October 3, 2022

Jones Soda – Back from the Dead

About a decade ago, Jones Soda (JSDA) was briefly an incredible success story about a regionally popular brand which had used grassroots marketing to achieve rapid growth on a national scale. Unfortunately, the soda story fizzled when they tried to expand into national chains like Target (TGT) and Walmart (WMT) using aluminum cans rather than their iconic glass bottles.  In addition, Jones Soda began their expansion efforts precisely at a time when the popularity of carbonated beverages began to decline.

A combination of missteps and bad timing brought the company to the brink of bankruptcy, driving its once promising stock from a peak of more than $28 to less than $1. The price fell further to about 25 cents after the shares were delisted from the NASDAQ exchange.  Since early March Jones Soda has been moving steadily higher and recently had a higher volume spike that propelled the stock price above both the 6 month price range and the 50 and 200 day moving average.

courtesy: yahoo finance

 

Courtesy: yahoo finance

Things may finally be looking brighter for Jones Soda with new CEO Jennifer Cue at the helm. Since her appointment on June 30, 2012, she has implemented a back to basics turnaround strategy which has allowed the company to stabilize before pursuing a path of responsible and hopefully profitable growth.

The strategy involved rapidly trimming expenses and slightly retrenching to the company’s core markets and independent distributors. In the latest quarter, operating expenses were cut to $1.1 million compared to $2.7 million last year. Some of the cuts did have an impact on revenue which fell to $3.1 million from $3.4 million in the prior year. Despite the drop in revenue, gross profit was up slightly, showing the positive impact of the realignment of costs.

The loss from operations for the most recent quarter was $448,000, a vast improvement from the loss of $2.0 million last year. Most significantly, the company was cash flow positive for the quarter with $247,000 generated from operations. In the previous three quarters, Jones Soda had negative cash flow from operations of $6.5 million, and they were at risk of running out of capital. Now the company believes they have sufficient working capital to carry out their operating plan for 2013.  In addition to $4.1 million of working capital, Jones Soda has a $2 million credit facility.

Corporate insiders have confirmed their conviction of a brighter future for Jones Soda through a series of stock purchases.  CEO Jennifer Cue bought 50,000 shares at $0.30 from December 7 to 10, 2012.  Carrie Traner, VP of Finance bought 10,000 shares at $0.29 to $0.34 on March 14 – 15, 2013 and Director Mills A Brown bought (indirectly) 81,350 shares at $0.2975 to $.033 on March 15, 2013.

Now that the company has brought expenses under control, they are investing in distribution and product lines that will drive long term profitable growth. After laying off nearly half of their staff in the second half of 2012, they recently hired four new employees for their sales staff. The sales staff is now paid on a variable compensation structure, which should help to keep costs aligned with revenue.

The company has just introduced Jones Natural, which will soon launch in California. The new beverage has 30 calories and will come in four different flavors. It will be offered in 50 Albertson’s grocery stores in the natural foods section. The new beverage will also be offered in 25 Whole Foods Market (WFM) stores in Northern California. Significantly, this is the first time that a Jones Soda product has been carried by Whole Foods.

The groundwork has now been laid for a possible return to growth and profitability for a company once left for dead. The current market cap of merely $13 million hardly reflects the progress that has been made in the last two quarters.  While the stock remains extremely speculative, it is certainly one worth watching in the coming months.

Disclosure: Long JSDA

Why Amazon Gained 380% And Hewlett-Packard Lost 42% In The Past Five Years

Hewlett-Packard Company (HPQ), one of the greatest success stories of American enterprise, seems to have lost its magic.  Superb management and great products resulted in HPQ’s stock rising relentlessly from the mid 1960’s through early 2000 when the stock traded in the $70 range.  After 12 long years, HPQ’s stock trades for a third of its value, closing today at $23.46.

HPQ - courtesy yahoo.com

Meanwhile, Amazon (AMZN), under the brilliant leadership of Jeffrey Bezos, has seen its stock price almost double since 2000.  Over the past five years, Amazon’s stock price has risen by 380% while Hewlett-Packard’s has declined by 42%.

AMZN - courtesy yahoo.com

The rise of Amazon and the fall of Hewlett-Packard involve many complex factors, but one critical area where Amazon absolutely scorches Hewlett-Packard is in customer fulfillment, an essential aspect of e-commerce.

AMZN VS HPQ - COURTESY YAHOO.COM

Two years ago I purchased a Hewlett-Packard laptop on which the battery suddenly went dead.  How hard can it be to order a replacement battery for a HP computer from the HP website?  Harder than you can imagine. Here are the results after typing in the information on my computer into the HP search box.

Search HP

for products, services, drivers, support, news and information
No results found for battery for model dv4-2145dx. Please try again.
No results found for replacement battery for model dv4-2145dx. Please try again.

Numerous other queries brought up useless information and links to unrelated topics.  Should it be that difficult and annoying to purchase a replacement battery for an HP computer from the HP website?

On the Amazon website, the query “replacement battery for model dv4-2145dx” instantly  brought up 2 pages of results for the exact item I needed.  Ordering the product took less than 60 seconds and a scheduled delivery time of two days.

Saks “Gets It” – Starbucks Not Quite There

Brutal Days For Retailers

Retailing has suddenly become a lot more complicated than simply planning how many more stores to open next year and projecting sales increases.   Today, the toughest job is surviving. Job losses, pay cuts and lack of credit have turned the once profligate American consumer into a modern day Scrooge.   Many consumers have cut back on all but the essentials – frugality has become a necessary virtue.   Retailers that over expanded with borrowed capital  will not last as they discover that cash flow does not cover debt service.

The great American retailers that will survive have already adapted to the new age of frugality.  Consider Saks Fifth Avenue and Starbucks, both of whom market their goods at the higher price points.

Saks Upends Luxury Market With Strategy To Slash Prices

When Saks Fifth Avenue slashed prices by 70% on designer clothes before the holiday season even began, shoppers stampeded. “It was like the running of the bulls,” says Kathryn Finney, who says she was knocked to the floor in New York’s flagship store by someone lunging for a pair of $535 Manolo Blahnik shoes going for $160.

Saks’s deep, mid-November markdowns were the first tug on a thread that’s now unraveling long-established rules of the luxury-goods industry. The changes are bankrupting some firms, toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.

Sak’s risky price-cut strategy was to be one of the first to discount deeply, rather than one of the last.  Sak’s chief executive says his actions were done to “make sure that the company survives”.  Last Thursday, Saks said January sales fell nearly 24%.

Saks will survive but its strategy is putting many of its smaller competitors out of business since they cannot compete with the massive discounts Saks is offering.  Saks also recognizes the risk of discounting to their future sales.  How many customers will pay $3,000 for a “designer luxury good” in the future, when they can now buy such an item for $900?   Discounts of 70% make one feel foolish to have overpaid so much even when times were good.

Starbucks Plays Common Joe

Starbucks Corp., which built a coffee empire on its premium image, wants to convince customers that its drinks aren’t that expensive.

The company said Monday that it’s selling discounted pairings of coffee and breakfast food for $3.95, a type of promotion long used at fast-food chains. It’s the first move in an aggressive campaign to counter the widespread perception that Starbucks is the home of the $4 cup of coffee.

The move shows how premium brands are trying to reposition themselves for a prolonged economic downturn.

“I strongly believe we are going to be in this environment for years,” Howard Schultz, chief executive of Starbucks, said in an interview. “It is a reset of both economic and social behavior.”

Asked whether Starbucks is considering simply reducing drink prices, Ms. Gass said: “Today, no. But never say never.”

Mr Schultz is correct.  This is a new world for retailers and you adapt or you go under.  Starbucks has cut costs in its operations over the past year but has not cut product prices.   If sales continue to decline Starbucks will be forced to discount, just as Saks is doing.   Expect to see price cuts coming soon on your favorite Starbucks beverage.

The Good News About Retail Sales

Business Week reports bad news that is actually good news.


The Economy That Stole Christmas

It was just as bad as experts had feared—and maybe even worse. Retail sales for the Nov. 1-Dec. 24 season sagged between 5.5% and 8% from 2007, according to MasterCard (MA) SpendingPulse, which tracks credit-card, cash, and check outlays. Wintry weather on the weekend before Christmas added insult to injury. E-commerce suffered least, down only 2.3%, boosted by healthy sales at Amazon’s (AMZN), Apple’s (AAPL), and Wal-Mart’s (WMT) sites. Now, get set for the fallout: The International Council of Shopping Centers projects 73,000 stores will shut their doors in the next six months. On Dec. 28th, Parent Co. (KIDS), a baby products company, filed for Chapter 11.

Reasons Why The Bad News Is Good News: Consumers Become Frugal

The American consumer may finally be starting to spend less than he earns.

The easy credit that made many of us big spenders and big debtors is over.

The savings rate is starting to increase as less is spent and more is saved.

The realization that our financial security will not rest on eternally appreciating stock and home values.

The downside of excessive leverage and debt can be devastating.

The ridiculous fact that many of our purchases wind up in our closets unused.

The American consumer is adjusting to reality by spending less, being frugal and saving more for an uncertain future.  Now if only our government would follow our example, everything would work out fine.

The Collapse Of The American Consumer

Retail Sales Plummet

2008 is winding up as one of the worst holiday sales seasons on record.   Overall sales for December declined by 4% and selected sales categories showed huge declines.

Luxury goods, once considered immune from economic turmoil, were hardest hit, with sales falling 21.2%, Including jewelry sales, the luxury sector plunged by a whopping 34.5%.

A final burst of spending retailers hoped for last weekend never came. Shopper traffic fell 27% compared with the same time last year,

No retail sector was spared. Among the biggest losers were electronics and appliances, which fell a combined 26.7% versus a 2.7% gain last year. Women’s apparel slid 22.7% compared with a 2.4% drop a year ago.

The season’s dismal results have left stores with mountains of inventory to clear

Luxury retailer Neiman Marcus Group  offered 40% off already reduced merchandise. Two weeks ago, Neiman’s reported its net profit dropped 84% for its fiscal first quarter as affluent shoppers cut way back on discretionary purchases.

Circuit City holiday sales were down 50%, nearly twice what the chain had expected.

The great American spending binge is over, a victim of its own excess.  A plunge in spending on luxury goods reflects the economic reality that no income class is exempt from a collapsing economy.  Electronics, jewelry and apparel are the ultimate discretionary purchase and easily postponed.

The government can encourage us to spend money we don’t have but consumers have to deal with economic reality.   When confronted with job losses and pay cuts, most consumers are wise enough to cut spending and increase savings.

One possible positive spin to what looks like dismal holiday sales is that the discounts offered this year were huge.  If a retailer is offering goods at 50% off compared to last year and retail dollar sales are down 4%, that implies unit volume was roughly the same as last year.  At the right price, the consumer will buy but is being very frugal, and big savings for consumers will mean big losses for retailers.

State Lotteries Show Big Declines

The sour economy is striking the one source of government financing that had been widely regarded as recession-proof: lotteries

Across the U.S., many state lotteries are reporting hefty declines, with ticket sales down nearly 10% in California

The decline in lottery sales “is an unusual phenomenon,” said John W. Kindt, a gambling critic and business professor at the University of Illinois. A big proportion of lottery tickets are bought by people with gambling problems who are likely to play more in bad economic times

In past recessions, players continued to buy tickets, but not this time, said Jack Boehm, director of the Colorado Lottery. “Now they are thinking, ‘My retirement is gone, I might lose my job, I’d better start putting money away’ — that means fewer dollars for lottery tickets.”

But Jose Torres, a disabled forklift driver who lives nearby, said that if anything, the recession has prompted him to spend a little more, maybe $2 a day instead of $1. “We need the money — we’re broke,” he said.

The ridiculous number of state sponsored gambling games reflects the states’ insatiably lust for revenue.   Most studies show that a large proportion of gambling tickets are bought by those with gambling problems and lower income groups looking for that one in a billion chance to get rich.   The lotteries are a tax on those least able to afford it and least able to properly budget their incomes.   My advice to Mr Torres is to stop wasting $730 per year.