Consistent with its disciplined cost management, Jamba Inc. (JMBA - Free Report) recently inked a supply chain distribution agreement with Systems Services of America (SSA) to render services in the West Coast of the United States. Notably, Systems Services of America is one of America’s most innovative chain account distributors running four western distribution centers and catering to nine western states.
Jamba continues to be active with its supply chain management and plans to improve customer experience as well. Last year, Jamba formed another alliance with US Foods for service in northeastern U.S.
These partnerships endow Jamba with superior supply chain management as well as consolidate distribution channels for speedy and timely services to the company’s existing and new outlets. Expansion in new geographic areas will also be facilitated through this coalition.
California-based Jamba also aims to reduce costs through these alliances. Jamba’s stringent cost structure has already improved the co operating margin considerably. The company continues to be under pressure due to commodity inflation, but has been able to mitigate this by leveraging a strong supplier relationship and implementing cost-saving initiatives.
We believe Jamba is turning around at a slow but steady pace. However, in the second quarter, the company recorded earnings per share of 5 cents, on a reported basis, showing no improvement on a year-over-year basis. Hence, amid a lackluster economy where consumers refrain from dining out frequently, Jamba has correctly identified cost containment initiatives as the trick to expedite earnings improvement.
For 2012, Jamba expects adjusted operating profit margin in the range of 20–23%. The company’s general and administrative expenses in 2012 will also be consistent with 2011 levels, excluding the performance compensation and delivery of CPG licensing revenue of around $3 million.
However, Jamba will likely face stiff competition from Starbucks Corporation (SBUX - Free Report) in the West Coast market as the latter plans to open a juice manufacturing unit in Rancho Cucamonga, California toward the end of fiscal 2013. This new facility will enable Starbucks to spread the Evolution Fresh products in the West Coast and is likely to aid its plans to expand in the east.
Jamba currently carries a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.