Jamba Getting the Right Blend

Amid a turbulent economic environment which has been negatively impacting the restaurant industry, Jamba Inc. (JMBA - Snapshot Report) reported improved second quarter 2009 financial results on account of cost-cutting initiatives.

Consolidated EBITDA, which came in at $10.3 million, increased for the second consecutive quarter. EBITDA was up 2.9% year over year, reflecting effective cost management. For the quarter under review, cost of sales declined 23.8% to $19.3 million, labor costs dipped 19.2% to $25.4 million, occupancy costs fell 3.9% to $10.1 million and store-operating expenses slid 8.8% to $9.8 million.

General and administrative expenses also fell by 16.9% to $8.2 million. Depreciation and amortization expenses declined 23.5% to $4.3 million.

Consequently, EPS (excluding one-time items) improved significantly and came in at 7 cents, surpassing the Zacks Consensus Estimate of (2 cents). In the prior year quarter, EPS came at a net loss per share of 74 cents.

On a reported basis, Jamba posted a net loss per share of 10 cents for the quarter, a substantial improvement over the net loss per share of $1.69 reported in the year ago quarter.

However, the top line continues to struggle with consolidated revenue falling 15.1% to $83.2 million in the quarter. Company store revenue declined 15.2% to $81.7 million, whereas franchise and other revenue fell 8.3% to $1.5 million.

Store level EBITDA declined 6.9% to $18.5 million due to a 13.7% decline in the company-owned comparable store sales on account of waning traffic. The slump in patronage reflected lower disposable income, rising unemployment and a reduction in store operating hours. However, EBITDA margin jumped 200 basis points to 22.3% driven by disciplined cost management.

Jamba is transitioning to a more franchise-centric model, which should reduce its capital employed and stabilize cash flow generation. Currently 67.0% of total units are company-owned.

Jamba is no longer opening any new company stores; instead, it has been selling its stores to existing franchisees. The company has sold franchised 10 stores in Arizona and has recently announced the sale of 9 stores in Oregon.

No new company-owned stores were opened in the first and second quarters of 2009 compared to 17 and 14 company-owned stores opened in the first and second quarters of 2008, respectively. During the quarter, 6 new franchise locations were opened and the company expects to launch 40 to 45 new franchise units in fiscal year 2009.