Jamba Crashes the Tea Party
Smoothies and specialty teas are coming together for Jamba Juice parent Jamba (NAS: JMBA) .
The company is acquiring Talbott Teas, a small yet fast-growing upscale tea company. Talbott markets a line of 23 premium teas in tins that retail between $10 and $15 apiece.
Tea is hot, and the market knows it. Teavana (NYS: TEA) -- an upscale retailer specializing in loose teas -- went public last year. Starbucks (NAS: SBUX) has grown its Tazo Teas into a solid member of its supporting cast. Green Mountain Coffee Roasters (NAS: GMCR) has seen sales of its Keurig single-cup brewers explode in recent years. Java may be the star attraction for both Starbucks and Green Mountain, but they both crank out a mean cup of premium tea, too.
We don't know how much Jamba paid for Talbott, but thanks to ABC's Shark Tank show, we do know quite a bit about the company's financials.
The Chicago-based tea company appeared on last week's show in a segment taped last year. The two founders were seeking $250,000 for a 20% stake from one of the five celebrity investors. It ultimately accepted an offer from Kevin O'Leary -- the founder of the software company that ultimately became The Learning Company -- giving him a 35% stake for $250,000.
Tea for more than two
Talbott Teas started small, with just $100,000 in sales in 2009, more than tripling to $350,000 in 2010. Talbott scored a major coup when Oprah Winfrey selected it as one of her "Favorite Things" in 2010. Being based out of Chicago must have helped.
Winfrey's nod opened new doors, including a stint on QVC last year that went so well that the shopping channel now sells Talbott Teas through its website. The founders told the reality-show investors that it was projecting $1 million in sales last year on a 50% margin before paying themselves.
"We don't just need the money," the founders said on the show. "We are looking for someone to help with the distribution."
Well, they'll get that through Jamba.
Lifestyle brand snaps up a lifestyle brand
Despite its low stock price, Jamba is in a good groove. It has pulled off back-to-back profitable quarters for the first time since going public in 2005. There were 762 company-owned and franchised stores open as of Jamba's most recent quarter.
Having a strong tea brand will help with the seasonality. As investors will find out when Jamba likely posts a deficit when it reports its next quarterly results next month, smoothies aren't big wintertime beverages. Jamba's peak selling season is during the summer, when overheated patrons are looking to cool off with its vitamin-boosted fruity beverages. The tea line will help spark sales during the cooler months, while also giving Jamba and its growing supermarket presence another lifestyle brand to market.
It's all about timing
Announcing the deal while Talbott Teas is still fresh from its primetime television appearance helps. Jamba's stock jumped 6% yesterday on the acquisition. The shares are moving higher today as well, though that may be on news of a new $6 million credit agreement that the smoothie leader lined up.
It's not as if Jamba is pressed for cash. It has spent the past few quarters handing company-owned stores to franchisees, making the parent company a less capital-intensive business. A leaner Jamba is the main reason it has delivered better-than-expected earnings in the past two quarters.
Investors originally feared the arrival of Starbucks and McDonald's (NYS: MCD) into Jamba's flatbread-and-butter smoothie business, but the presence of two giants armed with fruit-crushing blenders has only helped educate the market. Jamba has actually posted four consecutive quarters of positive same-store sales.
Unlike the retail juggernauts, Jamba isn't limited to two or three smoothie options. There are dozens of smoothie flavors, and Jamba also sets itself apart with functional boosts that can be added for wellness depth.
Jamba has tried to expand into logical offerings. Oatmeal, frozen yogurt, wraps, and a variety of baked goods are also available for purchase at most of its stores. McDonald's will never offer wheatgrass shots. Starbucks isn't going to offer granola-topped fruit-and-veggie smoothies. The company has also been offering tea-based drinks, but now it has a fast-growing brand in its arsenal.
O'Leary's televised investment would seem to value the company close to $715,000, but Jamba likely paid a bit more than that. Given Jamba's ability to expand Talbott's reach -- while also taking advantage of QVC and other relationships that Talbott has brokered -- it's going to be a great deal for both companies.
Blended just right
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At the time this article was published The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain Coffee Roasters, Starbucks, and McDonald's.Motley Fool newsletter serviceshave also recommended creating a lurking gator position in Green Mountain Coffee Roasters and writing covered calls in Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does own shares in Jamba and Green Mountain. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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