Jamba Shares Fall on Lower Outlook - Analyst Blog


Shares of Jamba Inc. ( JMBA ) dropped 18.78% to $10.94 per share as of Oct 8, 2013 on a muted business outlook for fiscal 2013. The restaurant chain lowered its full year guidance on Oct 7 to reflect cautious consumer spending, inclement weather in major markets and stiff competition, all of which weighed on sales.

This retailer of specialty beverage and food offerings now expects system-wide same store sales to be flat to up 1%. Store-level margins are expected to be in the range of 16% to 17%, lower than its prior expectation of 20%. Operating margin was guided in the range of 1% to 2%, down from the prior expectation of 2.5%-3.0%.

Following the reiteration of the guidance for 2013 at the second-quarter earnings release on Aug 5, management noticed a dip in consumer sentiment, which dragged down third quarter comparable store sales comparisons for company stores by 3% to 4%.

Failure of some campaigns and adverse weather each adversely affected the comparison by 1% to 2%. Preliminary results indicate third quarter comps decline of 3.4% with a 5.5% and 1.3% drop in company-owned comps and franchise stores, respectively.

Guidance for 2014

Management also issued a preliminary guidance for 2014. For 2014, management expects system-wide comps growth of 2% to 4%; store-level margin of 18% to 19% and operating margin of 2% to 3%. In 2014, the company plans to set up 60-80 stores in the U.S. and international markets. In addition, the company plans to launch up to 1,000 JambaGO stations.

JambaGo Expansion

Jamba remains committed to its expansion plans. Over 1,000 food courts at major retailers across the country will soon have JambaGo smoothie units. The company is expected to expand its international presence from 4 countries at present to 7-9 countries by 2015. Potential unit count in international markets is therefore expected to increase from 1,000 to 1,500.

Management is taking several other cost saving and sales building initiatives to trigger comps. It is resorting to a digital system namely ISIS mobile wallet, which allows guests to pay via phone. It has partnered with SpendGo for a new loyalty program slated to begin in the first quarter of 2014.

Our Take

Jamba has missed the Zacks Consensus Estimate for earnings in the first two quarters of 2013. The business environment does not seem promising for the third quarter results as well.  We prefer to remain on the sidelines at the current level until the company's business boosting initiatives reap benefits.

Jamba currently carries a Zacks Rank #3 (Hold). Others players in the same industry, which look attractive at current levels include AFC Enterprises Inc. ( AFCE ), Cracker Barrel Old Country Store, Inc. ( CBRL ) and Domino's Pizza, Inc. ( DPZ ), all carrying a Zacks Rank #2 (Buy).

AFC ENTERPRISES (AFCE): Free Stock Analysis Report

CRACKER BARREL (CBRL): Free Stock Analysis Report

DOMINOS PIZZA (DPZ): Free Stock Analysis Report

JAMBA INC (JMBA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AFCE , CBRL , DPZ , JMBA



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