Shares of Jamba
Jamba reported tepid second-quarter earnings last Tuesday, missing expectations by several cents. Company-owned comparable-store sales dropped 2.4% from the previous quarter, and operating expenses increased markedly over last year.
Fallen sales and narrowing margins are terrible news, especially for a turnaround ... right?
First, there's a whopping three analysts covering Jamba, so estimates should be taken with an entire shaker of salt. Any positive earnings are a good sign, since they mark the second time in almost three years that the company has posted a quarterly profit. Jamba is working to cut down on operational costs by refranchising its stores, with a goal of franchising about 60% of its outlets. The refranchising would give the company royalties to the tune of 6%-8% of net sales.
Done right, franchising can be very lucrative. McDonald's
With earnings out of the way, let's talk about those dreary comps. Outside California (home to 70% of Jamba's company-owned stores), company-owned-store comps were positive, in the mid-to-high single digits. California is having its coldest summer in 40 years, making smoothies less appealing than they would be in more normal 110-degree weather. The company estimates that the chilly California summer hurt comps by 300 basis points, putting weather-adjusted comps at 0.6%.
But still, what about the increased expenses?
The company's spending more because it's hiring new managerial talent, kick-starting a 200-store South Korean expansion, reinvigorating its long-stalled (and long-awaited) Nestle bottled drink deal, and pushing through several yet-undisclosed licensing deals and one additional undisclosed international market by year's end. In addition, it's strengthening relationships with convenience-store supplier Core-Mark
Through Core-Mark, Jamba will have access to 24,000 convenience stores, and through Inventure, Jamba already has smoothie kits in 6,000 locations, including heavyweights such as Safeway
This latest release is almost a metaphor for Jamba itself. It doesn't look too great at first, but if you dig deeper, it's actually quite positive. As a shareholder, I'm looking for follow-through on these plans in subsequent quarters.
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Fool contributor and Jamba shareholder Jacob Roche may be the only man in town wishing it were twenty degrees hotter. He serves Motley Fool Options as a Community Fool. The Motley Fool's disclosure policy always has perfect weather.