Sometimes being a Jamba (Nasdaq: JMBA) investor feels like being in Tartarus, the underworld of Greek myth. Every time tormentee Sisyphus pushed that boulder up the hill, it became too heavy at the top and rolled back down. For me, every time Jamba launches another growth or cost-cutting initiative, it somehow fails to roll earnings over the crest and into profitability.

However, this is a true turnaround company. A few years ago, it was in terrible shape. The progress it's made since, however modest, remains impressive.

You've gotta carry that weight a long time
The recently ended fiscal 2010 fits perfectly into this narrative. Since CEO James White assumed his Sisyphean task, he's carefully executed each stage of his multiyear plan. This last year was the transformation stage, and while the company still reported losses and continued negative same-store sales, they were, well, less bad.

For six of the last seven quarters, same-store sales, management's most-targeted metric, have improved, from -10.3% in 2009 to -2.3% in 2010. The fourth quarter showed positive 0.2% comps, the first positive same-store sales since 2007. On the conference call, White indicated that for the first 10 weeks of 2011, comps have remained positive. This is very encouraging for a company that has struggled to bring sales back up in a hard economy.

Losses, meanwhile, have dwindled, largely thanks to the company's nearly complete refranchising initiative. Jamba previously had very high store-level costs, but by refranchising, the company has been able to instantly improve margins. While this has taken a big cut out of total revenue, net income has improved considerably, seeing a loss of $16 million in 2010 versus a $20 million loss in 2009. This may still sound like a big loss, but it reflects a 56-basis-point improvement on margins. Part of that loss also comes from lease termination and store-closure costs, as Jamba reduces the number of company-owned stores.

Looking ahead
Much of what was done in 2010 hasn't borne fruit yet. That might explain why the market has pummeling the stock the last two days, believing all of Jamba's efforts wasted. But people who have been watching this story didn't really expect results to arrive so soon. Things should really start to get exciting in the next year or two.

For starters, Jamba spent much of 2010 building key partnerships to develop a consumer products group, to diversify revenue away from its struggling stores. These partnerships will be extremely valuable to the company, as Jamba will take very little risk on the products and see a very high margin of return.

For example, Jamba has just launched a new all-natural energy drink in partnership with Nestle. As part of the agreement, Nestle will foot the bill for advertising the product, including TV and radio ads. Jamba also has an agreement with One Natural Experience to develop a line of coconut water-based beverages. This product will be distributed into grocery stores by none other than PepsiCo (NYSE: PEP).

And Jamba's existing partnership with Inventure Foods (Nasdaq: SNAK) has proved successful, for both companies. Through Inventure, Jamba has frozen smoothie kits selling in thousands of locations, including Safeway, Wal-Mart, and Target. Management expects revenue from consumer products to triple in 2011, to around $1.2 million.

Meanwhile, Jamba's first international location recently opened in Korea's Incheon International Airport; management said its sales already exceed expectations. This location will help give the company global brand awareness, supporting the launch of 199 other Korean locations, as well as Jamba's expansion into another, still-undisclosed international market.

Much of the company's strategy seems to revolve around diversifying away from its core smoothie-shop business, and even within that business, diversifying away from its heavily company-owned, California-located stores. Revenue from consumer products is currently trivial, and even after tripling, it will be a mere fraction of total revenue. But over time, management expects to make it a significant business driver.

The stores will remain important, but the company will split the risks with franchisees while still taking its cut of the profits. It may still take some time, but Jamba investors should be rewarded if they can find the patience.

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