BJRI BJs Restaurants Inc

Jamba Inc. (JMBA) reported first quarter 2011 loss of 11 cents per share, which was wider than the Zacks Consensus Estimate of loss of 7 cents, but narrowed from  the prior-year quarter loss of 13 cents per share.

The top line of the company continues to struggle, as consolidated revenues fell 17.7% year over year to $66.2 million. However, the quarter’s revenue was ahead of the Zacks Consensus Estimate of $62.0 million. The revenues declined primarily due to the shift from company-owned store sales to royalties and franchise fees as a result of refranchising initiative.

Jamba benefited from the efficiencies in costs of sales and labor expense lines, which were partly offset by the decline in company-owned revenue.

Inside the Headline Numbers

Sales at company-operated restaurants were down 19.5% year over year at $63.2 million due to a reduction in the number of restaurants in operation. However, franchise and other revenues shot up 51.5% to $3.0 million, fueled by an increase in the number of franchise stores.

Jamba, the leading restaurant retailer of food and beverage offerings, experienced positive company-owned comparable store sales for the second consecutive quarter since 2007, increasing 2.2% in the reported quarter from a negative 3.3% in the year-ago quarter. Same-restaurant sales at franchise stores growth was a positive 4.1% versus a decline of 4.0% in the year-ago quarter.

During the quarter, cost of sales declined 20.4% year over year to $15.2 million, labor costs dropped 20.6% to $22.0 million, occupancy costs fell 20.9% to $10.2 million and store-operating expenses fell 13.3% to $9.5 million. Depreciation and amortization and general and administrative expenses fell 19.7% and 4.0% to $3.9 million and $10.4 million, respectively. This resulted in Jamba’s non-GAAP adjusted operating profit margin increment of 190 basis points to 14.0% in the first quarter of 2011.

Store Update

During the first quarter, eight stores were opened, among which two were company-operated and six were franchised. A total of nine stores were closed, of which four were company-owned and five franchised. As many as 42 stores were refranchised in the first quarter. This brought the total number to stores to 742, of which 435 were franchised and 307 company-owned.

In 2011, the company expects to open 50 to 70 franchise stores.

Financial Position

The company ended the quarter with cash and cash equivalents of $21.2 million and $66.5 million of total liability.

Outlook

Based in Emeryville, California, the company continues to expect comparable store sales in the range of 2%-4% for fiscal 2011 and operating margin in the range of 18−20%.

Our Take

Jamba’s transition to a more franchise-centric model will reduce its capital employed and stabilize cash flow generation. The company is also expanding in both domestic and international markets.  Jamba’s Korean master developer opened the first Jamba Juice location in South Korea. Additionally, the company also signed a deal with Canada Juice Corp. to develop 80 stores over a 10-year period in Canada and 40 Jamba Juice locations in the Philippines over the next 10 years.

Along with expansion, the company is also on the track to innovate a new beverage line and value-based menu offer. During the first quarter, Jamba also successfully launched its baked goods refresh, which helped drive attachment rate higher.

Though the company fell shy of the earnings estimate in the first quarter, it is taking all possible measures to overcome the challenges, indicating that Jamba has a long way to go. Jamba currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock. The peers of Jamba include BJ's Restaurants Inc. (BJRI) and Cracker Barrel Old Country Store Inc. (CBRL).

 
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