Average stores do $62k per week (per cc). New stores can do as much as $500k per week (Medford, MA and many other places). Then it drops off dramatically. Southern California and Nevada franchisees have let it be known that their stores average about $35k to $40k per week (includes off-site sales). The strongest stores are in the US Southeast. These are the oldest stores. It seems they can do $70k or $80k per week. KKD bought older stores from retiring franchisees for about $2m each (book value). It has paid five times as much for stores it has bought from KKD insiders in Ohio and in Texas. Those purchases plus the relatively weak sales in new stores ($40k per week) are the basis of the BB&T downgrade citing declining ROE. New stores have a CAPEX of 2.75m but a relatively weak ROE if they only generate $40k per week in revs. The best of the US sites are built out. There is an almost alarming declining trend in several of the major metrics which KKD manages to cleverly disguise or bury in its presentations. The same store sales metric (unique in its formulation to KD) is intentionally and cleverly deceptive. It is also misleading and bogus. Average store sales are down 3% (a number harder to fake.) Growth has been largely the acquisition of franchises (yes, every quarter) usually from corporate insiders and massively overpriced. No one outside of this message board and Herb Greenberg has noted this. Some (lazy and incompetent) analysts have bought KKD's papa and misinformation. Others have refined their analysis and chucked out the meaningless and deceptive info which KKD management (all Pricewaterhouse grads) has ginned out. The KKD numbers guys are clever enough to skate to the very edge without breaking the law -- but they push the envelope to the extreme. As for the analysts, this is what seperates the men from the boys (or the whores from the virtuous). KKD is DEFINITELY capitalizing expenses and overstating net revenues. Cashflow is frighteningly negative. Their main bank, Wachovia, refused to give them additional cash. Their former investment bank BB&T just slammed them. The Boys on Devonshire Street (Fidelity Management) are asleep on this one. The stock is intrinsically not worth $10.
One piece of conference call info that I have not seen mentioned here was that (if I heard correctly) the new London store was selling $65,000 per week.
This was claimed to be a good result because the store was inside a department store rather than stand-alone. But the excuse is extremely lame -- in fact, the store has its own entrance -- and compared to the entry into other major markets, this is an enormous disappointment.
The initial investment is no less because the store is in Harrod's -- in fact, press reports described an enormous expenditure on PR.
If the Harrod store falls off in the same ratio as followed other market entries (and why should being in Harrod's make any difference to that), it will go down below 20k per week and become unprofitable.
It will be interesting to see whether they move ahead to open the promised chain of stores in the UK and Ireland.
Another way to look at London store- It has only been open 7 weeks. So if they are telling us that with the opening extravaganza and the $250k to $500k in sales that went along with it, are averaged with the other 6 weeks and it averages out to $65K per week, they are already down to $20k per week x opening hype. I bet the expenses were at least $250k to generate the hype. I'll also bet that their rent is at least $5k/mo. and the rest of their expenses are at least double what is average. They say they can break even at $25k per store, but I bet they can't do that in Harrods.
I think that the overseas stores will run into politically associated problems?Obviously,a lot of Brits from the working classes don't like the fact that their children are being thrust into harms way by our foreign policies.Buy American donuts?I think this strategic move[?] by KKD may well be ill timed.