Friday, November 21, 2008

Jamba Juice Growth Prospects Sour

For the third quarter of fiscal 2008 ended October 7, comparable store sales at Jamba Juice (JMBA-$0.60) declined by 10.3 percent. While other quick service restaurant concepts have also experienced declining comparative store sales in the current economy, management of the smoothie maker said it believed sales declines had been exacerbated by a combination of the high concentration of Company Stores in states facing high home foreclosure and adverse economic activity, and the consequences of focusing corporate resources in trying to grow operations too quickly. California operations generate approximately 75 percent of total revenue.

What is rare, however, is that management owned up to another misstep — one rarely admitted by other fast food operators. As stated in its third-quarter 10-Q regulatory filing:

"By significantly slowing Company Stores growth, the Company expects to better optimize its resources and better understand potential cannibalization resulting from new Company Stores, which we believe contributed to declines in our Company Store average sales volumes and increased costs."

Although I applaud management for being candid, I question whether their business model itself can offer sustainable profitability. The Jamba branding message of encouraging "healthy living," though notable, is an easily duplicated strategy, with few barriers to entry — as any purveyor of quick, convenient food and beverage products, such as coffee shops, donut shops and grocery stores, can offer similar fruit drinks and healthy food items.

This article first appeared in BNET Insight: 10-Q Detective.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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