Breaking Up With Jamba Juice

I have been a (JMBA) shareholder since day one(ish). Back in March of ’06 Service Acquisition Corp., a SPAC company, announced that it was going to use the money raised from it’s IPO to buy Jamba Juice. As a Southern California native I have witnessed Jamba Juice go from a small smoothie shop to a full-blown national franchise. The story was compelling, and I felt like I had gotten in on what could potentially be an exciting opportunity. Boy was I wrong.

One of the worst parts about the story is that I had been averaging down as the stock price went down. Eventually my average price per share came in at around $6.50. The problem all along has been that I have just been married to this stock and the potential for this company. I was infatuated with the idea of owning a company from the beginning and watching it grow up into a big, well known, national public company. Obviously I liked that idea more than I liked to make money, because the company has done nothing but taken advantage of our relationship.

The management at JMBA has never once acknowledged the fact that the company has lost over 80% of its value over the last 2 years. They haven’t done as much as to say, “We understand that our shareholders are hurting, and we have a plan to fix it.” So, suffice it to say, this has been a one sided relationship, they don’t give a damn about their shareholders.

JMBA has never been a large part of my portfolio. I always considered it to be a little gem that I could some day be proud to have been a part of from the beginning. But that small position has gotten a whole lot smaller, to the point where it is embarrassing to even see it in my portfolio.

Everything I have ever said about JMBA still holds true. I still believe there to be a lot of potential in their ready-to-drink line and maybe some day they will grow into a profitable company. But we will never see this as long as the people in charge act the way they do. It is sad to see this position go, but in order to be serious about my new trading strategy I can’t have any skeletons in my portfolio.

Comments

[Nate C]

I too was tempted by Jamba Juice. However I decided that there was too much hype about Jamba being the next Starbucks. I never believed this considering Starbuck's was profitable from day one, while Jamba has over 100 stores and is still not profitable. This does not stop them from expanding their store base.

While I avoided Jamba, I did get sucked into Sun Microsystems in 2002. We all make mistakes, and that is when you are able to become a better investor. First rule is to always sell if the stock drops 10%. It is always hard to take a loss, but that is better than a 85%+ loss I suffered with Sun Micro.

I never made that mistake again!!

[Mexx]

I share your pain and can relate to your story. However, I am holding on to my shares (they sit in my 401k -so by defnition, it is a long-term play). I believe that this storm shall pass especially in California. If there is a resilient economy, it is that of the Golden State. In the near term, I think the consistent warm weather and heat waves they are having in Cali along with the restructuring plan can give Jamba just enough juice (pun intended) to keep it chugging along. Additionally, I think opening stores modestly outside California is a prudent revenue diversification strategy as long as they don't assume any debt. Friday's SBUX announcement can only add to the gloom. But like marriage, I am in for the long haul, I will continue to endure the pain without expecting any significant upside any time soon.

[Skrappy]

Jamba was victim to a macro-economic issue. Following the Starbucks model would have worked for them if they IPO'd in the same era that Starbucks did. But in this horribly weak consumer-discretionary time (especially in CA) it is tough to bring in enough revenue to cover cost of capital. We will eventually see a massive re-pricing of commercial real estate and it will be easier for Jamba to realize profits with the same basic revenues due to decreased new-store opening costs. I'm holding for the long-term, while shorting CPKI as a nice hedge within the Cons-Discretionary CA sector.

[Mr. Stupid]

Jamba juice has too much sugar in their drinks and people with the knowledge now know Sugar = weight gain more so than fat content. I do like the fact they are coming in with an all fruit smoothie but I don't think it's going to be enough. Starbucks is now starting up their smoothie lineup so things are only looking worse to Jamba.....xo

[Vestor]

I am saddened by the downturn as well. I got in on a tip and I NEVER do that. But I am wondering whether it may be a bargain at <$1?

[rushnut]

I, too, wonder seriously if now is the time to take a modest 5k or 10k share position as this stock drops below a dollar. I own no shares as of today, and would appreciate any feedback. My buy triggers on my trading site on this stock were all set for $1 and obviously went off thi week. Feedback greatly appreciated, as I fear we may not have yet seen this one hit bottom, as scary as that sounds.

[Mexx]

rushnut,

In my view at this stage, it is less about the numbers (because there are several metrics that could help you justify goin in from a deep value perspective); and more about the strategy, business drivers and their ability to execute on that strategy.

Nonetheless, the two numbers that are worth keeping attention are Profitability and Cash Flow. It will be specially interesting to hear what they are doing about Profitability (or whether the existing plan is working to keep them above water) and their plan to generate FCF.

Aside from that, these are the things that will make or break the company or are things that you need to consider to determine whether to invest in JMBA or not.

PROS
A Strong Brand - You cannot discount their position in the market, they are truly the #1 brand in the marketplace.

Their product as a valid category - SBUX, Dunkin Donuts, MCD are all jumping into the smoothie market. With the possible exception of dunkin donuts, i think they are all going to fail, but along the way they would've introduced a broader market into the product category.

Nestle Distribution: This is a limited distribution agreement at the moment, but if it expands nationwide or internationally, it could certainly pave the way for JMBA to become a national brand both as a retail out and in-store

Management - To date, their management has proven very competent. They are good marketers and good operators. For good or bad, they are focused on execution and not the stock price.


CONS
> Cost of raw materials -the rise in milk, fruit and just about everything else that goes into their drinks. With cost of goods going up their margins are continually being squeezed. This is the one that I think is the hardest to solve and the one that bothers me the most because it affects their entire business model.

> The California Economy - Their concentration in CA makes them particularly suspectible to its economy. If you believe CA will whether out the real estate slump, Jamba will do well.

> Price Point -Their price points may be to high to make Jamba a truly mass-market product. Their concept is more like a Fudruckers than a McDonald's in the burger space. It will interesting to see how they do with their $2.95 drink offer.

Two closing toughts, if you put money in, go into it with a five year horizon, without any regard of what happens in between. Obviously Greg Gerber the writer of the original article had a much shorter time horizon and decided to .

[Mexx]

bail out. My second closing thought is that this should be part of your speculative plays in your portfolio. Only put in what you can afford to loose.

Who knows, we could be looking at the next RIMM, circa Sep 30, 2002.

[Mr. Stupid]

"Break up or be Broke" would be appropriate name for this blog.....I just don't see Jamba coming out of this slump. They are so yesterday.