Jammin Java Corp.
/ (JAMN-OTCQB)Current Recommendation / Outperform
Prior Recommendation / N/A
Date of Last Change / 10/13/2013
Current Price (01/30/14) / $0.29
Six- Month Target Price / $0.57
OUTLOOK
Jammin Java is a growth company in the premium coffee industry. Management is implementing a growth strategy based on a multi-channel geographic penetration business model. By expanding through traditional retail grocery and distribution channels, along with successfully introducing new products (particularly RealCups in the second half of 2012), the company has reported seven consecutive quarters of triple-digit sales growth.We reiterate ourOutperformrating.SUMMARY DATA
52-Week High / $0.6552-Week Low / $0.22
One-Year Return (%) / -23.68
Beta / 4.33
Average Daily Volume (shrs.) / 280,337
Shares Outstanding (million) / 102.4
Market Capitalization ($ mil.) / 29.7
Short Interest Ratio (days) / N/A
Institutional Ownership (%) / 21.5
Insider Ownership (%) / 17.0
Annual Cash Dividend / $0.00
Dividend Yield (%) / 0.00
5-Yr. Historical Growth Rates
Sales (%) / N/A
Earnings Per Share (%) / N/A
Dividend (%) / N/A
P/E using TTM EPS / N/M
P/E using 2014 Estimate / N/M
P/E using 2015 Estimate / 29.0
Zacks Rank / 3
Risk Level / Above Average
Type of Stock / Small-Growth
Industry / Beverages-Soft
Zacks Rank in Industry / 4 of 13
KEY POINTS
Jammin Java Corp.is a producer, marketer and distributor of premium roasted gourmet coffees sold under the brand name of Marley Coffee.
Management is executing a growth strategy of geographic expansion through multiple distribution channels, which is driving dramatic, triple-digit, year-over-year revenue growth.
Expanding distribution network through
- National and regional grocery chains (Ahold, BI-LO, Winn Dixie, Kroger, Safeway, etc.)
- The domestic availability of Jammin Java’s coffees and teas through the retail grocery channel has expanded geographically from southern California in 2010 to a national footprint in 2013
- Independent domestic distributors, likeUnited Natural Foods and Gourmet Merchants Int’l
- E-tailers, such as amazon.com, cooking.com, coffeewiz.com, shoffee.com,etc.
- Office Coffee Service (OCS) in partnership with National Coffee Service & Vending and its acquisition of Denver-based Black Rock Beverage Service.
- Alternative distribution through vending (in partnership with AVT) and BikeCaffe coffee carts
- Internationally in Canada, Chile, Japan, the UK, Continental Europe, South America, South Korea and Japan.
- Jammin Java continues to gain penetration in the grocery market with Marley Coffee, which is or soon will be available at over 8,000 retail locations.
In November 2011, Jammin Java entered the ground coffee segment with 8 oz. bags of ground coffee.
In November 2012, Jammin Java entered the fast growing single-serve market with RealCups™, a K-Cup compatible product.
During 2013, Jammin Java benefitted from more than $4.8 million in capital through the settlement of trade payables with Ironridge Global IV, Ltd. The funds are allowing for an accelerated pace of distribution expansion.
Management continues to aggressively pursue strategies to increase distribution, marketing and product innovation
We reiterateour Outperform rating and price target of $0.57.
RECENT NEWS
Third Fiscal Quarter Results
On December 17, 2013, Marley Coffee reported financial results for the third fiscal quarter ending October 31, 2013. Revenues increased 309% to $2.19 million versus $536thousand in the comparable fiscal quarter last year, primarily due to expanded distribution into the retail grocery marketand continued growth of other distribution channels. Gross income increased 429% to $811 thousand compared with $153 thousand resulting in the gross profit margin expanding 838 basis points (bps) from 28.6% to 37.0% due to the rapid increase in sales and improved product mix.
Operating expenses increased41.4% year-over-year as G&A expenses increased 219% and compensation expenses expanded 20.9% as more employees and contractors are required to help manage the company’s growth. Jammin Java continues accrue salaries (or pay such salaries in common shares)in order to utilize cash on hand to fund the company’s operations and growth. Management plans to transition from equity-based compensation to cash compensation in the upcoming 2015 fiscal year. Selling and marketing expenses declined 91.8% to $15,777 due to the absence of a large marketing campaign and the categorization of new marketing staff under G&A expenses. Interest expense decreased 99% due to conversion of interest bearing liabilities into equity as a result of the Ironridge Global transactions. Consequently, working capital improved dramatically to $3.04 million. The company’s net loss expanded from $944,742 ($0.01 per diluted share) to $1,378,551 ($0.01 per diluted share) as average weighted shares outstanding increased 24.3% from 77.6 million to 96.5 million, primarily through the settlement of the Ironridge Global Partners transactions which extinguished $4.8 million of accounts payable and accrued expenses through the issuance of common shares.
During the quarter, the availability of Marley coffee increased from 7,500 (at the end of the second fiscal quarter) to approximately 8,000 retail locations, through new distribution agreements, such as those initiated with Natural Grocers by Vitamin Cottage, AKiN'S Natural Food Markets, Chamberlin’s Market & Cafe, Richard's Foodporium, Market District food stores, Vitamin Discount Center, Brookshire Brothers, Hen House Market and Ball's Price Chopper.
Importantly, management continues to state that anticipated working capital needs for the next 24 months should be met through operations and funds being raised through an ongoing offering to accredited investors.The private offering of units, each of consists of one share of common stock and ½ of one warrant to purchase one share of common stock. Units are priced at 20% discount to the closing price of the stock on the date of subscription (the exercise price of the warrants is equal to 150% of the closing price on the date of subscription). During July and August 2013, the company raised $246,000 through the sale of these 647,137 units priced between $0.350 and $0.392.
New Distribution Announcements
On October 15, 2013, Marley Coffee announced that its line of gourmet coffees will be sold at all 73 locations of Natural Grocers by Vitamin Cottage (NGVC: NYSE), a specialty retailer of natural and organic groceries in 13 western states.
On October 17, 2013, Marley Coffee reported that AKiN'S Natural Foods Markets, Chamberlin's Market & Cafe and Richard's Foodporium will be carrying a selection of the Marley Coffees in all of their locations. Both AKiN'S Natural Food Markets(with 10 stores in the southwest U.S.)and Chamberlin's Market & Cafe (with six locations in Florida) will carry Marley Coffee RealCups and 8 oz. bags of Lively Up!, One Love and Get Up, Stand Up, while Richard's Foodporium(with 17 locations in Florida) will sell initially only RealCups of the three blends.
On October 24, 2013, Marley Coffee expanded its retail presence to five specialty grocery retail stores: Market District, Vitamin Discount Center, Hen House Market, Ball's Price Chopper and Brookshire Brothers.Market District food stores (seven locations in Pennsylvania and Ohio) will carry Marley Coffee RealCups of Lively Up!,One Love and Get Up, Stand Up and 8 oz. bag s of One Love, Buffalo Soldier, Lively Up!, Mystic Morning, Talkin' Blues, Simmer Down and Get Up, Stand Up. Vitamin Discount Center stores (ten stores located in the Tampa Bay area), Brookshire Brothers (in 15 of their over 70 locations in Texas) and Hen House Market and Ball's Price Chopper(in four of their 28 stores located in Kansas and Missouri) will carry RealCups of Lively Up!,One Love and Get Up, Stand Up.
On November 6, 2013, Marley Coffee announced an expansion of its relationship with Kroger. In the western U.S., select locations three of Kroger’s supermarket chains [Quality Food Centers (WA, OR), Fred Meyer (OR, WA, ID, AK) and Ralphs (southern CA)] will carry Marley Coffee RealCups of One Love and Get Up, Stand Up.
On December 12, 2013, Marley Coffee announced that that all 14 Fairway Market stores located in the NYC metropolitan area are now carrying Marley Coffee RealCups of One Love, Lively Up!, and Get Up, Stand Up.
On January 27, 2014, Marley Coffee announced that Giant Eagle will carry Marley Coffee RealCups of Lively Up!, One Love and Get Up, Stand Up in 140 stores located in the four-state region of Pennsylvania, Ohio, West Virginia and Maryland.
Vending Developments (AVT)
On September 5, 2013, AVT announced that a 360 Marley Coffee Automated Kiosk had been installed in Los Angeles at the Westwood Pavilion between Nordstrom and the Landmark Theater. Seven weeks later on October 23th, AVT announced that a new Gen2 Marley Coffee Automated Storewas placed in the Westside Pavilion Mall. We visited the location and sampled three different product offerings. Though impressed with the technology and features, we were disappointed that the unit accepteddid not accept cash (only credit, debit and mobile wallet payments) and offered only one song by Bob Marley.
On January 21, 2014, AVT announced the creation of an independent investment fund (Automated Retail Income Development or ARID) for the sole purpose of purchasing Marley Coffee Automated Kiosks. The ARID Fund plans to raise up to $4.9 million for the purchase of up to 300 Marley Coffee Automated Kiosks. The Fund is negotiating with Kroger, Safeway and various military bases for the placement of coffee machines, especially targeting the highest grossing locations that were abandoned by Outerwall (OUTR: NASDAQ-GS), which is in the process of discontinuing its Rubi coffee kiosk venture.
European Developments
On October 21, 2013, Marley Coffee UK launched three Marley Coffees (Lion Blend, Kingston City and Get Up, Stand Up) into the foodservice sector of the UK. The three blends are available in 500 gram and 1 kilogram bags. Marley Coffee UK also supports Kicks for Cause and 1Love.org.
In mid-January, management outlined its European strategy for distribution expansion and product introductions in the United Kingdom and Europe during 2014. In order to drive the expansion in both the UK and European markets, the scope of the sub-licensing agreement with Marley Coffee UK was recently expanded to encompass certain countries in Continental Europe.To broaden product awareness, Marley Coffee UK will be presenting at BIOFACH 2014 trade shows in Nuremberg during February at SIAL in Paris during October. Single-serve offerings have accelerated Marley Coffee’s top-line growth in the U.S. Therefore, single-serve RealCups will be introduced into the European marketplace to aid in the expansion of thecompany’s retail grocery distribution footprint. Also, a Nespresso-compatible product line is in development, since Nespresso holds approximately a 30% value share in the European coffee market. Finally, Marley Coffee UK plans to enter the hotel, restaurant, OCS, catering and foodservice segments by adding more SKUs, especially fractional packs and 1 kilogram bags.
Canadian Developments
On January 15, 2014, Jammin Java announced that RealCups are available at all 245 Ontario stores of Sobeys, at 120 Ontario stores of Metro, in all 280 Quebec stores of IGA, 50 stores of COOP and allBed Bath & Beyond stores in Canada. Jammin Java’s roaster, Mother Parkers, was instrumental in developing these new relationships.
Acquisition of BikeCaffe
On December 4, 2013, Marley Coffee purchased of the majority of assets (worldwide marks, copyrighted works, online ordering system and website) of BikeCaffe Franchising Inc. for $40,000 in cash and $100,000 worth of Jammin Java common stock (250,000 shares) plus $115,000 worth of Jammin Java common stock (287,500 shares) for consulting services of Ralph Massetti, former CEO and designer of BikeCaffes. In addition, BikeCaffe's existing franchise agreements and database of domestic and international leads were obtained, along with a two-year agreement for the manufacturer of BikeCaffes (Pedal Power Supply, LLC) to continue building and selling BikeCaffe units to Jammin Java.
BikeCaffes provide a distinct way of delivering and offering coffee in city environs. In April 2012, Marley Coffee began a brand partnership with BikeCaffe, the provider of eco-friendly, coffee service bikes. Developed by Will Shakesheff, the BikeCaffe was created with the intent provide Fair Trade and organic coffees through an earth-friendly "pedal power" operation. Currently, 21 BikeCaffes can be found in select cities in Europe (primarily in England) Canada, Jamaica, the United Arab Emirates and, thus far, in Anaheim, Boulder, Denver, Austin and Detroit in the U.S. Establishing and strengthening the coffee service route channel should help drive demand of Marley Coffee in the retail grocery channel.
The Marley Coffee BikeCaffe comes fully equipped with an Italian espresso lever machine, smoothie preparation equipment, blender, refrigerator, ice bin, water heater, sink, menu boards and canopy. The three-wheeled, geared bikes are full-service cafes that can move from location to location. BikeCaffes can be operated in a variety of public settings, such as pedestrian streets, parks, recreation areas, museums, landmarks, shopping areas, sporting venues, concert events, universities, civic centers, festivals,
outdoor markets, indoor shopping centers, large office buildings, centers, construction areas, train stations, etc. depending on the weather, pedestrian traffic patterns, event schedules and work schedules.
BikeCaffe is an environmentally friendly operation that represents a true symbol of sustainable business practices. For operators, BikeCaffes are not just a business, but also a lifestyle. The opportunity to own a Marley Coffee BikeCaffe franchise comes with the benefits of positive industry trends, brand recognition and support services, along with flexible work hours. In addition, by providing ethical beverages and nourishment in an environmentally-friendly way, operators will be enriched by a sense of personal satisfaction. Marley Coffee BikeCaffes are available through the BikeCaffe franchise network based in Boulder, Colorado.
OCS (Office Coffee Service)
On January 10, 2014, Marley Coffee announced that Black Rock Beverage Service, which was acquired by Jammin Java in August 2013), will provide the corporate coffee option (through RealCups and foodservice bulk bags) at the headquarters of Arrow Electronics. Management expects to leverage the relationship by expanding its Office Coffee Service to all offices of Arrow Electronics worldwide. Black Rock Beverage Service also has secured a coffee service account at The Colorado Golf Club. Management expects that Black Rock Beverage Service will generate cash flow above $1.0 million in its second year of operation under Jammin Java.
OVERVIEW
Headquartered in Denver, Jammin Java Corp. (JAMN: OTCQB) is a producer, marketer and distributor of sustainably-grown, ethically-farmed, artisan-roasted premium coffees sold under the brand name of Marley Coffee. All the company’s coffees are positioned as USDA Organic, Fair Trade Certified and/or Rainforest Alliance Certified. The company also distributes tea and has the rights to sell coffee-related products (cups, mugs, milk steamers, grinders, brewing machines, etc.) with the Marley trademark, along with chocolates. Management is developing deeper distribution in the retail channels of grocery, online sales, service & hospitality, office coffee service and club stores. Currently, Marley Coffee is available at approximately 8,000 locations, well above FY 2014 distribution goal of having Marley products available at 6,000 venues.
Jammin Java was founded in February 2008 by Rohan Marley, son of reggae entertainer Bob Marley, as Marley Coffee Inc. Through a series of business development initiatives, Marley Coffee Inc. has been transformed into Jammin Java Corp. Rohan’s vision is to produce and acquire sustainably-grown coffee and market the artesian-roasted beans under the Marley Coffee brand, which reflects the personality of Bob Marley. Rohan Marley acts as a brand ambassador for the many Marley licensed brands, including Marley Coffee. Awareness of Marley Coffee has been greatly enhanced through events celebrating new distribution opportunities where Rohan has been present. Other marketing efforts include social media (Twitter and Facebook), tradeshows, general advertising and public relations.
The company is targetinga specific market niche within the specialty gourmet coffee industry that wishes to support sustainable farming practices while enjoying premium and super-premium specialty coffees.Management’s core business model involves the implementation of a multi-channel geographic penetration strategy, which entails expanding distribution both through multiple channels and through geographic expansion. The use of multiple distribution channels increases the awareness and presence of the company’s coffees. Through distributors and direct relationships, Jammin Java provides organic, sustainable coffees through the channels of supermarkets, E-tailers, Office Coffee Service (OCS), independent distributors, foodservice, vending and automated retailing. Geographically, the company’s operations were concentrated in the western US and western Canada until 2012, when the company entered into a multitude of relationships across the US, Canada and overseas. Sales cycles for national grocery and retail chains are very long and the efforts made to broaden distribution last year came to fruition during fiscal 2014. Over 25 new domestic distribution agreements were announced during calendar 2013, including with the major grocery retailers of Kroger and Safeway.
Marley Coffee’s strategy is to establish strong retail grocery distribution in major metropolitan areas across North America and drive consumer purchasing decisions through brand awareness, customer satisfaction by trial and consumption of Marley coffees in the office and at Kiosks. Jammin Java coffee products are currently or soon will be available in approximately 8,000 stores, which represents approximately a 22% retail grocery market share.During the second half of fiscal 2014, the company will continue to expand into new geographies and markets through increased distribution and product innovation. In the future, management plans to broaden and deepen the company’s focus on specialty retailers, corporate gifting companies, restaurant chains and independent retailers.
Sales growth over the last two fiscal years, and especially the latest fiscal quarters, has been very robust. The company has transitioned from a development stage to an operating company. In the process, Jammin Java has reported seven consecutive quarters of triple-digit sales growth. The challenge of maintaining positive working capital during this period of rapid growth has been met by equity capital financing of trade payables by Ironridge Global IV, Ltd., a firm specializing in consumer nondurable investments and which now owns a substantial equity position in Jammin Java.