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Krispy Kreme Doughnuts, Inc. Message Board

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  • new_millenium_profits new_millenium_profits Nov 9, 2003 10:39 AM Flag

    Shares Outstanding

    Looking at the income statements from 8/3/03 to 5/4/03 they had revenue in 5/4/03 of 148.7M and in 8/3/03 of 164.8M. The operating expense for the same periods was 125M in 5/4/03 and 137.5M in 8/3/03. This shows they grew revenue at a rate of 8.8% but the operating expenses grew at a rate of 10%. That being the case, they lose the benefit of ecconomy of scale. It shows as they are getting bigger and selling more, it is costing a higher percentage of sales. At this rate, they will never be able to generate the cash flow to grow the business at the rate they want. They will only be able to grow at the high rate by selling new shares or growing debt.

    I am still concerned about the rate the intangables is growing. This clearly shows they are paying too much for the acquisitions.

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    • KKD's "growth" has largely been the shell game of its buying in franchise operations each successive quarter, sometimes with cash but mostly with shares. The incremental revenue and profit from the acquisitions is small compared with the outlay. This is immediately apparent with the $67m cash for the five Dallas stores (and no subsequent expensing or amortization of the $50m goodwill) but more subtle when they buy with stock. However, from a shareholder perspective stock and cash are the same. KKD has spun the story that incremental sales have tiny cost. This is demonstrably untrue (example ref post by Millenium) KKD's growth is mainly from buying in franchises. Same store growth is largely a myth which a competent accounting specialist could quickly expose. (Pricewaterhouse will one day be called to account for the finacial legerdemain it has passed) Same store sales throughout the western USA are flat and/or falling. This can be readily documentedfor California and Nevada. Common sense tells you this is true in other parts of the country. These stores do their best during the first week of operations. They are fully mature at birth. This is the truth which needs to be exposed. Lazy analysts including many leading funds have bought into the KKD story. The journalists with the sole exceptions of Barrons and the Wall Street Journal have been pitiful flacks for KKD. This is so ripe for an expose and a harsh fall. I hope Divursefi will supply reference posts to this message documenting the points made.

    • A couple of points. First, there is probably a little cylicality that would disturb quarter to quarter comparisons.

      As to the intangibles increases, I think it is a mistake to suggest it is growing too rapidly unless you can demonstrate in the financial ratios this is so. Anyone can say they paid too much, but that does not make it true.

      Since the offset to the increase is in Shareholders Equity, look at ROE. When I did the numbers it was a little better than SBUX.

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