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Krispy Kreme Doughnuts, Inc. Message Board

  • mungerian mungerian Oct 16, 2004 6:59 AM Flag

    Whose Store Sales Theory is Correct?


    <Here's another way to look at the kkd model:

    Let's say new stores in new markets are highly cash flow postive upon opening, but slowly deteriorate so that 12-24 months after opening they are cashflow negative. This steady state lack of profitability can be hidden for a time as new markets are opened up; now that kkd has stopped opening decent sized new markets domestically (kkd themselves says that a factory store requires 100,000 households, i.e. about 250,000 stomachs), isn't it possible that the decline of kkd has only begun as the bulk of store openings are still at some stage of the honeymoon period but, in general, will deteriorate to some extent?>

    or cseru:

    <Re avg sales per store- if both gross sales are rising as is the # of factory stores, and if you know from comps that mature stores are slightly up, there is only one possible explanation to explain the decline in sales per store: The new stores have lower sales. Play with the numbers- it is MATHEMATICALLY IMPOSSIBLE to arrive at the idea the new stores have better sales. If so the whole theory of honeymoon sales at new stores accounting for all the profit is obviously not true (unless the store has negative scale which is obviously not true either). By eliminating my satellite supposition in the denominator, you have inadvertently eliminated the only other possible explanation for the data and if anything have proved my point not yours.

    That the company flat out says so in its filings (and everywhere else), that most of the analyst community sees KKD as a busted scale/overexpansion/unprofitable growth story (including myself), and that this is the simplest most direct explanation makes me doubly confident that this is the more reasonable approach.

    I'll be sort of direct here- I have a hard time seeing why anybody sticks to the new store honeymoon theory when it is so obviously incorrect given the numbers we have. Play with the numbers yourself- it is not even difficult.>

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