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JMBA > SEC Filings for JMBA > Form 10-K on 10-Mar-2014All Recent SEC Filings

Show all filings for JAMBA, INC.

Form 10-K for JAMBA, INC.


10-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with Part II, Item 6 "Selected Financial Data" and our audited consolidated financial statements and the related notes thereto included in Item 8 "Financial Statements and Supplementary Data." In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Actual results could differ from these expectations as a result of factors including those described under Item 1A, "Risk Factors," "Special Note Regarding Forward-Looking Statements" and elsewhere in this Form 10-K.

JAMBA, INC. OVERVIEW

Jamba, Inc. through 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 and juice blends, hot teas, and a variety of food items including, hot oatmeal, breakfast wraps, sandwiches, Artisan FlatbreadsTM, baked goods and snacks in our restaurants. Jamba Juice Company expanded the Jamba brand by direct selling of CPG products and licensing its trademark.

Jamba, Inc. was incorporated in January 2005, and went public through an initial public offering later that year. In November 2006, the Company completed its acquisition of Jamba Juice Company, which first began operations in 1990. As of December 31, 2013, there were 851 Jamba Juice stores globally, consisting of 268 Company-owned and operated stores ("Company Stores"), 535 franchise-operated stores ("Franchise Stores") in the United States, and 48 franchise-operated stores at international locations ("International Stores").

Fiscal Year

Our fiscal year ends each year on the Tuesday closest to December 31st and therefore we have a 52 or 53 week fiscal year. This is the second fiscal year the Company's results are being reported on the basis of four 13 week fiscal quarters which result in 12 fiscal periods. In a 53 week fiscal year, the fourth fiscal quarter has 14 weeks. The first and second periods of the fiscal quarters have four weeks each and the third period of each fiscal quarter has five or six weeks. In fiscal 2011 and prior fiscal years, the first fiscal quarter had sixteen weeks, the second and third quarters had twelve weeks each, and the fourth quarter had twelve or thirteen weeks. Unless otherwise stated, references to years in the report relate to fiscal years rather than to calendar years. The following fiscal periods are presented in this report.

[[Image Removed]]   [[Image Removed]]                      [[Image Removed]]
Fiscal Period                  Period Covered                    Weeks
Fiscal Year 2013    January 2, 2013 to December 31, 2013          52
Fiscal Year 2012    January 4, 2012 to January 1, 2013            52
Fiscal Year 2011    December 29, 2010 to January 3, 2012          53

All references to store counts, including data for new store openings, are reported net of related store closures, unless otherwise noted.

EXECUTIVE OVERVIEW
Key Overall Strategies

Our BLEND Plan continues to guide the Company's strategic plan to transform Jamba into a globally recognized healthy, active lifestyle brand. Since the introduction of the BLEND Plan in 2009, we successfully completed our financial and strategic turnaround (BLEND Plan 1.0) and accelerated our growth as a healthy, active lifestyle brand (BLEND Plan 2.0). Our BLEND Plan 3.0, launched in fiscal 2013, provides continuity and is the blueprint for focusing our resources on initiatives that will strengthen our total brand value.

We believe our BLEND Plan supports the Company's mission to build Jamba into a global lifestyle brand with $1 billion in total retail sales from all businesses by the end of 2015, to be reached by offering


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consumers differentiated products and experiences at Jamba Juice stores and through other retail distribution channels. During fiscal 2013, we focused on strengthening our total brand value through brand building and total innovation, accelerating our overall growth by solidifying our underlying infrastructure and business model in pursuit of our mission.

The important drivers for fiscal 2014 will be our growth initiatives including our whole food blending and premium juice platforms, rapid global growth, leveraging our JambaGO opportunities and the pursuit of system-wide cost savings in order to improve profitability. Our focus for 2014 will be centered on "Whole Food Nutrition" which encompasses blending juices, whole fruits and vegetables into convenient and nutritious beverages. Jamba intends to launch integrated programs that deliver outstanding customer service and that provide our team members with superior product knowledge.

During 2013, we focused on transforming Jamba into a globally recognized healthy, active lifestyle brand, strengthening our total brand value through brand building and total innovation, and on establishing consistent organic growth in revenue, earnings and profitability.

We had a successful but challenging year in 2013. We made progress on several key priorities to strengthen our brand with successful juice and smoothie innovations and engaging marketing programs with strategic partners including Disney and ISIS. We also expanded our global retail store growth, added new channel strength and continued to explore new ways to reduce costs and improve productivity. Our opportunities included a combination of reduced consumer spending, adverse weather in key markets and heightened competition. We took actions and implemented changes in 2013 that we believe will have meaningful impact in accelerating our growth in 2014.

During 2013, Company Stores comparable sales growth was 0.5%, primarily due to increase in average check of 2.4%, partially offset by a decrease in traffic of 1.9%. We experienced Company Store comparable sales growth, resulting in two consecutive fiscal years of Company Store comparable sales growth. Contributing to the increase in Company Store comparable sales were our continued product and menu innovation across all day-parts, our engaging marketing programs, and accelerated retail growth across the system.

We opened 69 stores globally, including 25 Smoothie Stations, and added over 1,000 JambaGO units to retail store cafes at Target Stores across the United States. We also sold 31 Company Stores to franchisees, who are operating the stores as Franchise Stores. As a result, at December 31, 2013, the system is comprised of approximately 69% Franchise and International Store locations and 31% Company Store locations.

Fiscal 2013 Financial Summary
• Net income was $2.1 million compared to $0.3 million for the prior year.

• Company Stores comparable sales increased 0.5% for the year compared to the prior year, reflecting a third consecutive fiscal year comparable store sales growth.

• System-wide comparable sales decreased 0.1% and Franchise Store comparable sales decreased 0.6% for the year compared to the prior year. System-wide and Franchise Store comparable store sales are non-GAAP financial measures and represent the change in year-over-year sales for all Company and Franchise Stores (system-wide) and for all Franchise Stores, respectively, opened for at least one full fiscal year.

• Total revenue for the year decreased 0.2% to $229.2 million from $228.8 million for the prior year, primarily due to the net reduction in the number of Company Stores partially offset by the 0.5% increase in Company Store comparable sales and increased CPG branded product revenues.

• General and administrative expenses decreased 7.4% to $37.8 million for the year compared to $40.8 million for the prior year.

• Income from operations was $2.4 million and operating margin was 1.0% for the year.


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• Franchisees opened 67 new Jamba Juice stores, globally; 52 new Franchise Stores, which included 25 Smoothie Stations, in the United States and 15 new International Stores. At December 31, 2013, there were 851 stores globally; 268 Company Stores, 535 Franchise Stores and 48 International Stores.

• Total JambaGO units as of December 31, 2013 were 1,851.

Fiscal 2013 Operational Highlights

Our fiscal 2013 accomplishments were based on our BLEND Plan strategic priorities announced in January 2013. These priorities were intended to strengthen Jamba's core vision to inspire and simplify healthy living.

Brand Building and Total Innovation

Our main focus in 2013 was on building total brand value. We employed multi-channel marketing and total innovation initiatives, including consumer loyalty and marketing programs and partnerships. We have been addressing consumer health and wellness needs by offering specialty beverages and new product platforms that will meet our customers' needs across all day-parts.

We partnered with the Jamba Healthy Living Council to design our new Jamba Kids Meals line and in January 2013, we launched our kids-focused smoothie offerings in three all-fruit and one fruit and veggie flavors together with two baked goods, which can be mixed and matched with the kid-sized smoothie offerings to make meals. All Jamba Kids Meals provide a significant source of protein, contain a full serving of whole grains and have 2.5 servings of fruit or fruit and vegetables. The Jamba Kids Meal is part of the National Restaurant Association's Kids Live Well program, which requires that kids' meals meet specific nutrition criteria as recommended by leading health organizations' scientific guidelines.

Our fresh squeezed juice platform, which utilizes fresh vegetables and fruits and is hand-crafted for the consumer, was expanded in 2013. Our line of fresh squeezed juices is built upon our key fresh ingredients - kale, beet, pineapple, ginger, lemon, apple and cucumber. At December 31, 2013, this platform was available at 64 store locations. Our fresh squeezed juice provides at least two servings of fruit and/or vegetables, along with vitamins, nutrients and micronutrients.

We converted our line of Fruit & Yogurt Parfaits to Wellness Bowls to keep our product offerings fresh and trend-forward. Fresh Greek yogurt is served in a bowl with real whole fruit and soymilk topped with organic granola & fresh bananas. Our Wellness Bowls provide a good source of protein and fiber with at least two servings of fruit. In order to meet our customers' health and wellness needs, we reformulated our California Flatbreads and re-launched the platform as Artisan Flatbreads that has delicious toppings on a hand-stretched, made with whole grain crust. Artisan flatbreads are available in two flavors and provide significant levels of protein and fiber.

We entered into a strategic product development alliance with the Quakerฎ Oats Company, a subsidiary of PepsiCo, Inc., and leader in whole grain oat based products, during the fiscal year. 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 BoostsTM available in our stores nationwide. This new Quaker-branded boost delivers at least 16 grams, or one full serving, of whole grains. In addition, we introduced a new Whole Food BoostsTM 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 BoostTM and the Chia Seeds Boost.

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. Therefore, after several years of research and testing, we fully implemented the solution that allowed us to move away from the Styrofoam cup during the fiscal year. Our innovative paper cup allows us to continue offering a quality product to our consumers.

Our customer loyalty program ("Jamba Insider Rewards"), powered by SpendgoTM, was launched in February 2014. The program allows customers to register and earn rewards by simply typing their phone number into an easy-to-use touchscreen at the point of sale. Our Spendgo-powered loyalty program provides for customers to earn points which they can redeem when certain criteria are met. This program facilitates


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easy registration; enabling custom rewards based on individual purchase behavior and the ability to segment and derive insights for future programs.

Lifestyle Engagement

We continued our communication with consumers, and engaged them on how to achieve and maintain a healthy, active lifestyle. We also are developing integrated programs that will deepen and broaden the health and wellness knowledge of our team members across the system.

The annual Healthy Habits Sweepstakes, launched immediately after the New Year holiday, engages our customers on Facebook. We are now in our third year as a sponsor of the "Team Up for a Healthy AmericaTM" campaign established to help raise awareness of our nation's obesity epidemic. We remain focused on opportunities to refine our promotional and communication efforts to drive traffic, build loyalty and to make Jamba a top-of-mind, better-for-you food and beverage brand through media, social media, public relations, and our website, JambaJuice.com.

Television sports commentator and former Olympic champion Summer Sanders became a Jamba spokesperson and a member of the Jamba Healthy Living Council during fiscal 2013. The Council has been benefitting from her knowledge of and passion for healthy living. Additionally, in April 2013, Jake Steinfeld, known for his popular "Body by Jake" brand, became a spokesperson for the Jamba brand and a member of the Healthy Living Council. Mr. Steinfeld launched the Jamba Healthy Living Fitness Council and has been hosting promotional events and other activities to support of our new and expanded fresh-squeezed juice offerings, primarily at our Company Store in Santa Monica, California. In addition, we added San Francisco 49ers tight end Vernon Davis, along with tennis star Venus Williams to the Council. All members of the Council serve as credible and inspirational advocates for healthy living.

In July 2013, we announced our first major theatrical motion picture promotion with The Walt Disney Company for the release of "Disney's Planes," an action-packed 3D animated comedy adventure, which opened at movie theaters during the summer. Jamba Juice was the exclusive Quick Service Restaurant and beverage provider in the U.S. chosen to participate in promotional activities for the movie's release. In addition, Jamba continued to be the Official Smoothie Partner for the Rock & Roll Marathon series in 2013. In 2013, 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 combined 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 have been participating in events such as regional Town Halls in San Francisco and St. Louis and by supporting GENYOUth's programs to empower students to make changes in their schools.

During November 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 agreed to purchase up to one million smoothies or juices for their consumers who utilize their tap to pay Mobile WalletTM technology. The ISIS Mobile Wallet leverages the near field communication technology used in smartphones produced by the partners of ISIS.

Expand Growth Initiatives

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 Jamba Smoothie Stations and the JambaGO format.

In fiscal 2013, we expanded our limited menu Smoothie Stations, and launched drive-thru store locations and our fresh juice bar concept in Jamba Juice stores as well as the initiative to refresh and redesign existing stores over four years. Our refresh and remodel program includes transforming our store layout and format to (1) provide customers with an enhanced experience in our stores by using environmentally friendly building materials, brighter lighting, updated graphics, bold colors and seating arrangements compatible with the individual store footprint and (2) facilitate fresh-squeezed juice bars in certain store locations. We expect to open 60 to 80 stores and Smoothie Stations by the end of fiscal 2014, 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.


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Domestic

During fiscal 2013, franchisees developed and opened 52 new Franchise Stores, comprised of 43 non-traditional stores, including 25 Jamba Smoothie Stations, and nine traditional stores. As of December 31, 2013, we had 31 area developers with rights to develop additional Franchise Stores pursuant to development agreements. The exclusive territories covered by these agreements include selected markets in the states of California, Colorado, Connecticut, Florida, Hawaii, Indiana, Kansas, Kentucky, Maryland, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Utah, Washington State, Washington, D.C., and Wisconsin.

International

In March 2013, we entered into a master franchise agreement with Casa Operadora de Franquicias MAV S.A.P.I de C.V., to develop 80 Jamba Juice stores in Mexico over the next ten years. The first Jamba Juice store in Mexico is expected to open during the first quarter of 2014. In December 2013, we entered into a master franchise agreement with Foodmark, the Food and Beverage division of Landmark Group, the leading retail and hospitality group in MENA and India with over 22 million square feet of retail space across 1,600 locations in 19 countries, to develop 80 Jamba Juice stores in the Gulf Corporation Council region over the next 10 years. The first Jamba Juice store is expected to open in Dubai in 2014. As of December 31, 2013, we had five international master developers with commitments to open an aggregate of 371 additional stores at International locations.

Our other master developers opened a total of 15 international store locations during fiscal 2013, six in South Korea, six in Canada and three in the Philippines. We continue to engage in discussions with potential partners about expansion into other international markets.

New Products, Partners, Channels and Markets

During 2013, we consolidated our JambaGO, Jamba Smoothie Stations, Jamba-branded CPG products and Talbott Teas all together under one organization unit called Jamba New Ventures. This structure will facilitate synergies, allow for improved resource allocation and investment choices, and thereby increase shareholder return.

We launched a new fruit and veggie flavor for Jamba branded Make-at-Home Frozen Smoothie Kit and extended distribution of our snacks, energy drinks and frozen novelties offerings during the fiscal year.

New Ventures

In October 2013, our JambaGO concept was launched in over 1,000 retail locations across the United States, bringing our total JambaGO units to 1,851 at December 31, 2013. Our JambaGO concept also continues to expand throughout K-12 schools, convenience stores and other similar locations. We expect to launch approximately 1,000 JambaGO units by the end of fiscal 2014.

We continue to develop new partnerships to extend the Jamba brand into relevant categories. During 2013, we further expanded distribution of our CPG direct selling businesses to new channels thereby increasing 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 continued to focus on driving store-level profitability, and improving returns for Company Stores and Franchise Stores. Strong store-level economics are critical to our success and therefore management is diligently focused on initiatives to improve these metrics. In order to improve productivity and to enhance customer experience and speed of service at store-level, we continue to introduce technology enhancements, including innovative point of sale technologies, designed to increase the speed of payment.

During the fourth quarter of 2013, we launched a major cost improvement and productivity program 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.


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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, by utilizing the tap to pay technology.

During fiscal 2013, operating margin increased by 70 basis points or $1.8 million to $2.4 million, due to the increase in Company Store comparable sales and the growth in our JambaGO business model. Our Company Store-level margins improved due to the leverage of the fixed cost component in labor and store operating costs, as a result of our comparable store sales growth. Our operating margin for the fiscal year increased primarily due to growth in our JambaGO and CPG model and our improved store portfolio economics.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles ("GAAP") requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, actual results may differ from our estimates. Such differences may be material to the consolidated financial statements.

We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.

Our accounting policies are more fully described in Note 1 "Business and Summary of Significant Accounting Policies" in the "Notes to Consolidated Financial Statements," included elsewhere in this Form 10-K. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.

Impairment of Long-Lived Assets

We evaluate long-lived assets for impairment when facts and circumstances indicate that the carrying values of long-lived assets may not be recoverable. The impairment evaluation is generally performed at the individual store asset group level. We first compare the carrying value of the asset to the asset's estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying value of the asset, we measure an impairment loss based on the asset's estimated fair value. The fair value of a store's assets is estimated using a discounted cash flow model based on internal projections and taking into consideration the view of a market participant. The estimate of cash flows is based on, among other things, certain assumptions about expected future operating performance. Factors considered during the impairment evaluation include factors related to actual operating cash flows, the period of time since a store has been opened or remodeled, refranchising expectations and the maturity of the relevant market.

Our estimates of cash flows used to assess impairment are subject to a high degree of judgment. If our estimates of future cash flows differ from actual cash flows due to, among other things, changes in economic conditions, changes to our business model or changes in operating performance, it would result in an adjustment to results of operations.

Intangible Asset Impairment
Goodwill & Other Intangible Assets

We evaluate goodwill for impairment on an annual basis during our fourth fiscal quarter, or more frequently if circumstances, such as material deterioration in performance, indicate carrying values may exceed their fair values. The goodwill impairment analysis is a two-step process: First, the reporting unit's estimated fair value is compared to its carrying value, including goodwill. If we determine that the estimated fair value of the reporting unit is less than its carrying value, we move to the second step to determine the implied fair value of the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds its fair value, an impairment loss is recognized. In September 2011, the FASB issued new guidance allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to


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determine whether it should calculate the fair value of a reporting unit. If impairment is deemed more likely than not, management would perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. We apply the qualitative approach when appropriate. When reviewing goodwill for impairment, we assess whether goodwill should be allocated to operating levels lower than our single operating segment for which discrete financial information is available and reviewed for decision-making purposes. These lower levels are referred to as reporting units. Currently, our one reporting unit was determined to be the Company's one operating segment.

Other Intangible Assets with Indefinite Lives

We evaluate intangible assets not subject to amortization for impairment on an annual basis during our fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We perform our test for impairment on trademarks by comparing the fair value of the trademarks to their carrying amounts. An impairment loss is generally recognized . . .

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