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Krispy Kreme Doughnuts, Inc. Message Board

  • di_vur_se_fi di_vur_se_fi Sep 11, 2004 7:46 PM Flag

    Land, hoh!

    Because the board appears to have evolved into a value haven amid all the talk of riches buried deep in the bowels of the kkd balance sheet, I guess some hard figures are needed.

    Take a look at the original S-1:

    http://www.sec.gov/Archives/edgar/data/1100270/0000950144-99-014109-index.html

    The pp&e subaccount "Land" was $11.1 million as of Jan 31, 1999. Any land purchased since then would have had relatively insignificant appreciation. Land balances as of the just released 10-q is $29.2 million (thanks to $7 million of it disappearing in the most recent quarter due to the Rocker mentioned Sale/Leaseback).

    In other words, kkd has about $18 million in land purchased in the last 4+ years; my guess that any appreciation is more than offset by underdepreciation of equipment which kkd is so famous for (take a look at the reconciliation between the tax accounts and the financial accounts in deferred taxes in any 10-k). Regarding the "old" land, kkd was taken private by the franchisees (led by a McAleer) from Beatrice in 1982; at that point, I speculate, any land values would have been written up to fair value, so the $11.1 million in "old" land has only been appreciating for at most 22 years. Let's say that land has accomplished a 5 bagger (doubling in value every 10 years) and none of it was purchased since the 1982 transaction => total land holdings = 5 * 11.1 + 18 = $73.5 million or a little more than $1 per share.

    Finally, it wouldn't surprise me, given kkd's proclivity for earnings manipulation, if they hadn't already tapped into some of these appreciated land values from time to time (undisclosed, "immaterial" sales), so the balance of "old" land may not even be $11.1 million.

    Regarding the "value" of old kkd buildings, have you ever seen an old kkd? These structures have little, if any, value; the company, in fact, has been busy tearing down and replacing many of them.

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    • Your words:Finally, it wouldn't surprise me, given kkd's proclivity for earnings manipulation, if they hadn't already tapped into some of these appreciated land values from time to time (undisclosed, "immaterial" sales), so the balance of "old" land may not even be $11.1 million.

      I would offer that if they "tapped into" their land values...it is a Balance sheet item, not an Income Statement item...borrowing against your property does not affect earnings, you 'kindly" offer they manipulate earnings...

      I disagree whole-heartedly...the stores are worth at least their original cost/probably more...a 1999 buy could easily be worth 30 to 50% more than cost while carried on the books at cost less (now) 5 yrs depreciation...

      Argue if you choose, but, Monday morning call a Commercial Realtor in your town (one in business at least 5 yrs)...ask him what the "corner store" location appreciated in the last 3 to 5 yrs...then please report back to me/us here...I will await your response...

      So: borrowing against property (*if they did) DOES NOT affect/manipulate earnings...

      And we'll await your response as to what a corner store location appreciated in the past 5 yrs...(Incidently, McDonalds OWNS all the locations or almost all, as they saw the real estate as a two part buy...to control the location/franchisee and to benefit from the upside in the real estate prices)

    • Have these dudes been using land as collateral and building a pyramid?

    • Its only a matter of time before this dognut fad goes the way of Rubik's cube. Here today gone to Maui. PS: Maui has a brand new Kreepy Kreemed right down the street from the Airport.
      Guess what NO customers. Big Michigan sized Kreepy Kreemed with always an empty parking lot.

      tsk tsk

    • yeah RAIN had all the similar signs...and apart from that, did the stock split and tumbled hard from $25 (after split price) to $2, until a savior stepped in to stop the rain forest being chopped down completely. that's what happens when expansion story comes into realistic light...same w/ planet hollywood, though they went into ch 11, twice HAHA...since mgmt at planet never realized they should've cut stores more agressively and not bet on a miracle.

    • you wrote:

      This stock was one of the most egregiously overvalued fad stocks on the planet at one time;

      ---

      So, you were short, right? No brainer, huh?

      ---

      you wrote:

      the co's model has jumped the tracks for the time being;

      ---

      If you had taken the time to read the old posts on this board, you'll learn that the model was never on the tracks. It's been a trainwreck from day 1. But it will make a nice "story" someday.

      In a nutshell, here is the business model:

      http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=1600706247&tid=krem&
      sid=1600706247&mid=75753


      Here's a summary of the cash they've blown through in the past 4+ years:
      http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=1600706247&tid=krem&
      sid=1600706247&mid=103963

    • Furthermore, don't give yourself too much credit- the largest parts of your return on this thing over the past couple years spring simply from the fact that:

      a)This stock was one of the most egregiously overvalued fad stocks on the planet at one time;

      and

      b) the co's model has jumped the tracks for the time being;

      NOT because some rocket scientist figured out that they overcapped a few fixtures. (Oh that nasty Occham's Razor thing again).

    • "(unwelcomed scrutiny before the secondary perhaps)? "

      I think that's Di_vur's explanation as to why they didn't do a secondary.

      Also, the myth that their promoters spun was that their future growth could be funded entirely by cash flow. A secondary would have punctured that myth.

      I recall RAIN (Rainforest Cafe), once a very hot restauraunt fad stock. The CEO had said that all of their future buildout would be done with internal cash flow. One day, when the stock was up at 40 or so, he mentioned in passing that they were considering a secondary offering. The stock plummeted on heavy volume at the open, gapping down about 10 points as i remember, because this was such a contradiction of previous statements. No secondary followed, and stock never recovered.

    • No need to get snippy bro. I was only joking.

      Seriously though, I rarely pay much attention to the changes in op assets/liabilities portion of the cash flow statement, not because I can't (I spent most of my time in my first job doing this sort of work) but because it has not proven to be a great use of time. Take the company I was looking at this morning (CHRS). It has monster year to year (much less q to q)changes in operating a/l and they DO lead to important ST operating cash flow changes, but what does it really tell you about the long-term value of the business? Not much. This is my primary evidence then, if you will: that in my experience it does not have much predictive value.

      In any case, your implication that I am an apologist for my present understanding of the stock is not really accurate- keep in mind that I am brand new to the stock and am just accumulating a position and not some moron sitting here from last year with huge losses in it.

    • " There is very little that I have written that turned out to be incorrect (except for my prediction of a secondary that kkd can only now dream about - if weren't now facing a liquidity crisis, I probably would have covered at these levels)."

      By the way, does anyone have an explanation on why they didn't do a secondary (unwelcomed scrutiny before the secondary perhaps)? I'm still baffled...

    • There are times when Occam's Razor fails or, more precisely, does not apply.

      In complex systems where too little is known, it is dangerous and usually wrong to expect that the simplest possible explanation is correct or approximates the full story.

      Also, the notion that the "simplest" explanation is the most probable one relies, in cases of financial statements, on the presumption that no attempt has been made to present the accounting in ways that are most flattering to the company.

      Whether it is parsimonious, in the logical or financial sense, to make this assuption, i'll leave to you.

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