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Krispy Kreme Doughnuts, Inc. Message Board

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  • tightlinesnfreshtracks tightlinesnfreshtracks Jan 25, 2010 6:34 PM Flag

    Why the drop?

    Well, you can use it as an opportunity to accumulate if you like the KKD brand, product, and business. Assuming financial results and cash flow keep improving you will be fine. This a speculative turnaround play. Don't gamble the family farm. Future growth will have to come from their small store concept.

    Volume today was average. More sellers than buyers no doubt. But, the sky was not falling with folks in panic mode running for the exits.

    Resistance is 2.50+/-...We blow through that...Hold on it might be a long way down. Put a stop in that range to mitigate some risk if you are playing the long side.

    If you are like Skidady and think this is an absolute "POS" at the moment. Short it. Ride wave down. He appears to be vigilant on the topic based on his posts. What is your target on the downside Skidady? Do you have issue with the business, management, valuation or all three?

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    • Okay,tight. I have a problem with the business and the valuation, but not management. They have inherited a can of worms and seem to be doing as good a job as can be expected with the mess. The business needs to be rebuilt. It's based on the donut shop on steroids theme from the Livengood(previous CEO) era and just doesn't work. Possibly that can be fixed, but don't expect much headway until KKD retires present debt which carries draconian covenants that severely limit Cap Ex and have punitive interest rates. As far as valuation goes, I'd expect something a little closer to book value whick is .90. This includes about .35 of goodwill which is debateable. Compare to P/book of WEN which is close to 1.

      • 2 Replies to skiidady
      • tightlinesnfreshtracks tightlinesnfreshtracks Jan 26, 2010 10:31 AM Flag

        Good job skidady. You took the emotion out of it for a moment.

        Business: Ok you are correct. Many people got sold a donut shop on steriods. Well, that didn't work out. Careful what a broker or salesman or CEO sell you...

        That is history. No longer the b-plan. They and past shareholders learned the hard way. What doesn't kill us makes us stronger...

        Future is smaller neighborhood shops. Last time I was in your neck of the woods, the NE, it seemed that Dunkin Donuts that big brand name in Fenway park, home of your nemesis, is all over neighborhoods. So, do you think that model is proven and works? Could you replicate it in the South? If they can do it just in the SE we will be in great shape.

        Valuation: On your WEN comparison: Ok lets throw out goodwill and intangibles. Gets us to tangible book value. Apples to Apples since you think it is a good comparison...

        KKD:
        Shares Outstanding: 67M
        TBV: 37M
        TBV per Share: .55
        PPS: $2.50
        Trading at 4.5X TBV

        WEN:
        Share Outstanding: 463M
        TBV: 118M
        TBV per share: .25
        PPS: $4.50
        Trading at 18x TBV

        That "one" metric says KKD is a better buy. Obviously their is alot more to look at skidady. Follow cash flow next. Cash flow never lies. Disclaimer I own WEN too. Bought it 6 months ago in the 3s and holding as cash flow is improving. If KKDs cash flow can continue to improve I will hold it too.

        As far as debt. They paid off $50M of $100M is so far this year. As far as covenants etc. Not a surprise. Banks have all the leverage about everywhere these days. They want to make sure they get paid first. Just perspective. Depends what side of the fence you are on. Anyways, bottom line is in the most challenging business year of my life they paid off $50M. So, lets give some credit where credit is due.

        If this thing goes to $1 per your downside analysis. I will back the truck up. Then again their would be a lot of things to chase and remember is that the best use of your capital? Where can you channel that anger and frustration to take the most kills and POWS without getting killed yourself?

        Finally, relax and don't gamble the farm. Go up to Vermont and ski one weekend, drink a beer, and get a girlfriend. Might help with anger management.

        PS Thank you for the DD help. Wishing you powder days and fresh tracks...

 
KKD
13.16-0.07(-0.53%)Feb 10 4:02 PMEST