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SMOOTHIES MAKER Jamba Inc. says it is on a "journey to simplify healthy living," but it could be a lumpy ride.

Competition in fruit-and-dairy drinks is intensifying as big players like McDonald's Corp. enter the fray. Jamba's largest market, California, is struggling economically.

The company lost $113.3 million last year, and it is now slowing expansion plans. Management is predicting same-store sales this year of minus 2% to plus 2% -- in other words, possibly flat.

All of which helps explain why Jamba shares are selling for less than half their initial-public-offering price three years ago. Analysts are lowering revenue expectations and forecasting another loss this year.

Some on Wall Street are tired of waiting for an upturn. "Jamba needs execution in 2008," says Morgan Joseph & Co. analyst Dean Haskell. Among his concerns is the "discrepancy between $4 to $5 smoothies and tightening consumer wallets." He rates the stock at hold.

Jamba's ability to rebound depends partly on squeezing more income per dollar of overhead, which is running higher than some other fast-growing chains. Last year its general and administrative costs were 15% of revenue. That compares with 11% at Buffalo Wild Wings Inc., 7.1% at Chipotle Mexican Grill Inc. and 5.2% at Texas Roadhouse Inc.

Initiating coverage of Jamba this month with a hold rating, Jefferies & Co. said, "We can point to no near-term, company-specific catalyst" for the stock price to improve.

The firm's 12-month target is $3.

While management has cited California's weak economy as a source of lower new-store performance there, Jefferies analyst Jeff Farmer said that "Jamba's new-unit volumes appear to have been falling well before the current mortgage default crisis began weighing on the [California] consumer's confidence and the state's economy."

He mentioned competitive pressures and cannibalization -- new Jamba stores taking sales from nearby outlets -- as other likely factors. The analyst also said Jamba's return on invested capital "falls well short of its cost," putting its return on invested capital at just 1.3% in 2007. His conclusion: "Jamba is not yet creating shareholder value."

There are few barriers to entering the smoothies market. Because the juice-based drinks are easy to prepare and yield a relatively high profit margin, they could become the next "specialty coffee," which a slew of national chains have been adding to their beverage lineups. Many restaurants and juice bars already sell smoothies such as Burger King Corp. ; closely held Dunkin' Donuts; Orange Julius, a unit of Berkshire Hathaway Inc.; and Panera Bread Co.

Jamba's management is seeking to reduce the San Francisco company's dependence on smoothies by branching out into all-fruit drinks and, earlier this year, by testing hot and cold breakfast fare. One featured item is a Chunky Smoothie, made with fruit, granola, yogurt and soy milk. It also is looking at what it calls "value opportunities" to increase the average guest check.

"It will take time for the initiatives that we have rolled out to take hold and for us to see comparable-stores sales benefit," the company's chief executive, onetime Burger King executive Paul Clayton, said on a recent conference call. In the meantime, Jamba is reducing planned company-store openings to 45 to 55 this year, compared with 99 in 2007.

The company said it plans to "leverage our G&A investment, become more efficient with our resources and benefit through slower growth." It also said cost containment would be an ongoing project.

Jamba's big loss last year included a noncash pretax asset impairment of $200.6 million and a noncash derivative liability gain of $59.4 million related to a change in the fair value of company warrants. Those warrants were issued as part of Jamba's origination as what is called a blank-check company, which sells investors stock and warrants, whose proceeds are used to buy operating businesses.

On the operating side, more-expensive orange juice and other fruit, along with dairy ingredients, pinched profit margins. Jamba believes oranges and orange-juice costs will moderate this year.

Store-level cash-flow margins fell to 14% from 19% the year before. In hindsight, Mr. Clayton said on the call that "we were a little too bullish" about the forecast of same-store sales, primarily blaming inadequate marketing.

Plans this year call for most of that promotional effort to occur outside the stores. Among those are a dozen running events in partnership with Nike Inc., where Jamba will be passing out free samples.

The company looks back on 2007 as "a year of investment" and contends that with its emphasis on serving "healthy alternatives" Jamba is "well-positioned for the long term." It believes that one of its advantages is its ability to customize drinks to meet individual customer preferences.

Even with the bumps in Jamba's path, two brokerages have buy ratings on its stock -- Piper Jaffray and Merriman Curhan Ford. While citing its "attractive" stock valuation and a $6 target price, Piper said that "until the company materially cuts overhead, earnings profits are unlikely." Merriman recently lowered its fiscal 2008 revenue projection to $375 million from $382 million.

But Wedbush Morgan advises clients to wait until Jamba reports first-quarter results next month before jumping into the stock. While the brokerage rates Jamba at hold and says "we still like the brand," it predicts "lackluster" first-quarter results.

Institutional holdings records show that in the fourth quarter of 2007 Wedbush cut its stake in Jamba to 37,755 shares from 104,925.

Write to Richard Gibson at dick.gibson@dowjones.com