Jamba Inc. (NASDAQ: JMBA) reported its financial results for the fiscal year ended January 9, 2007. For being its first full year filing, JMBA published a somewhat complex report. Even on its conference call management agreed that it has not been easy to model the company given the acquisition, the change in fiscal year, and the lack of available information.
The filing has not made any type of analysis any clearer. However, it did accomplish in providing greater insight into its operations, and into what appears to be a very strong growth plan for 2007 and 2008. For ease of comparability, JMBA showed operating results for 28 week periods ending in 2007 and 2006. For the period ending January 9, 2007, revenue increased 12.4% to US$145 million, while a change in the fair value of derivative liabilities forced a net loss of US$59 million (or -US$2.41 per share). Growth in revenue was driven primarily by new stores (the company ended the period with 373 company stores and 222 franchise stores).
Comp store sales were -0.6% compared to 7.7% in the prior year. Management did mention that upcoming comps for Q1 and Q2 will be -1.8% and 5.9% respectively, indicating that investors can expect easier comps ahead. The company also ended the period with a strong balance sheet: approximately US$73 million in cash and no debt.
Even if the numbers don't seem to have much flavor, the key here is the growth strategy. Management does not shy away from admitting that operating margins are relatively low. It is all part of their plan to ramp up store growth and increase brand awareness. The company plans to open 90 company-owned stores, plus 50 franchised stores in 2007 (65% - 70% of those in 2H), and approximately 450 to 500 stores over the next 3 years. Their real estate pipeline is strong, and they are making headway in getting Jamba Juice inside Safeway and Target locations around the country. They even plan to join with Nike in sponsoring running events. All in all, they plan to grow revenues by 20% - 25% in 2007.
There may be little margin expansion this year, but I am comfortable with that. Once all pieces are in place, you can expect that top line growth will outpace G&A and the company will post impressive EBITDA margins in the 20%+ range. They believe in the growth potential and want to do all they can to control execution, thus, JMBA will continue buying franchises (hopefully for no more than the 6.0x - 6.5x cash flow they have been paying). Yes, there might be some upside in the short term, given that their earnings are so dependent on the warmer months of year. But I believe that with every investment made today, the long term upside becomes that much sweeter.
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My family's been going to Jamba since they've opened in town. There is always a line. Even during colder days of winter, there are people in there. I only buy companies we cater to, good customer service, and no debt. This one is easy to buy into.
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