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JMBA > SEC Filings for JMBA > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for JAMBA, INC.

Form 10-Q for JAMBA, INC.


9-May-2014

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, 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 December 31, 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 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 stores. Jamba Juice Company has expanded the Jamba brand by direct selling of consumer packaged goods CPG products and licensing its trademarks.

EXECUTIVE OVERVIEW

Key Overall Strategies

Our BLEND Plan, launched in 2009, 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, we have accelerated our growth as a healthy, active lifestyle brand. Our BLEND Plan 3.0, launched in fiscal 2013, provides continuity and is the blueprint for focusing our resources on initiatives that strengthen our total brand value. The BLEND Plan guides the Company in building Jamba into a global lifestyle brand with $1 billion in total retail sales from all businesses by the end of fiscal 2015, to be reached by offering consumers differentiated products and experiences at Jamba Juice stores and through other retail distribution channels.

The important drivers for fiscal 2014 are our growth initiatives including expansion of our whole food nutrition and juice platforms, rapid global store growth, primarily through franchisee development agreements, leveraging our JambaGO opportunities and the pursuit of system-wide cost savings in order to continue to improve profitability. Our focus for 2014 is the expansion of our "Whole Food Nutrition" platform which encompasses blending juices, whole fruits and vegetables into convenient and nutritious beverages. To ensure our customers continue to enjoy their in-store experience, we intend to launch integrated programs that deliver outstanding customer service and that provide our team members with superior product knowledge.

2014 First Quarter Financial Highlights

• Net loss was $0.2 million for the 13 weeks ended April 1, 2014 compared to a net loss of $1.2 million for the 13 weeks ended April 2, 2013.

• Basic and diluted loss per share was $(0.01) for the 13 weeks ended April 1, 2014, compared to loss per share of $(0.11) per share for the 13 weeks ended April 2, 2013.

• Company Store comparable sales increased 0.6% for the 13 weeks ended April 1, 2014.

• Franchise Stores comparable sales increased 0.1% for the 13 weeks ended April 1, 2014 and system-wide comparable store sales increased by 0.3% for the 13 weeks ended April 1, 2014. 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 year.

• Total revenue was $51.6 million for the 13 weeks ended April 1, 2014, compared to $55.7 million for the 13 weeks ended April 2, 2013.

• Loss from operations was $0.2 million for the 13 weeks ended April 1, 2014, compared to a loss from operations of $1.3 million for the 13 weeks ended April 2, 2013. Operating margin was (0.4)% for the 13 weeks ended April 1, 2014 compared to (2.3)% for the prior year period.

• General and administrative expenses decreased 8.9% to $8.4 million for the 13 weeks ended April 1, 2014 compared to $9.2 million for the 13 weeks ended April 2, 2013.

• Franchisees opened 11 new Jamba Juice stores, globally; nine new Franchise Stores, which included three Smoothie Stations, in the United States and two new International Stores. At April 1, 2014, there were 854 stores globally; 263 Company Stores, 544 Franchise Stores and 47 International Stores.

2014 First Quarter Business Highlights

Brand Activation and Leadership

Leverage Innovative In-Store Experience

We continue to build our total brand value through multi-channel brand marketing and product innovation, including the adoption of consumer loyalty programs, the development of engaging national and local marketing programs and entering into national scale partnerships. We are addressing our customers' health and wellness needs by our offerings centered on "Whole Food Nutrition," which encompasses blending juices and whole fruits and vegetables into nutritious and convenient beverages across all day-parts.

As an example of our focus on "Whole Food Nutrition," we unveiled our expanded offerings of smoothies and fresh juices made with whole food ingredients, which reflect an evolving science of health and wellbeing while also honoring Jamba Juice's roots in simple and healthy living. The new smoothie offerings provide balanced nutrition and may serve as a delicious and convenient breakfast, lunch or snack. The new offerings consist of the following three flavors:

Kale-ribbean Breeze™ - a blend of mangoes, kale, passion-mango juice, fresh Greek yogurt and chia seeds that delivers a good source of protein and fiber, an excellent source of Omega-3s and a full serving of kale.

PB Chocolate Love™ - a blend of chocolate, peanut butter, bananas, and 2% milk with a Whole Grain boost that delivers a good source of protein and fiber and a full serving of whole grains.

Carrot Orange Fusion™ - a delightful blend of fresh orange juice, whole carrots, fresh Greek yogurt, soymilk, mangoes, bananas and chia seeds that delivers a good source of protein, fiber, and Omega-3s and a full serving of vegetables.

The expansion of our squeezed-to-order, fresh juice offerings, continues as we make more fresh whole fruits and vegetables available in our stores. Our squeezed-to-order, fresh juice offerings make it easy and convenient for our customers to get more fruits and vegetables like apple, pineapple, orange, kale, carrots and beets, in their diets. In addition to squeezed-to-order fresh juices, we offer a menu of a variety of fresh hand-crafted juice offerings from which the customer can choose. During 2014, we are expanding fresh juice offerings to more than 500 locations system-wide.

On February 4, 2014, we launched the Jamba Insider Rewards loyalty program which allows us to customize rewards to customers based on their historical buying habits and favored menu items. A participant's history and earned reward points are tracked through the entry of their ten-digit telephone number on a touchscreen pad at the point of purchase.

Our joint promotion with ISIS, the mobile commerce joint venture created by AT&T Mobility, T-Mobile US Inc. and Verizon Wireless, was launched in the fall of 2013. This application of utilizing ISIS tap-to-pay mobile technology is a convenient option for customers and has the potential to reduce customer waiting time. This joint promotion to give away one million smoothies or juices, purchased by ISIS, to customers who are users of the technology has resulted in a significant number of redemptions during the quarter.

Expand Retail Footprint

New Products, Partners, Channels and Market

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 April 1, 2014, we had 854 Jamba Juice stores globally, represented by 263 Company Stores and 544 Franchise Stores, including 39 smoothie stations in the United States, and 47 International Stores. The system is comprised of approximately 69% Franchise and International Store locations and 31% Company Store locations. During the 13 week period ended April 1, 2014, nine Franchise Stores and two International Stores were opened. We expect to open 60 to 80 store locations 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.

Development

In the U.S. during the 13 week period ended April 1, 2014, franchisees developed and opened nine new Franchise Stores, of which five were traditional, four were non-traditional stores and three were smoothie stations.

We are continuing the system-wide refresh and remodel program, which started in 2013, to support the roll out of our whole foods blending and juice platforms. During the quarter, we completed the refresh of approximately 66 store locations system-wide, to include the whole food blending and juice offerings and to complete a contemporary re-imaging of each location. As of April 1, 2014, 130 stores have been remodeled. We plan to roll out our whole food blending and juicing platform to more than 500 stores system-wide. In addition to our refresh and remodel program, to ensure our customers continue to enjoy their in-store experience, we continue to develop integrated programs that deliver excellent customer service and first-class product knowledge to our team members.

An important part of our development growth is our refranchising program. We sold four Company Store locations to existing franchise partners during the quarter, which transactions include the commitment by the franchise partners to develop 10 new locations over the next five years. The sale of Company Stores to franchise partners results in the reduction of Company Store revenue and increased Franchise Store revenue.

Our international franchise partners opened two stores during the quarter. We currently have international master development agreements with partners in South Korea, the Philippines, Canada, Mexico and the countries of the Gulf Cooperation Council ("GCC"). We continue to engage in discussions with other potential partners about expansion into international markets.

Our master developer in Mexico opened one store in April, 2014, and we expect our master developer in the GCC countries to open their first store during the second half of the year.

New Ventures

We organized our JambaGO® and CPG platforms, including Talbott Teas® under a management structure we call "New Ventures." New Ventures will focus on the development and optimization of these platforms.

During the fourth quarter of 2013, our JambaGO® concept which targets venues servicing captive audiences like retail stores and schools, was launched in over 1,000 retail locations across the nation. With JambaGO® we continue to extend convenience and access to healthy fruit smoothies to K-12 schools, colleges & universities, business and industry and other consumer retail locations during the quarter through our low-capital, low-labor self-serve machine format. As of April 1, 2014, there were over 1,800 JambaGO® units operating across the United States.

Jamba-branded CPG products are available in 23 SKUs as of April 1, 2014 and have a presence in all 50 states. We continue to seek to develop new partnerships to extend the Jamba brand into relevant categories that leverage our core brand strength.

Design an Effective and Efficient Organization

We began to implement the steps necessary to reduce costs and improve productivity during the quarter. 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. Our implementation of the ISIS Mobile Wallet in fall 2013 provides another opportunity to further improve speed of service in our stores by reducing the time it takes to process a customer's purchase.

RESULTS OF OPERATIONS - 13 WEEK PERIOD ENDED APRIL 1, 2014 AS COMPARED TO 13
WEEK PERIOD ENDED APRIL 2, 2013 (UNAUDITED)



                                      13 Week Period                      13 Week Period
                                           Ended                               Ended
                                         April 1,                            April 2,
(In thousands)                             2014             % (1)              2013             % (1)
Revenue:
Company Stores                        $        47,272           91.6 %    $        51,769           93.0 %
Franchise and other revenue                     4,361            8.4 %              3,916            7.0 %
Total revenue                                  51,633          100.0 %             55,685          100.0 %
Costs and operating expenses:
Cost of sales                                  11,582           24.5 %             12,404           24.0 %
Labor                                          14,330           30.3 %             15,755           30.4 %
Occupancy                                       6,967           14.7 %              7,376           14.2 %
Store operating                                 7,402           15.7 %              8,786           17.0 %
Depreciation and amortization                   2,618            5.1 %              2,772            5.0 %
General and administrative                      8,350           16.2 %              9,169           16.5 %
Other operating, net                              603            1.2 %                726            1.3 %
Total costs and operating expenses             51,852          100.4 %             56,988          102.3 %
Loss from operations                             (219 )         (0.4 )%            (1,303 )         (2.3 )%
Other income (expense), net:
Interest income                                    16            0.0 %                  -            0.0 %
Interest expense                                  (46 )         (0.1 )%               (78 )         (0.1 )%
Total other expense, net                          (30 )         (0.1 )%               (78 )         (0.1 )%
Loss before income taxes                         (249 )         (0.5 )%            (1,381 )         (2.4 )%
Income tax benefit                                  5            0.0 %                139            0.2 %
Net loss                                         (244 )         (0.5 )%            (1,242 )         (2.2 )%
Redeemable preferred stock
dividends and deemed dividends                      -            0.0 %               (484 )         (0.9 )%
Net loss attributable to common
stockholders                          $          (244 )         (0.5 )%   $        (1,726 )         (3.1 )%


(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
                                 April 1,         Total          April 2,         Total
                                   2014          Revenue           2013          Revenue
Revenue:
Company stores                $       47,272         91.6 %   $       51,769         93.0 %
Franchise and other revenue            4,361          8.4 %            3,916          7.0 %
Total revenue                 $       51,633        100.0 %   $       55,685        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 April 1, 2014 was $51.6 million, a decrease of $4.1 million, or 7.3%, compared to $55.7 million for the 13 week period ended April 2, 2013 primarily due to the decreased number of Company Stores as a result of the Company's refranchising strategy.

Company Store revenue

Company Store revenue for the 13 week period ended April 1, 2014 was $47.3 million, a decrease of $4.5 million or 8.7%, compared to Company Store revenue of $51.8 million for the 13 week period ended April 2, 2013. The decrease in Company Store revenue was primarily due to the decreased number of Company Stores as a result of the Company's refranchising strategy, partially offset by an increase in Company Store comparable sales as illustrated by the following table:

Company Store Increase (Decrease) in Revenue

(in 000's)

First quarter 2014 vs.
First quarter 2013

Company Store comparable sales increase $ 281 Reduction in the number of Company Stores, net (4,778 )

Total change in Company Store revenue $ (4,497 )

Company Store comparable store sales increased by $0.3 million for the 13 week period ended April 1, 2014, or 0.6%, attributable to an increase of 6.5% in average check partially offset by a decrease in transaction count of 5.9% 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 April 1, 2014, 100% of our Company Stores had been open for at least one full year.

Franchise and other revenue

Franchise and other revenue was $4.4 million, an increase of $0.4 million or 11.4% for the 13 week period ended April 1, 2014 compared to $3.9 million for the 13 week period ended April 2, 2013. The increase was primarily due to the increase in royalties associated with the net increase in the number of Franchise and International Stores (approximately $0.5 million).

The aggregate number of Franchise and International Stores as of April 1, 2014 and April 2, 2013 was 591 and 521, 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 24.5% for the 13 week period ended April 1, 2014, compared to 24.0% for the 13 week period ended April 2, 2013. The increase of cost of sales as a percentage of Company Store revenue was primarily due to a shift in product mix related to the expanded whole food blending and fresh-squeezed juice offerings (approximately 0.9%), partially offset by a decrease in commodity costs (approximately 0.1%). Cost of sales for the 13 week period ended April 1, 2014 was $11.6 million, a decrease of $0.8 million, or 6.6%, compared to $12.4 million for the 13 week period ended April 2, 2013.

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 were 30.3% for the 13 week period ended April 1, 2014 compared to 30.4% for the 13 week period ended April 2, 2013. Labor costs for the 13 week period ended April 1, 2014 were $14.3 million, a decrease of $1.4 million, or 9.0%, compared to $15.8 million for the 13 week period ended April 2, 2013, which decrease is primarily due to the reduction in the number of Company Stores as a result of the Company's refranchising strategy.

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 14.7% for the 13 week period ended April 1, 2014, compared to 14.2% for the 13 week period ended April 2, 2013. The increase in occupancy costs as a percentage of Company Store revenue was primarily due to escalating rents (approximately 0.4%). Occupancy costs for the 13 week period ended April 1, 2014 were $7.0 million compared to $7.4 million for the 13 week period ended April 2, 2013, which decrease is primarily due to the reduction in the number of Company Stores as a result of the Company's refranchising strategy.

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 15.7% for the 13 week period ended April 1, 2014, compared to 17.0% for the 13 week period ended April 2, 2013. The decrease in total store operating expenses as a percentage of Company Store revenue was primarily due to decreases in marketing expense (approximately 0.9%) and utilities expense (approximately 0.4%). Total store operating expenses for the 13 week period ended April 1, 2014 were $7.4 million, a decrease of $1.4 million, or 15.8%, compared to $8.8 million for the 13 week period ended April 2, 2013 primarily due to decreased marketing expenditures and the reduction in the number of Company Stores as a result of the Company's refranchising strategy.

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 5.1% for the 13 week period ended April 1, 2014, compared to 5.0% for the 13 week period ended April 2, 2013. The increase in depreciation and amortization as a percentage of total revenue was primarily due to the additional capital expenditures for improved information technology infrastructure. Depreciation and amortization for the 13 week period ended April 1, 2014 was $2.6 million, a decrease of $0.2 million, or 5.6%, compared to $2.8 million for the 13 week period ended April 2, 2013 primarily due to 37 fewer Company Stores than in the 13 week period ended April 2, 2013.

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 16.2% for the 13 week period ended April 1, 2014 compared to 16.5% for the 13 week period ended April 2, 2013. Total G&A expenses for the 13 week period ended April 1, 2014 were $8.4 million, a decrease of $0.8 million, or 8.9%, compared to $9.2 million for the 13 week period ended April 2, 2013. The decrease of total G&A expenses was primarily due to reduction in headcount (approximately $0.6 million), a decrease in professional fees (approximately $0.2 million), a decrease in health insurance costs (approximately $0.1 million) partially offset by an increase in share-based compensation related to employee performance and non-employee option grants ($0.3 million).

Other operating, net

Other operating, net consists primarily of gain or loss on disposals, income from jambacard breakage, store lease termination, impairment charge and closure costs, jambacard-related fees, pre-opening expense and expenses related to our franchise, consumer packaged goods and JambaGO activities. For the 13 week period ended April 1, 2014, other operating, net was expense of $0.6 million compared to other operating expense of $0.7 million for the 13 week period ended April 2, 2013. Changes in the components of other operating, net include an increase in net gain on disposal of fixed assets (approximately $0.3 million) mainly from activities pursuant to our refranchising strategy and a reduction in pre-opening, impairment charge and sales tax audit expense (approximately $0.2 million), partially offset by a reduction in contingent consideration gain (approximately $0.3 million). There is no gain or loss on contingent consideration during the 13 week period ended April 1, 2014.

Income tax benefit

We have recorded income tax benefit for both the 13 week periods ended April 1, 2014 and April 2, 2013, respectively. Our effective income tax rates were 1.9% and 11.4% for the 13 week periods ended April 1, 2014 and April 2, 2013, respectively. For the 13 week periods ended April 1, 2014 and April 2, 2013, the effective tax rates were primarily affected by pretax loss, a change in the valuation allowance related to deductible temporary differences originating during the current year, the foreign withholding and the U.S. alternative minimum taxes of the respective periods.

KEY FINANCIAL METRICS AND NON-GAAP MEASURES

Management reviews and discusses its operations based on both financial and non-financial metrics. Among the key financial metrics upon which management focuses is reviewing the performance based on the Company's consolidated GAAP results, including Company Store comparable sales. Management also uses certain supplemental, non-GAAP financial metrics in evaluating financial results, including Franchise Store comparable sales and system-wide comparable sales.

Company Store comparable sales represents the change in year-over-year sales for all Company Stores opened for at least one full year. Franchise Store comparable sales, a non-GAAP financial measure, represents the change in year-over-year sales for all Franchise Stores opened for at least one full year, as reported by franchisees and excludes International Stores. System-wide comparable store sales, a non-GAAP financial measure, represents the change in year-over-year sales for all Company and Franchise Stores opened for at least one full year and is based on sales by both company-owned and domestic franchise-operated stores, as reported by franchisees, which are in the store base. System-wide comparable store sales do not include International Stores and JambaGO units.

Company Stores sold in refranchising transactions are included in the store base for each accounting period of the fiscal quarter in which the store was sold to . . .

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