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JMBA > SEC Filings for JMBA > Form 10-Q on 6-Nov-2013All Recent SEC Filings

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Form 10-Q for JAMBA, INC.


6-Nov-2013

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, 2013 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 1, 2013.

JAMBA, INC. OVERVIEW

Jamba, Inc., a Delaware corporation (the "Company"), and its wholly-owned subsidiary, Jamba Juice Company, is a healthy, active lifestyle brand with a global business driven by a portfolio of company-owned and franchised Jamba Juice® stores, innovative product platforms that utilize our JambaGO® and Jamba Smoothie Station™ formats, and Jamba-branded consumer packaged goods ("CPG"). As a leading "better-for-you," specialty food and beverage brand, Jamba offers great tasting, whole fruit smoothies, fresh-squeezed juices, hot oatmeal, breakfast wraps, bistro sandwiches and mini-wraps, Artisan Flatbreads, frozen yogurt, and a variety of baked goods and snacks in our restaurants. Jamba Juice Company has expanded the Jamba brand by direct selling of CPG products and licensing its trademarks.

EXECUTIVE OVERVIEW

Key Overall Strategies

Jamba's strategic priorities were established in order to support our objective to accelerate growth and develop Jamba as a global healthy, active lifestyle brand, offering consumers compelling and differentiated products and experiences at Jamba Juice stores and through other retail distribution channels.

During 2013, we continue to focus our resources on a broad-ranging set of actions and initiatives designed to drive transformative growth through multi-channel brand building, product and menu innovation, new and improved store format and design, and by leveraging unique partnerships. Our BLEND Plan continues to provide the blueprint for growing our global footprint and expanding our business model. Our key strategic priorities as described in our BLEND Plan 3.0 include:

• Brand Building and Total Innovation

• Lifestyle Engagement

• Expand Growth Initiatives

• New Products, Partners, Channels and Markets

• Drive Enterprise Efficiencies

2013 Third Quarter Financial Highlights

• Net income was $2.7 million for the 13 weeks ended October 1, 2013 compared to $4.1 million for the 13 weeks ended October 2, 2012.

• Diluted earnings per share was $0.15 for the 13 weeks ended October 1, 2013, compared to $0.21 per share for the 13 weeks ended October 2, 2012.

• Company Store comparable sales decreased 5.5% for the 13 weeks ended October 1, 2013.

• Franchise Stores comparable sales decreased 1.3% for the 13 weeks ended October 1, 2013 and System-wide comparable store sales decreased by 3.4% for the 13 weeks ended October 1, 2013. Franchise Stores and System-wide comparable store sales are non-GAAP financial measures representing the change in year-over-year sales for all Company Stores and Franchise Stores (system-wide) and for all Franchise Stores, respectively, opened for at least one full fiscal year.

• Total revenue was $61.4 million for the 13 weeks ended October 1, 2013, compared to $65.5 million for the 13 weeks ended October 2, 2012. The change in total revenue was primarily due to the decrease in comparable store sales partially offset by the increase in franchise and other revenue.

• Income from operations was $3.3 million for the 13 weeks ended October 1, 2013, primarily reflecting Company Store comparable sales decrease net of increased franchise revenue and expanding JambaGO sales. Operating margin was 5.4% for the 13 weeks ended October 1, 2013 compared to 6.9% for the prior year period.

• General and administrative expenses decreased 13.3% to $8.4 million for the 13 weeks ended October 1, 2013, compared to $9.7 million for the 13 weeks ended October 2, 2012.

• Franchisees opened 29 new Jamba Juice stores, globally; 26 new Franchise Stores, which include 12 smoothie stations, in the United States and three new International Stores during the 13 weeks ended October 1, 2013.

2013 Third Quarter Business Highlights

Brand Building, Total Innovation and Lifestyle Engagement

We focus on building total brand value through multi-channel marketing and total innovation initiatives, including consumer loyalty and engaging marketing programs and partnerships. We address consumer health and wellness needs by offering specialty beverages and new product platforms that will meet consumer needs across all day-parts.

We continue to seek ways to become more relevant to the consumer through product introductions like our whole food blended-premium fresh-squeezed juice, which utilizes fresh vegetables and fruits and is hand-crafted for the consumer. As of October 1, 2013, the fresh-squeezed juice platform was offered at 53 store locations in California. We will continue the expansion of this platform into 2014 with an additional 100 to 200 locations planned.

Jamba and the Quaker® Oats Company, a subsidiary of PepsiCo, Inc., and leader in whole grain oat based products, entered into a strategic product development alliance during the quarter. The partnership officially launched a first-of-its-kind, easy-to-blend version of the whole grain Quaker Oats, which was added to the roster of Boosts™ available in our stores nationwide. This new Quaker-branded boost delivers at least 16 grams, or one full serving, of whole grains.

We also introduced a new Whole Food Boosts™ platform allowing customers to add natural, whole foods to their favorite smoothies. The new, natural whole food boosts are nutrient-dense whole foods and are a source of protein, omega-3s and fiber. Our new Whole Food Boosts platform includes the Greek Yogurt Boost™ and the Chia Seeds Boost™. For the fall holidays we have reintroduced the Pumpkin Smash® smoothie which is blended with real pumpkin and seasoned with cinnamon and nutmeg. The Pumpkin Smash smoothie is a rich and natural source of beta-carotene, which the body converts to vitamin A.

During the quarter, we entered into a multi-year partnership with GENYOUth Foundation, a nonprofit organization dedicated to nurturing child health and wellness through improved nutrition and physical activity. We will combine forces to support students across the United States by working with schools, community groups and other national organizations to design programs and initiatives, which facilitate better dietary and physical activity. We plan to achieve our goals through events such as regional Town Halls in San Francisco and St. Louis and by supporting GENYOUth's entrepreneurial pitch and invest program, AdVenture Capital, which awards grants to students and gives them the opportunity to make changes in their schools.

Our strong concern for people and the planet has driven us to continually seek to improve our environmental footprint across all areas of our business. After several years of research, we began implementing the solution that would allow us to move away from the Styrofoam cup during the quarter. Our innovative paper cup allows us to continue offering a quality product to our consumers and we expect to complete the transition away from the Styrofoam cup by the end of fiscal year 2013.

On November 5, 2013, we launched a joint promotion with Isis, the mobile commerce joint venture created by AT&T Mobility, T-Mobile US Inc. and Verizon Wireless, where Isis purchases up to one million smoothies or juices for their consumers who utilize their tap to pay Mobile Wallet™ technology. The Isis Mobile Wallet leverages the near field communication technology used in smartphones produced by the partners of Isis.

Expand Growth Initiatives, New Products, Partners, Channels and Markets

Our growth initiatives encompass the multiple portfolio opportunities we have to expand our restaurant business on a global basis, including traditional and non-traditional stores, smaller footprint smoothie stations and the JambaGO format. We believe these opportunities are positioning us for growth in market share, to reduce capital outlays, provide better overall margins, allow us to open more locations at an accelerated rate, increase our brand presence to support other Company initiatives such as consumer products licensing and direct selling, and increase customer frequency.

As of October 1, 2013, we had 849 Jamba Juice stores globally, represented by 287 Company Stores and 517 Franchise Stores in the United States including 33 smoothie stations, and 45 International Stores. The system is comprised of approximately 66% Domestic and International Store locations and 34% Company Store locations. During the 39 week period ended October 1, 2013, 43 Franchise Stores and 12 International stores were opened. We expect to open 60 to 80 stores and smoothie stations by the end of fiscal 2013, globally, primarily through franchisees. The actual number of openings may differ from our expectations due to various factors, including franchisee access to capital and economic conditions.

Global Development

In the U.S. during the 13 week period ended October 1, 2013, franchisees developed and opened 26 new Franchise Stores, of which five were traditional, nine were non-traditional stores and 12 were smoothie stations. Also, our franchise partner in Las Vegas opened the first Jamba Juice drive thru store location during the quarter.

During the quarter, we completed the refresh of approximately 29 store locations, to include the Whole Food Blending-Premium Juice offering and a contemporary re-imaging of each location. We expect to refresh an additional 100 to 200 locations during 2014. We sold seven Company Store locations to new and existing franchise partners during the quarter, as part of the California Development Initiative, including the development of 12 new Franchise Stores.

Our international franchise partners opened three stores during the quarter. We currently have international master agreements with partners in South Korea, the Philippines, Canada and Mexico. We continue to engage in discussions with other potential partners about expansion into international markets.

New Ventures

In order to more efficiently manage and monitor our performance in recently created or acquired businesses, we have organized JambaGO and CPG, including Talbott Teas under a New Ventures management team. Subsequent to October 1, 2013, our JambaGO concept was launched in over 1,000 retail locations across the nation, bringing the total to 1800. We also continued expansion of our JambaGO concept in K-12 schools, convenience stores and other similar locations during the quarter.

We continue to develop new partnerships to extend the Jamba brand into relevant categories. During the quarter, we expanded distribution of our CPG direct sell businesses to new channels further expanding accessibility of the brand. Jamba-branded products continue to have a presence in all 50 states. We also continue to evaluate and meet with potential licensees about new product categories that leverage our core brand strength.

Drive Enterprise Efficiencies

We launched a major cost improvement and productivity program during the quarter which is expected to yield savings of 100 to 200 basis points in operating margin once fully operationalized. We are partnering with a leading global consulting firm and expect to realize the savings in 2014 and beyond. The program is primarily focused on driving down costs in our supply chain and will enhance the work already done to help to mitigate the effect of commodity price increases. We also continue to focus attention on techniques to refine our labor deployment and service tools to ensure efficient service to our customers. We continue to increase our digital activities, which contribute to improved speed of service. The launch of Isis Mobile Wallet in a joint promotion with Isis provides another opportunity to further improve speed of service in our stores.

During the 13 week period ended October 1, 2013, operating margin decreased by 150 basis points or $1.2 million to $3.3 million, due to the decrease in Company Store comparable sales; partially offset by growth in our JambaGO model due to the expansion in the number of JambaGO units at Target food courts. We believe that the macroeconomic environment, increased competition, the impact of promotional campaigns and cooler than expected weather in some key markets contributed significantly to the decline in consumer spending in Jamba stores.

RESULTS OF OPERATIONS - 13 WEEK PERIOD ENDED OCTOBER 1, 2013 AS COMPARED TO 13
WEEK PERIOD ENDED OCTOBER 2, 2012 (UNAUDITED)

                                          13 Week Period                    13 Week Period
                                               Ended                            Ended
                                            October 1,                        October 2,
(In thousands)                                 2013           % (1)              2012           % (1)
Revenue:
Company Stores                            $        57,092         93.0 %   $         61,795         94.4 %
Franchise and other revenue                         4,269          7.0 %              3,687          5.6 %
Total revenue                                      61,361        100.0 %             65,482        100.0 %
Costs and operating expenses:
Cost of sales                                      14,592         25.6 %             14,918         24.1 %
Labor                                              15,862         27.8 %             16,457         26.6 %
Occupancy                                           7,405         13.0 %              7,353         11.9 %
Store operating                                     9,060         15.9 %              9,328         15.1 %
Depreciation and amortization                       2,808          4.6 %              2,793          4.3 %
General and administrative                          8,377         13.7 %              9,663         14.8 %
Impairment of long-lived assets                       217          0.4 %                 75          0.1 %
Other operating, net                                (284)        (0.5) %                347          0.5 %
Total costs and operating expenses                 58,037         94.6 %             60,934         93.1 %
Income from operations                              3,324          5.4 %              4,548          6.9 %
Other income (expense), net:
Interest income                                         1          0.0 %                 21          0.0 %
Interest expense                                     (54)        (0.1) %               (52)          0.0 %
Total other expense, net                             (53)        (0.1) %               (31)          0.0 %
Income before income taxes                          3,271          5.3 %              4,517          6.9 %
Income tax expense                                  (576)        (0.9) %              (413)        (0.6) %
Net income                                          2,695          4.4 %              4,104          6.3 %
Preferred stock dividends and deemed
dividends                                               -          0.0 %            (1,123)        (1.7) %
Net income available to common
stockholders                              $         2,695          4.4 %   $          2,981          4.6 %


(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                       13 Week
                               Period Ended      % of        Period Ended      % of
                                October 1,      Total         October 2,      Total
                                   2013        Revenue           2012        Revenue
Revenue:
Company stores                $       57,092       93.0 %   $       61,795       94.4 %
Franchise and other revenue            4,269        7.0 %            3,687        5.6 %
Total revenue                 $       61,361      100.0 %   $       65,482      100.0 %

Total revenue is comprised of revenue from Company Stores, royalties and fees from Franchise Stores and International Stores, and revenue from CPG licensing and direct selling.

Total revenue for the 13 week period ended October 1, 2013 was $61.4 million, a decrease of $4.1 million or 6.3%, compared to $65.5 million for the 13 week period ended October 2, 2012.

Company Store revenue

Company Store revenue for the 13 week period ended October 1, 2013 was $57.1 million, a decrease of $4.7 million, or 7.6%, compared to Company Store revenue of $61.8 million for the 13 week period ended October 2, 2012. The decrease was primarily due to Company Store comparable sales decline as illustrated by the following table:

                                                      Company Store
                                                   Increase in Revenue
                                                        (in 000's)
                                                  Third quarter 2013 vs.
                                                    Third quarter 2012

Company Store comparable sales decrease          $                (3,300)
Reduction in the number of Company Stores, net                    (1,403)

Total change in Company Store revenue            $                (4,703)


Company Store comparable sales decreased by $3.3 million for the 13 week period ended October 1, 2013, or 5.5%, and was primarily attributable to a decrease in transaction count of 8.8%, partially offset by an increase of 3.3% in average check, as compared to the same period in the prior year. 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 1, 2013, approximately 99% of our Company Stores had been open for at least one full fiscal year.

Franchise and other revenue

Franchise and other revenue for the 13 week period ended October 1, 2013 was $4.3 million, an increase of $0.6 million, or 15.8% compared to franchise and other revenue of $3.7 million for the 13 week period ended October 2, 2012 primarily due to the net increase in the number of Franchise and International Stores (approximately $0.4 million) and the revenue generated by JambaGO and CPG (approximately $0.2 million).

The number of Franchise Stores and International Stores as of October 1, 2013 and October 2, 2012 was 562 and 487, respectively.

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 25.6% for the 13 week period ended October 1, 2013, compared to 24.1% for the 13 week period ended October 2, 2012. The increase of cost of sales as a percentage of Company Store revenue was primarily due to a reduction in price points resulting from promotional tactics (approximately 0.8%) and increases in commodity costs (approximately 0.6%). Cost of sales for the 13 week period ended October 1, 2013 was $14.6 million compared to $14.9 million for the 13 week period ended October 2, 2012.

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 increased to 27.8% for the 13 week period ended October 1, 2013, compared to 26.6% for the 13 week period ended October 2, 2012. The 1.2% increase of labor costs as a percentage of Company Store revenue was primarily due to deleveraging created from lower sales volumes (approximately 0.9%) while managing the business with value promotions deployed during the quarter (approximately 0.2%). Labor costs for the 13 week period ended October 1, 2013 were $15.9 million, a decrease of $0.6 million, or 3.6%, compared to $16.5 million for the 13 week period ended October 2, 2012.

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 increased to 13.0% for the 13 week period ended October 1, 2013, compared to 11.9% for the 13 week period ended October 2, 2012. The 1.1% increase of occupancy costs as a percentage of Company Store revenue was primarily due to deleveraging created from lower sales volumes (approximately 0.5%) and an increase in the variable portion of occupancy (approximately 0.6%). Occupancy costs for both the 13 week periods ended October 1, 2013 and October 2, 2012 were flat at $7.4 million.

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 increased to 15.9% for the 13 week period ended October 1, 2013, compared to 15.1% for the 13 week period ended October 2, 2012. The increase in total store operating expenses as a percentage of Company Store revenue was primarily due to an increase in utilities (approximately 0.4%) and deleveraging as a result of lower sales (approximately 0.2%). Total store operating expenses for the 13 week period ended October 1, 2013 were $9.1 million, a decrease of $0.3 million, or 2.9%, compared to $9.3 million for the 13 week period ended October 2, 2012.

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 increased to 4.6% for the 13 week period ended October 1, 2013, compared to 4.3% for the 13 week period ended October 2, 2012. The increase in depreciation and amortization as a percentage of total revenue was primarily due to the impact of deleveraging as a result of the decrease in Company Store comparable sales (approximately 0.2%). Depreciation and amortization for the 13 week period ended October 1, 2013 was $2.8 million, remaining flat with the 13 week period ended October 2, 2012.

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 decreased to 13.7% for the 13 week period ended October 1, 2013 compared to 14.8% for the 13 week period ended October 2, 2012. Total G&A expenses for the 13 week period ended October 1, 2013 were $8.4 million, a decrease of $1.3 million, or 13.3%, compared to $9.7 million for the 13 week period ended October 2, 2012. The decrease of total G&A expenses was primarily due to reduced store manager bonuses (approximately $0.1 million), reduced legal and contract services ($0.2 million), reduction in travel expense (approximately $0.2 million), reduced growth initiative expenses (approximately $0.5 million) and a reduction in share-based compensation (approximately $0.1 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 charge for long-lived assets for the 13 week period ended October 1, 2013 was $0.2 million compared to $0.1 million for the 13 week period ended October 2, 2012.

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 expenses related to franchise and consumer packaged goods activities. For the 13 week period ended October 1, 2013, other operating, net was income of $0.3 million, compared to expense of $0.3 million for the 13 week period ended October 2, 2012. The decrease in expense of $0.6 million was primarily due to an increase in the gain on disposal of fixed assets resulting from refranchising of selected Company Stores (approximately $1.5 million), partially offset by increased expense related to consumer packaged goods activities (approximately $0.8 million).

Income tax expense

We recorded income tax expense of $0.6 million, or 17.6% for the 13 week period ended October 1, 2013. This is due to the pretax income, a full valuation allowance related to deductible temporary differences originating during the current year, the alternative minimum taxes and foreign withholding taxes. It is also due to a reduction of the federal income tax liability related to the net operating loss deduction for alternative minimum tax purposes.

We recorded income tax expense of $0.4 million, or 9.4% for the 13 week period ended October 2, 2012. Our prior year tax rate was also due to the pretax income, a full valuation allowance related to deductible temporary differences originating during the current year, the alternative minimum taxes and foreign withholding taxes.

RESULTS OF OPERATIONS - 39 WEEK PERIOD ENDED OCTOBER 1, 2013 AS COMPARED TO 39
WEEK PERIOD ENDED OCTOBER 2, 2012 (UNAUDITED)

                                     39 Week Period                     39 Week Period
                                         Ended                              Ended
                                       October 1,                         October 2,
(In thousands)                            2013            % (1)              2012            % (1)
Revenue:
Company Stores                      $        171,030          93.1 %   $        174,350          94.5 %
Franchise and other revenue                   12,654           6.9 %             10,223           5.5 %
Total revenue                                183,684         100.0 %            184,573         100.0 %
Costs and operating expenses:
Cost of sales                                 41,854          24.5 %             40,504          23.2 %
Labor                                         48,466          28.3 %             49,013          28.1 %
. . .
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