Jamba Hits Target, Misses Target

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Jamba (NASDAQ: JMBA  ) is now in Target (NYSE: TGT  ) , but it's also off-target.

Shares of the leading stand-alone smoothie chain took a hit this morning after the company hosed down its outlook for the balance of the year. The good news wedged into yesterday afternoon's update -- namely that its JambaGo kiosks will be installed in 1,000 Target cafes across the country -- isn't enough to offset the unexpectedly brutal summer Jamba experienced.

Weak general retailing trends, uncooperative weather in key markets, and increased competition find Jamba now expecting systemwide same-store sales to clock in flat to 1% higher in 2013. This is a far cry from its outlook in August, when it was targeting 4% to 6% comps growth for the entire year. That was a pretty big deal at the time, since systemwide comps had risen by just 2.8% through the first half of 2013. The implication was that Jamba was going to see a spectacular back half of the year. Now that we're trending well below that 2.8% for all of 2013 it's easy to see the actual situation: Jamba's revealing that comps during the seasonally potent summer quarter that ended last week actually declined 3.4%. 

If sales are slow for premium smoothies, it follows that the rest of Jamba's operations will suffer. Jamba's looking at 2013 store-level margins of 16% to 17% -- down from its 20% goal in August -- and the operating profit margin it saw checking in at 2.5% to 3% is now whittled down to between 1% and 2%.

In a first, Jamba did single out "increased competition" as a factor. Yes, McDonald's (NYSE: MCD  ) and Starbucks (NASDAQ: SBUX  ) may seem like obvious rivals in this blender battle. However, systemwide comps at Jamba had been positive through most of the past two years. McDonald's began whipping up smoothies three years ago, and Starbucks has been offering its own blended fruit drinks for longer than that. 

Why is competition a factor now? Analysts pressed the company on that question during the conference call that followed a press release. If Jamba has been able to grow in a climate with McDonald's, Starbucks, and others cranking out cheaper and more basic smoothies, why bring up rival beverage providers at this point? 

"You've got lots of price promotion -- pressure on the low end of this marketplace -- and you've got a growing set of competitors locally on the more premium end of the marketplace," Jamba eventually responded, working its way back to blaming the economy and the weather as the two biggest contributors to this cruel summer.

As promised, Jamba did initiate guidance for 2014. It sees systemwide same-store sales growth of 2% to 4%, 18% to 19% in store-level margin, and 2% to 3% in operating margin. This would be encouraging if Jamba's visibility could be trusted, but it's hard to accept this guidance for a year that is months away when it was so brutally off in assessing the quarter that ended in September while it was already thigh-deep in it back in early August. 

The Target deal is great, but it won't be a major financial contributor. As impressive as 1,000 self-serve kiosks may sound, Jamba nets roughly $2,000 a year from each. In other words, this is just $2 million in incremental business. However, a presence in the retailing empire should help with brand awareness. Target is a major catch, but clearly Jamba dropped the ball everywhere else.

As a big fan of Jamba's product and a longtime shareholder, it pains me to see this summer debacle. It hurts even more to be in a position where a backpedaling Jamba has so much to prove in the months to come.

Source: Jamba Juice.

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