I agree, the konvoluted same store sales methodology was klearly designed with deception in mind. Maybe somebody who had it in for Scotty and knew he wasn't the sharpest knife in the drawer handed him that "Understanding the Krispy Kreme Business Model" slide and said "Here Scotty, they'll really like this one!" I can see a couple of finance guys snickering at each other as Scotty presented it.
Several years ago on a cc, Tate said that they didn't track Average Unit Volumes, i.e. sales per store-week.
These guys were either incredibly stupid or incredible liars.
What I'd like to know is who designed the numerous metric (comp store sales methodology, first-week sales, etc...) and accounting "mythodologies" (such as no depreciation in first half year, long useful lives, getting rid of employee matching, restructuring prior to the ipo, etc), i.e. all the little tweaks which led kkd to report superficially superior numbers.
Whoever did that knew EXAKTLY what he/she was doing.
Put me down for March 13th.
As far as Livengood's performance, IMO it was contrived. Noone could be that stupid. Might help him in court.
When I first bought puts on this puppy, I took a look at the investor's relations website on their webpage. Seems very, very detailed, and contrived as if they were trying on purpose to be overly 'transparent.' Gee I wonder why they would want to do that?
Have seen very few investor relations pages that detailed. Much less for a doughnut co.
Please correct if I am wrong.
This will be a good laugh for longtime shorts
replace * with k
Yeah, it doesn't appear that they thought much past stuffing their pockets as full of money as possible.
One of the things that has really baffled me is Livengood putting up that chart "Understanding The Krispy Kreme Business Model" at the 2004 annual meeting. I've got to think he is so financially illiterate that he didn't understand the implications of it. I thought it looked pretty unusual and printed it along with a bunch of other slides, but it was only after I'd done some more work and then looked at it again that I knew they were doomed.
I think it was one of the only true things Scotty ever said, which meant it must have been an accident. Once you looked at that and aged the stores, you could pretty much lay out the revenue decline once store growth slowed. Maybe somebody can explain that chart to Scotty and use the fact that he put it up without understanding the implications of it as the centerpiece of a stupidity defense.
That's why I don't understand why they
1) didn't do a secondary
2) used cash for the buybacks
Of course, the cash for buybacks does make sense if the franchisees (at least KC and Dallas) were operating as slush funds intended to absorb kkd related expenses away from the income statement, i.e. grossly inflate earnings by hiding expenses in those related party entities.
At some point, given all the investigations, we will likely find this out.
Regarding being wiped out, I was quite aware of my exposure; while kkd was a significantly bigger position than I normally take (because I had researched it so thoroughly I thought I could increase the bet), my basis was high enough and my other positions were profitable enough that I never was hurting from a portfolio perspective.
Now, if the price had gone to $100, that would have been painful, though I probably would have hedged with cheap OTM calls (to limit the damage).
Being ultimately right but too early as a short can get you wiped out, as a lot of people learned with the Nasdaq in 1998-99. A couple of years ago KKD could have used their hyperinflated stock to buy something of value, as AOL's Case did when he used his stock that was jacked up by phony accounting to rape Time Warner shareholders.
It did more than levitate; it appreciated 60% (from 30 to 50) after I wrote that post.
Of course, the appreciation was caused by shenanigans which I could pretty plainly see.
Try telling that to the market, however...