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Krispy Kreme Doughnuts, Inc. Message Board

  • di_vur_se_fi di_vur_se_fi Apr 10, 2002 4:07 PM Flag

    Q1 Revenue Model

    I project Q1 revenue to be approximately $109 million. This represents a sequential 6.9% revenue decline (versus $117.1 million) and is 11.4% less than the $123 million that Yahoo! is showing for a Q1 revenue estimate.

    KKD had revenue of $117.1 million in Q4 FY02 broken down as follows:

    Company Store: $75.4
    Franchise: $4.4
    KKM&D: $37.3
    Total: $117.1

    KKD opened 21 stores in Q4 of which 18 were Area Developers, 2 were Associates, and 1 was a Company Store (Northern California). 1 Company Store (Charleston) was closed.

    KKD's revenue categories are loosely defined as follows:

    Company store sales are retail sales by KKD owned or majority owned stores.

    Franchise revenue can be broken down into 2 components:
    1) Franchise fees: $20,000-$40,000 fee recognized on the day the store opens.
    2) Franchise royalty: 4.5% of all sales for Area Developer; 3% of retail sales and 1% of offsite sales for associate.

    So, of the $4.4 million in franchise revenue, 18 * $0.03 = $0.48 is franchise fee and $3.92 is royalty revenue.

    KKM&D revenue can be broken down into 2 components:
    1) Equipment sales (new stores generate approximately $500,000 in equipment sales)
    2) Mix sales to franchisees (Mix sales represent approximately 25% of franchisee revenue)

    So, of the $37.3 million in KKM&D revenue, (3 of the non-company stores opened in Q4 probably had equipment sales recognized in Q3) 15 * $0.5 = $7.5 is equipment sales and $29.8 is mix sales.

    What can we estimate Q1 revenue to be?

    KKD projects that 3 stores will be opened in Q1 (Clearwater, Lafayette, Maple Grove) of which 1 is an Associate store and 2 are Area Developers. Additionally, they are expected to open 2 more stores (1 Area Developer and 1 Associate) early enough in Q2 to generate revenue for Q1 (Houston and Mobile).


    Company Stores Assumptions:
    1) Company stores have shown approximately 1% unit growth sequentially.
    2) KKD raised prices 2% at the end of the fiscal year. Assume product demand is unaffected by the price increase.
    3) Because Q1 is only a 13 week quarter, correct for the 14 week quarter of Q4.
    4) Buyback of 4 stores in Akron adds $1.6 million in revenue
    5) No company stores were opened

    $75.4 * 13/14 * 1.03 + 1.6 = $73.7 million

    Franchise Revenue Assumptions:
    1) Franchise Fee: 2 Area Developer store openings => Q1 revenue of $30,000 * 2 = $30,000 versus Q4 revenue
    2) Royalty: The 20 stores opened in Q4 will be open for the entire first quarter. Assume that the high opening week sales of Q4, coupled with the fact that many of these stores were opened early in Q4 and Q4 had 14 weeks, exactly offsets the full 13 week sales period of Q1, i.e. royalty revenue does not change
    3) 9 weeks of sales at Clearwater store + 2 weeks of sales at both Maple Grove and Mobile store (15 weeks of sales - assume $200,000 for opening week and $100,000 per week thereafter)
    4) Correct for 13 week quarter.

    $3.92 * 13 / 14 * 1.03 + ($0.03 * 2) + $0.2 * (2 * 0.045 + 1 * 0.030) + 0.1 * (9 * 0.045 + 1 * 0.030) = $3.75 + $0.06 + $0.024 + $0.0435 = $3.9

    KKM&D Assumptions:
    1) Equipment revenue: I assume that 5 stores in Q1 will generate equipment sales (3 that opened and 2 that are soon to open)=> revenue of $500,000 * 5
    2) Mix revenue: The 20 stores opened in Q4 will be open for the entire first quarter. Assume that the high opening week sales of Q4, coupled with the fact that many of these stores were opened early in Q4 and Q4 had 14 weeks, exactly offsets the full 13 week sales period of Q1.
    3) Incremental franchise sales of $1.6 million (see above) from the new stores opened in Q4 => $1.6 * 0.25 = $0.4 in incremental mix sales.
    4) Correct for 13 week quarter

    $29.8 * 13/14 * 1.03 + 5 * $0.50 + $0.4 = $28.5 + $2.5 + $0.4 = $31.4

    So, in total, I project KKD (depending upon the accuracy of my assumptions) to have

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    • di_vur_se_fi Thanks for weighing in. As always looks great. 109 million/88million = 24%. Clearly not bad, but not 32%. Plus revenue growth as a percentage will have to slow as KKD gets bigger. The buyback of the akron stores may give them the extra .01 profit they will be looking for.

      • 1 Reply to long_amd
      • you wrote:

        109 million/88million = 24%. Clearly not bad, but not 32%. Plus

        ---

        Remember that not all of that growth is organic. Buybacks of Baltimore, Charleston and Savannah make the numbers somewhat incomparable.

        Baltimore (4 stores): $3.6 million in sales
        Charleston (2 stores): $1.2 million in sales
        Savannah (2 stores?): $1.2 million in sales

        Total: $6.0 million

        KKD loses around 30% of that in mix sales and royalty, so 70% of $6.0 million = $4.2 million is from buying back franchisees (not sustainable growth).

        109 - 4.2 = $104.8 is more likely the organic number

        104.8 / 88 - 1 = 19%

        So, assuming that sales come in at $109 million, the organic growth rate is 19% (that's one reason they're buying back franchises - increase the perceived revenue growth rate).

    • The market said very clearly that it was down big time but KKD should be up.

      That is what the market said.

    • Oh yeah, big loser, man. The stock goes up .3% and my puts go down 10%. Care to apply that same leverage and calculate what happens to my puts on the days the stock spikes down 2%, 3%, 5%? Yeah baby, I'm a loser. Three out of the last ten months I've lost. But those good months are so sweet, just like the KKD glazed; to the tune of about 38% on average. I'm crying all the way to the bank.

    • "The market is TELLING you something but you are all so stubborn and negative that you refuse to listen. Open your eyes and ears, or be prepared to pay the price for your inflexible viewpoints. The market does not care about your bearish rants and is obviously focused on something that you all are overlooking. (hmmm, could it be accelerating sales and EPS growth? maybe IMO)"

      Hey, I don't listen to the market, man. I listen to the voices in my head. If the market was always right, what fun would this be? Apparitions of Ben Graham have been telling me to short this stock...so I'm shorting the stock. Ben says that valuation does matter. Ben tells me that the stock is worth anywhere from $10-20 in his models. Ben says that the value of any stock has to be based on future earnings potential. Ben says this stock is not worth $40, even under the most aggressive scenario. I believe Ben, not the market.

      If you disagree with Ben then tell me this, how long will it take KKD to earn $2 billion in profits in your model?

      Will

      Disclosure: Will is short 800 shares.

    • Great message! I'll keep it on file and repost it later when your 20 shares are worth half what you paid in!

    • On the worst day of 2002, with all the markets plunging and stocks getting creamed, the one stock you put your money on to go down instead goes up. Priceless!

      If today doesn't drop you into a pool of frutration I don't know what will. At the rate you bears are going the FDA will announce tomorrow that Krispy Kreme donuts stop heart attacks, reduce the risk of cancer, and prevent pattern baldness in men, and the stock goes up 75 points overnight. What a joke!

      The market is TELLING you something but you are all so stubborn and negative that you refuse to listen. Open your eyes and ears, or be prepared to pay the price for your inflexible viewpoints. The market does not care about your bearish rants and is obviously focused on something that you all are overlooking. (hmmm, could it be accelerating sales and EPS growth? maybe IMO)

      Denial is not a river in egypt.

      Shorts, bears, and bashers, if I can leave you with one thing it is for you to know that I am laughing at you.

    • <<The investor is the jury, strata, determines what facts are true, determines the weight of
      the pro/con evidence and makes his buy/sell/hold dicisions accordingly.>>

      so tell me, sarge, just what have the investors, as the jury, determined in the case of Mr. Wolf's comments?...checked the chart lately?

    • I get the feeling strata will never answer your question on the conflict of interest cuz he knows you are right divursefi. Keep up the good analysis work, many of us appreciate it. You provoke good thoughts on investing.

    • >...and i can really see where this information would cause thousands of short investors like yourself to make REALLY "sound decisions" for kkd<

      The investor is the jury, strata, determines what facts are true, determines the weight of the pro/con evidence and makes his buy/sell/hold dicisions accordingly. As itnesses go, di_vur has great credability with me. As investors go, at least I are one. You ain't. I've got real skin in the game. The nads to pull the trigger. From the evidence I've seen here, you're just immature interloper.

    • you wrote:

      Otherwise, how valid are your assumptions and conclusions?

      ---

      We'll find out when they report Q1 earnings and revenue. Feel free to point out my erroneous assumptions or model invalidity. For the record, my models expect around $109 million in revenue and $0.125 EPS.
      While I'm sure that my EPS estimate is too low (KKD recently said $0.14), the more interesting question is WHY my estimate is too low. Have I understated the growth rate? Have I overstated the importance of opening new stores to the bottom line? Will KKD be able to reduce costs?

      These are all question that are worth answering (at least for someone who has "skin in the game").

      ---

      you wrote:

      Thank you for FINALLY acknowledging the dead end that is at hand for Mr. Wolf's comments.

      ---

      Is this an official prediction?

      ---

      you wrote:

      Your constant use use of the terms "if", "suppose", "assume", etc. are definitely words you must live by.

      ---

      If I say that the volume growth rate WILL be 1%, I would be misguided because I have no way of knowing what the growth rate is (I can only guess based upon past experience). Without assumptions I can't build a model. Without a model I can't estimate earnings. Without an estimate of earnings, I can't determine if my judgements differ from the markets. If I can't determine if my judgements differ from the market, I shouldn't be investing.

      ---

      <<Once again, what do YOU think?

      Does BB&T analyst Wolf have a conflict of interest regarding his coverage of KKD?>>

      once again:

      i challenge you to make some honest-to-god valid and denfensible assumptions to come up with the answer to that question....after all, you make assumptions about everything else in your life

      ---

      ok, I assume that you DO think that analyst Wolf is conflicted. Is my assumption valid?

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