamba Juice store locations during the 39 week period ended October 2, 2012, and we continue to actively pursue international development opportunities.

Build a Global CPG Platform in Jamba-Relevant Categories

We are evolving our business model to assume more control over the development, manufacturing and distribution of our CPG products and to ultimately gain more of the profit pool. As an example of this, in June 2012 we finalized an agreement with Nestle to acquire the product formulation and intellectual property for the Jamba All-Natural Energy Drink, for which we continue to expand distribution in and beyond the current Northeast test geography.

RESULTS OF OPERATIONS - 13 WEEK PERIOD ENDED OCTOBER 2, 2012 AS COMPARED TO 12
WEEK PERIOD ENDED OCTOBER 4, 2011 (UNAUDITED)



                                         13 Week Period                       12 Week Period
                                             Ended                                Ended
(In thousands)                          October 2, 2012        % (1)         October 4, 2011        % (1)
Revenue:
Company Stores                          $         61,795           94.4 %    $         54,102           94.8 %
Franchise and other revenue                        3,687            5.6 %               2,976            5.2 %
Total revenue                                     65,482          100.0 %              57,078          100.0 %

Costs and operating expenses:
Cost of sales                                     14,918           24.1 %              11,808           21.8 %
Labor                                             16,457           26.6 %              14,565           26.9 %
Occupancy                                          7,353           11.9 %               6,802           12.6 %
Store operating                                    9,328           15.1 %               8,539           15.8 %
Depreciation and amortization                      2,793            4.3 %               2,805            4.9 %
General and administrative                         9,663           14.8 %               7,398           13.0 %
Impairment of long-lived assets                       75            0.1 %                 312            0.5 %
Other operating, net                                 347            0.5 %                 924            1.6 %
Total costs and operating expenses                60,934           93.1 %              53,153           93.1 %

Income from operations                             4,548            6.9 %               3,925            6.9 %

Other income (expense), net:
Interest income                                       21            0.0 %                  99            0.2 %
Interest expense                                     (52 )          0.0 %                (117 )         (0.2 )%

Total other expense, net                             (31 )          0.0 %                 (18 )          0.0 %

Income before income taxes                         4,517            6.9 %               3,907            6.9 %
Income tax benefit (expense)                        (413 )         (0.6 )%                217            0.4 %

Net income                                         4,104            6.3 %               4,124            7.3 %

Preferred stock dividends and deemed
dividends                                         (1,123 )         (1.7 )%               (489 )         (0.9 )%
Net income available to common
 stockholders                           $          2,981            4.6 %    $          3,635            6.4 %

(1) Cost of sales, labor, occupancy and store operating percentages are calculated using Company Stores revenue. All other line items are calculated using total revenue.

Revenue

(in 000's)



                                           13 Week Period Ended       % of Total       12 Week Period Ended       % of Total
(In thousands)                               October 2, 2012           Revenue           October 4, 2011           Revenue
Revenue:
Company Stores                            $               61,795             94.4 %   $               54,102             94.8 %
Franchise and other revenue                                3,687              5.6 %                    2,976              5.2 %
Total revenue                                             65,482            100.0 %                   57,078            100.0 %

Total revenue is comprised of revenue from Company Stores, franchise royalties, fees and consumer packaged goods.

Total revenue for the 13 week period ended October 2, 2012 was $65.5 million, an increase of $8.4 million or 14.7%, compared to $57.1 million for the 12 week period ended October 4, 2011.

Company Store revenue

Company Store revenue for the 13 week period ended October 2, 2012 was $61.8 million, an increase of $7.7 million or 14.2% compared to $54.1 million for the 12 week period ended October 4, 2011. The increase in Company Store revenue was due primarily to one extra week in the 13 week period ended October 2, 2012 compared to the 12 week period ended October 4, 2011 and to Company Store comparable sales improvement as illustrated by the following table:

                                                     Company Store
                                                  Increase in Revenue
                                                      (in 000's)
                                                  Third quarter 2012
                                                          vs.
                                                  Third quarter 2011
Due to one more week in 2012 third quarter (1)   $               6,131
Company Store comparable sales increase                          2,300
Reduction in the number of Company Stores, net                    (738 )
Total change in Company Store revenue            $               7,693

(1) Calculated by inclusion of Company Store revenue for one additional week in the third quarter of fiscal 2011.

Company Store comparable sales increased $2.3 million for the 13 week period ended October 2, 2012, or 3.9% attributable to an increase of 5.1% in transaction count, partially offset by a decrease of 1.2% in average check resulting from our targeted customer value driven promotions. Company Store comparable sales represents the change in year-over-year sales for all Company Stores opened for at least a full fiscal year. As of October 2, 2012, 100% of our Company Stores had been open for at least one full fiscal year. The percentage change in Company Store comparable sales compares the sales of Company Stores during a 13 week period in 2012 to the sales from the same Company Stores for the equivalent 13 week period in the prior year.

Franchise and other revenue

Franchise and other revenue for the 13 week period ended October 2, 2012 was $3.7 million, an increase of $0.7 million, or 23.9%, compared to $3.0 million for the 12 week period ended October 4, 2011, primarily due to the net increase in the number of Franchise and International Stores and the effect of including 13 weeks in the fiscal 2012 third quarter compared to 12 weeks in the fiscal 2011 third quarter. CPG revenue was $0.6 million for fiscal 2012 third quarter compared to $0.3 million for fiscal 2011 third quarter.

The number of Franchise Stores and International Stores grew to 487 as of October 2, 2012 from 452 as of October 4, 2011.

Cost of sales

Cost of sales is mostly comprised of fruit, dairy, and other products used to make smoothies and juices, paper products, costs related to managing our procurement program and vendor rebates. As a percentage of Company Store revenue, cost of sales increased to 24.1% for the 13 week period ended October 2, 2012, compared to 21.8% for the 12 week period ended October 4, 2011. The increase of cost of sales as a percentage of Company Store revenue was primarily due the net impact of targeted customer value promotional activities (1.6%) and increases in commodity costs (0.9%). Cost of sales for the 13 week period ended October 2, 2012 was $14.9 million compared to $11.8 million for the 12 week period ended October 4, 2011. The change from a 12 week third quarter in fiscal 2011 to a 13 week third quarter in fiscal 2012 has resulted in an increase in Company Stores cost of sales attributed to the quarter.

Labor

Labor costs are comprised of store management salaries and bonuses, hourly team member payroll, training costs and other associated fringe benefits. As a percentage of Company Store revenue, labor costs decreased to 26.6% for the 13 week period ended October 2, 2012, compared to 26.9% for the 12 week period ended October 4, 2011. The 0.3% decrease of labor costs as a percentage of Company Store revenue was primarily due to labor efficiencies, improved sales volumes and more effective wage management achieved (2.1%), partially offset by targeted customer value promotional activities (1.8%). Labor costs for the 13 week period ended October 2, 2012 were $16.5 million, an increase of $1.9 million, or 13.0%, compared to $14.6 million for the 12 week period ended October 4, 2011. The change from a 12 week third quarter in fiscal 2011 to a 13 week third quarter in fiscal 2012 has resulted in an increase in Company Stores labor costs partially offset by labor efficiencies, improved sales volumes and more effective wage management.

Occupancy

Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property taxes, licenses and property insurance for all Company Store locations. As a percentage of Company Store revenue, occupancy costs decreased to 11.9% for the 13 week period ended October 2, 2012, compared to 12.6% for the 12 week period ended October 4, 2011. The decrease in occupancy costs as a percentage of Company Store revenue was primarily due to the impact of leverage as a result of the increase in Company Store comparable sales (approximately 0.6%). Occupancy costs for the 13 week period ended October 2, 2012 were $7.4 million, an increase of $0.6 million, or 8.1%, compared to $6.8 million for the 12 week period ended October 4, 2011. The change from a 12 week third quarter in fiscal 2011 to a 13 week third quarter in fiscal 2012 has resulted in an increase in Company Stores occupancy expenses attributable to the quarter.

Store operating

Store operating expenses consist primarily of various store-level costs such as utilities, marketing, repairs and maintenance, credit card fees and other store operating expenses. As a percentage of Company Store revenue, total store operating expenses decreased to 15.1% for the 13 week period ended October 2, 2012, compared to 15.8% for the 12 week period ended October 4, 2011. The decrease in total store operating expenses as a percentage of Company Store revenue was primarily due to a decrease in marketing expense (approximately 0.9%) resulting from a shift into targeted customer value promotions. Total store operating expenses for the 13 week period ended October 2, 2012 were $9.3 million, an increase of $0.8 million, or 9.2%, compared to $8.5 million for the 12 week period ended October 4, 2011. The change from a 12 week third quarter in fiscal 2011 to a 13 week third quarter in fiscal 2012 has resulted in an increase in Company Stores operating expenses attributable to the quarter.

Depreciation and amortization

Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of intangible assets. As a percentage of total revenue, depreciation and amortization decreased to 4.3% for the 13 week period ended October 2, 2012, compared to 4.9% for the 12 week period ended October 4, 2011. The decrease in depreciation and amortization as a percentage of total revenue was primarily due to the impact of leverage as a result of the increase in Company Store comparable sales (approximately 0.3%) and of lower carrying value as previously impaired assets approach the end of their economic useful lives (approximately 0.3%). Depreciation and amortization for the 13 week period ended October 2, 2012 was $2.8 million, flat, compared to $2.8 million for the 12 week period ended October 4, 2011.

General and administrative

General and administrative ("G&A") expenses include costs associated with our corporate headquarters in Emeryville, CA, field supervision, bonuses, outside and contract services, accounting and legal fees, travel and travel-related expenses, share-based compensation and other. As a percentage of total revenue, total G&A expenses increased to 14.8% for the 13 week period ended October 2, 2012, compared to 13.0% for the 12 week period ended October 4, 2011. Total G&A expenses for the 13 week period ended October 2, 2012 were $9.7 million, an increase of $2.3 million, or 30.6%, compared to $7.4 million for the 12 week period ended October 4, 2011. The increase of total G&A expenses was primarily due to costs resulting from accelerated investment in new and expanded growth initiatives (approximately $0.9 million), the change to 13 weeks in the fiscal 2012 third quarter compared to 12 weeks in the fiscal 2011 third quarter (approximately $0.8 million) and increased non-cash share-based compensation (approximately $0.4 million).

Impairment of long-lived assets

Long-lived assets are reviewed for impairment when indicators of impairment are present. Expected future cash flows associated with an asset, in addition to other quantitative and qualitative analyses, including certain assumptions about expected future operating performance and changes in economic conditions are the key factors in determining undiscounted future cash flows. If the sum of the undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss equal to the amount by which carrying value exceeds the fair value of the asset.

Impairment of long-lived assets for the 13 week period ended October 2, 2012 was $0.1 million, a decrease of $0.2 million, or 76.0%, compared to $0.3 million for the 12 week period ended October 4, 2011. The decrease of impairment charge for long-lived assets was primarily due to fewer underperforming stores that had not been previously partially impaired compared to the prior year period.

Other operating, net

Other operating, net consists primarily of gain or loss on disposals, income from jambacard breakage, store lease termination and closure costs, pre-opening costs and franchise related expense, net. For the 13 week period ended October 2, 2012, other operating, net was $0.3 million of expense, compared to net expense of $0.9 million for the 12 week period ended October 4, 2011. The decrease in expense is primarily due to lower loss on disposal of fixed assets (approximately $0.2 million), decrease in charges for store closures and lease termination costs (approximately $0.2 million) and lower pre-opening costs (approximately $0.2 million); partially offset by lower jambacard breakage, net of related expense (approximately $0.1 million).

Income tax expense

We recorded income tax expense at an effective rate of 9.4% for the 13 week period ended October 2, 2012. This is due to the pretax income, a change in valuation allowance related to deductible temporary differences originating during the current year, the alternative minimum taxes and foreign withholding taxes.

We recorded income tax benefit at an effective rate of negative 5.6% for the 12 week period ended October 4, 2011. The effective tax rate was primarily affected by pretax income, a change in the valuation allowance related to deductible temporary differences originating during the current year, the release of uncertain tax benefits on certain unrecognized tax benefits related to deductions, state tax credits and related interest as the statutes have expired, and foreign withholding taxes in connection with foreign franchise revenue.

Preferred stock dividends and deemed dividends

For the 13 week period ended October 2, 2012, preferred stock dividends and deemed dividends were $1.1 million, compared to $0.5 million for the 12 week period ended October 4, 2011. The increase of $0.6 million is primarily due to recording accelerated accretion relating to the beneficial conversion feature and transaction costs, as a result of conversion of 95,500 shares of preferred stock during the quarter (approximately $0.7 million).

RESULTS OF OPERATIONS - 39 WEEK PERIOD ENDED OCTOBER 2, 2012 AS COMPARED TO 40
WEEK PERIOD ENDED OCOTBER 4, 2011 (UNAUDITED)



                                         39 Week Period                       40 Week Period
                                             Ended                                Ended
(In thousands)                          October 2, 2012        % (1)         October 4, 2011        % (1)
Revenue:
Company Stores                          $        174,350           94.5 %    $        173,274           95.1 %
Franchise and other revenue                       10,223            5.5 %               8,834            4.9 %
Total revenue                                    184,573          100.0 %             182,108          100.0 %

Costs and operating expenses:
Cost of sales                                     40,504           23.2 %              39,828           23.0 %
Labor                                             49,013           28.1 %              53,139           30.7 %
Occupancy                                         22,097           12.7 %              23,707           13.7 %
. . .
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