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Krispy Kreme Doughnuts, Inc. Message Board

  • Papi_Chulo_32304 Papi_Chulo_32304 Aug 27, 2004 4:21 PM Flag

    open question to shorts

    If the stock is to go even lower after such disappointing earnings, why is KKD about 10% higher than it was about 2 weeks ago when it set its 52-week low? Mind you, this was before the bad earnings announcement. Have we reached capitulation, after a 72% decline from the $50 level just over a year ago? I agree that KKD wasn't worth $50, and that the P/E ratio looks a tad high considering the disappointing earnings. But nobody actually thinks KKD will go bankrupt, right? The earnings were disappointing, but they are earnings nonetheless. Besides the unlikely scenario that the SEC investigation becomes formal, and the potential for analyst downgrades, what other catalysts can make KKD drop even lower? It showed amazing resilience by bouncing 10% off the 52-week low. When will KKD stop dropping and WHY? I don't see the rationale for KKD to keep dropping to zero.

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    • once you try to rationalize the value of a donut store, you look at two things:
      1. the honest and proven earnings with an earnings trend;
      2. the asset value;

      1. this may well be close to zero and we have a negative trend;
      2. the stores are mostly leases, with little asset value other then equipment. Given the change in strategy will diminish the value of the equipment. There is not much asset value to speak off;
      We are in a death spiral, where a few of the debt holders are trying to pump the stock to find a way out of this mess.

    • Not just untill December, I would say atleast untill Sept'05. Reason#1, they are no way going to improve the earnings next qtr as they are saddled with too many problems to be solved in 2 months time. Expect another 56% plunge in net income next qtr. That will send the stock further down in addition to tax season selling. There is so much loss of confidence in this company that untill they show really good earnings growth for 2 to 3 consecutive quarters no person in his right mind will touch the stock with a barge pole. So all in all I would say untill Dec 2005 this is dead money.

    • That is the CURRENT PE ratio and since the company didn't give guidance that is where I stand.

    • That's mighty conservative. P/E ratios normally exclude special items, but I guess it supports your argument better to use net income for the ttm. For those who might be confused by Yahoo's reporting of KKD's P/E as 18 ttm and less going forward, it's because they didn't use 'net income' like bud_fox.

    • You answered your question pretty well. I'll only elaborate.

      1. "I agree that ...the P/E ratio looks a tad high considering the disappointing earnings."

      Yes it does. And future earnings are anyone's guess. Guidance given is for a 10% increase in revenue in the second half of fy05, but the # of stores open will have increased by more than 10%. This means lower margins. How do you see earnings recovering?

      2. "the unlikely scenario that the SEC investigation becomes formal"

      Why is this so unlikely? They're looking at (a) franchise repurchases and (b) the earnnings warning in the spring. Re. (a) the repurchased franchises are now a drag on earnings. But we were told they would be accretive to earnings. The WSJ uncovered accounting manuevers in the Mich repurchase to inflate earnings. There is much potential for that with mergers and acquisitions, so these deserve a hard look. Re (b) do you believe Livengood's "we're as surprised as you are"? Why did the negative effects, such as Adkins, the price of gasoline, the popularity of Walmart, all come together so suddenly to crush earnings?

      3. "the potential for analyst downgrades"

      Yes, exactly. Thus far analysts have helped prop the stock up, what with Leg Messon reiterating a buy on Monday and now the article on S&P touting KKD as a "value name" (with a potential conflict of interest.) Yes, we have plenty of room for downgrades. When all covering analysts are either neutral or saying sell, then you can rest assured that you're pretty safe from downgrades.

      4. "what other catalysts can make KKD drop even lower? It showed amazing resilience by bouncing 10% off the 52-week low."

      Haven't we listed enough? Well, ok, earnings can continue to deteriorate or stagnate. New store expansions can continue to slow and show little promise of adding to the bottom line. Then analysts can finally start to figure out that this is not a "value name" or a growth stock.

      Re bouncing of 12.50, yes that is strong support, for now. Yes, some shorts will take profits. But pretty strong resistance is at 15. Just remember that 19 was very strong support last June, from whence it bounced 15%; 17 was very strong support in July and supported another 15% bounce.

      Did you follow CSCO from 100 to 11, or Lucent or AOL from 100 to single digits? How many, many time did we have strong support during those long rides down? Just remember that every stair-step going down looked like a bottom to the buyers there.

      • 2 Replies to JYucca
      • Wow, thanks so much for elaborating. The part where I 'answered my own question' was my refutation, i.e. the part where I acknowledge the counter position. Where is your's?

        What do you think the effect from the new beverages will be?

        After listing the negative factors, what positive factors do you see for the stock? In order to be credible, your response has to show a certain degree of level-handedness. I know I only asked for negatives last time, but since you're the only person who can give an intelligent assessment of this stock, I'm wondering if you could balance your analysis with the positives going forward.

      • "If you're holding onto a lot of Krispy Kreme stock, you're in a tough spot at the moment.

        "At some point, you have to decide at what price you've made an error in believing in the company," said Ed White, a portfolio manager, at Gannett Welsh & Kotler, an investment management company which manages $5.9 billion in assets. Large shareholders of Krispy Kreme have "put themselves in a box. It's painful. READ THIS <<<<<<<<<You have to move whatever you can without tanking the stock," >>>>>>>>>>>>>>White said.

    • Price of stock
      ---------------------------------------
      Net income per share over the past year

      equals 14/.2=70

    • Were in the heck do u get the 70P/E buddy?

    • So what you're saying is that no stock can ever go any lower than $14, which is where KKD is now. I think you should follow the market more closely.

    • "If the stock is to go even lower after such disappointing earnings, why is KKD about 10% higher than it was about 2 weeks ago when it set its 52-week low? Mind you, this was before the bad earnings announcement."

      Who knows. Who cares.
      In case you haven't noticed, stocks tend to not behave in a "rational" way short term. But eventually, the market gets it right and values companies appropriately.
      Don't fuzz about short term movements. Let's see where the stock will be next year.

 
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