Krispy Kreme Doughnuts (KKD)

jimpickrell (< 20) Submitted: 9/01/07 3:27 PM : Start Price: $6.69 KKD Score: 28.17

Krispy Kreme has several problems.

The first is that the core business is weak. Hi carb foods are out. Krispy Kreme donuts were the subject of a high visibility publicity campaign, which created a tide of attention, but their donuts, if you taste them, are no better than any other donuts.

The corporation makes its money by selling overpriced and low quality coffee and other supplies to franchises, which would be fine, if the franchises were making money, but they are not. These deals have been the source of several lawsuits, and some franchises are currently offering coffee from other brands such as Coffee Bean. This makes good business sense for the franchises, but bodes ill for corporate headquarters.

KKD original management got jailed for accounting fraud. They never actually were making any money.

A hundred dollars invested in McDonalds or Tim Horton or Starbucks gives you a share in a live business that is making some kind of profits.

A hundred dollars invested in KKD gives you a share of a monthly loss, a huge debt, no plan for the future, and eventual bankruptcy.

To see the future of Krispy Kreme, read up on Boston Market, which I believe was "saved" by the same management team. After a period of "turnaround" it was sold off to McDonalds. In the process, stockholders got nothing.

I can see no prospect for KKD to avoid this outcome.

The fact that KKD benefited from a massively successful publicity campaign, and the fact that fans keep buying the stock even thought the company has no prospect of profits, make it a wonderful short sell opportunity.

However, my stockbroker, TDAMERITRADE, tells me that they are no longer supporting short selling on KKD. Last Friday they asked me to close out that investment. That tells me more than any amount of financial analysis.

I predict KKD will be liquidated within the coming year and stockholders will get nothing.

Report this Post Replies: 0 | Reply