I hope somebody asks about the cash situation on the conference call.
At the end of the previous quarter, KKD had $56 million in cash and marketable securities, while the NoCal joint venture had $5 million in short-term debt. While the press release contains no balance sheet figures, I have inferred the following current or near-term uses of cash (some draining cash on hand, some increasing the debt load).
1) Baltimore reacquisition (5 stores) was apparently done with $5 mil in stock and $10 mil in cash. 2) Building $30 million distribution facility in Effingham, IL which will be treated as a "synthetic lease", i.e. not show up on the balance sheet, but an "off-balance sheet" obligation (debt) nonetheless. 3) Searching for a new corporate headquarters. How much will this cost? 4) Interest expense was down significantly, i.e. the joint venture debt must have been reduced. How did this happen? Did the NoCal venture minority partner increase its capital contribution; did the venture generate sufficient free cash flow; or did KKD step in and pay off the loan? (They had said in a previous filing that they were negotiating a new line of credit with the bank). 5) Opening at least 3 company stores supporting the new Hot Doughnut Machine. 6) Opening 50-60 stores in FY2003, some of which will be at least partially financed by KKD.
To achieve their expansion plans, it seems inevitable that they will have to once again tap the capital markets (and soon).
why worry about the cash position? Of course KKD varries a debt load, as do many companies who are a bit more "old school". Krispy Kreme has been around since the late 1930s, there should be no problems with them continuing to be a going concern...
doubt they will dilute with another share sale, but could issue notes, or simply get a loan with the great rates right now.
The valuation is the main sticking point, not the business. Everyone knows that Krispy Kreme is one of the few success stories of the last year, and will probably continue to do so well into the future.
Get real, a_mused1! Canadians may know hockey, but they're going to have a problem going head to head with KK in the States. It's a cultural thing--Americans don't know who-the-hell Tim Horton is for one. Plus, they love companies that substitute "k's" for "c's" in their names. God, if I see one more Kash'n'Karry I'm going to scream!
My sentiments: love the donuts, hate the stock. Position: Long puts.