Jamba Misses Q3 Earnings, Rev; Cuts View

Zacks

Jamba Inc.’s (JMBA) third-quarter 2013 earnings of 15 cents per share missed the Zacks Consensus Estimate of 18 cents by 16.7% and the year-ago quarter’s earnings of 21 cents by 28.6%. Earnings in the quarter were under pressure due to lower top line and reduced margin.

Total revenue in the quarter was down 6.3% year over year to $61.4 million owing to the decline in company sales and lower comps. Quarterly revenues were also below the Zacks Consensus Estimate of $62 million by nearly 1%.

Owing to the uncertain economic environment, the company has witnessed a dip in consumer sentiment in the third quarter which weighed on the company’s overall performance. Cash-conscious customers are either dining at home or spending less per meal. Government budget cuts, high tax rates and still-tightened credit availability seem to be the reasons behind lower consumer spending. Adverse weather in some major markets also seems to be responsible for such disappointing results in the third quarter.

Quarter Highlights

Sales at the company stores dropped 7.6% year over year to $57.1 million in the third quarter due to lower comps. Comps at company-owned restaurants were down 5.5% resulting from 880 basis points (bps) fall in traffic which offset a 330 bps rise in average ticket. Comps in the quarter were mostly affected by low consumer spending, inclement weather in major markets and stiff competition. Failure of some marketing campaigns has also been held responsible for such lower sales results.

Franchise and other revenues (includes the franchised as well as CPG revenues) were up 15.8% year over year to $4.3 million, driven by increased royalties. CPG and JambaGO revenues were $0.8 million as against $0.7 million in the year-earlier quarter.

Comps at franchise-operated restaurants declined 1.3% during the third quarter versus comps growth of 1.0% in the year-ago quarter. System-wide comps were down 3.4% as against the year-ago quarter’s comps growth of 2.5%.

Operating margin decreased 150 bps year over year to 5.4% due to lower top line.

Store Update

Jamba operates 849 stores including 517 franchised and 287 company-owned units. The company unveiled 26 franchised restaurants in the domestic market and three stores at international locations. During the quarter, the company introduced JambaGO machines in 1000 markets thus, bringing the total number of JambaGO served locations to 1,800. The company plans to set up 60–80 stores in the U.S. and international market in 2013 as well as in 2014. The restaurateur is also intends to add JambaGO station in another 1,000 new locations by the end of 2014. 

Outlook

Emeryville, California-based Jamba lowered its guidance for 2013 following the lackluster third-quarter results. The company expects company-owned comps to be flat to up 1% as against the comps growth of 4%–6%.

Store-level operating margin is estimated to be 16%–17%, down from 20%. Operating margin was guided in the range of 1% to 2%, down from the prior expectation of 2.5%–3.0%.

Our Take

The company has posted lower-than-expected results in the past three quarters due to uncertain economy and lower consumer spending. A lower outlook for 2013 reflects that the company has a long way to go before its business boosting initiatives yield results.

Jamba holds a Zacks Rank #4 (Sell). Some other players in the restaurant industry which look attractive at present include Red Robin Gourmet Burgers Inc. (RRGB), Cracker Barrel Old Country Store, Inc. (CBRL) and Bob Evans Farms, Inc. (BOBE). While Red Robin holds a Zacks Rank #1 (Strong Buy), Cracker Barrel and Bob Evans Farms carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CBRL
Read the Full Research Report on RRGB
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Read the Full Research Report on BOBE


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