You are correct in your assertion that the use of the straight-line rate (by definition) causing a decline in the store growth rate over time. However, as the following analysis shows, if the company opens 250 stores from the end of FY01 to the end of FY06, as it has stated, there is no way in which the rate of growth in the number of stores will not drop at some point in the time period:
2002 210 20.69%
2003 253 20.69%
2004 306 20.69%
2005 369 20.69%
2006 446 20.69%
These store numbers would result in the store growth rate staying exactly constant over the five year period. Unfortunately, it also results in an increase in the number of stores of 272, rather than the 250 that KKD management is projecting. As a result, they company could show a decrease in the store growth rate over the five year period as a showed in my previous post, or they could do this:
2002 210 20.69%
2003 253 20.69%
2004 306 20.69%
2005 369 20.69%
2006 424 14.85%
Regarding your question about where the capital would be generated to support an exponential growth rate, I never stated that the company would have an exponential growth rate. I'm stating that the rate of growth in the number of stores will decrease over time, as will the growth in EPS due to a slowing rate of same-store sales growth.
Yeah, I can buy into that scenario. Sucker the illiterate peasants into wasting their last few dollars on some donuts. Franchise street cart donut stands to the Russians. Product innovation for Korea, Fidonuts.
very well spoken nectarhell...you have a great grasp on why its illogical that this company could diversify or expand exponentially...the fact that the insiders didn't sell very much after the 6month and 12 month lock-ups is what stands out to me...just trying to think like an insider; while you and the other shorts are thinking like true analysts
You really don't see much of the world, do you? Some 98 percent of China's population is illiterate peasants, making about $40/month (the last figure I have). Are these the people that are going to walk--maybe take a bus--to the nearest KKD--which might be hundreds of miles away--and spend 5 percent of their monthly salary on a donut? BTW, Russians are selling their private belongings on street corners, trying to survive. Not going to be much business there, either. Why not try South Korea. The dine on dogs. Maybe KKD is the perfect thing to finish off a meal of ole Fido and Rex.
I have eaten at McDonald's for Breakfast, Lunch, Dinner and as a late night snack (never thankfuly all in same day).
I eat doughnuts occaisonally for breakfast.
Starbucks trades at ~$1.6 billion per store, Krsipy Kreme trades at $12 billion per store.
I don't know the numbers for McDonald's per franchise.
You may choose to ignore market metrics but evaluating stocks based on P/E has stood the test of time.
Krispy Kreme donuts are the best I tell you. They're the best! They're the best! There's no limit to the earnings growth this company will experience because there isn't another donut made that tastes as good as a hot, glazed donut! With the projected future revenues generated from donut sales, this stock price is totally justified! In fact, it's cheap!
Oh, what was that you said? The stock is way overvalued, and the company's growth rate in the number of stores decreases over time along with the same-store sales figures? Oh, well Krispy Kreme can expand internationally and sell coffee and bagels and manufacture automobiles and airplanes. Look out Ford, GM, GE and Honeywell International, here comes Krispy Kreme!
No company goes from 100% domestic operations to rapid expansion internationally. If Krispy Kreme expands internationally, it will do so slowly so that it can test the response to its products in the market. In addition, Krispy Kreme doesn't yet have the corporate infrastructure to handle rapid international expansion.
Coffee sales for Krispy Kreme will stimulate same-store sales growth only in the initial year in which it is sold in a store. In my market, coffee has been sold in Krispy Kreme stores for three years. Guess what? Hardly anyone buys it. They go elsewhere for coffee.
Bagels are a homogenous product that is, for the most part, impossible to differentiate from competitors' products based on taste, which is Krispy Kreme's draw for their donuts. Are they going to drench bagels in gooey donut glaze to differentiate the flavor of their bagels from other company's bagels? I can hardly wait to see the "Bagel Theatre" at Krispy Kreme Stores. Also, bagels are a market that has already been franchised nationwide and crashed (witness Einstein's Bagels).
Krispy Kreme already has off-site sales at grocery stores and 7-Elevens. Like the coffee sales, these off-premise sales only help same-store sales growth in the initial year that the off-premise sales occur.
Krispy Kreme built a reputation for tasty donuts almost seventy years ago. The company has used this reputation for superior tasting donuts to build a successful string of stores. Now, you think Krispy Kreme is going to suddenly be able to differentiate itself from other companies by developing other superior tasting product lines? It won't happen. New product lines (like bagels) would only become a drag on earnings growth. When people are away from the house and they decide that they want a cup of coffee, Krispy Kreme is not what springs to their minds, and bagels or any other new product line will be exactly the same.
Krispy Kreme is a producer of quality donuts that generates approximately five percent net income from its sales, and it has a stock that is stratospherically overvalued. That is all that it is.
nobody yet, repeat, nobody has been able to counter-argue the obvious, long term scenario...what will stop this company from expanding worldwide over the next 2-5 yrs? are you crazy if you want to buy a few shares and hold? sure the P E and P E G are not in line,..but what is the downside long term for a rapidly growing co. that's been around since the 1930's? WHAT?
What will stop KKD from expanding worldwide? How about taste? Do you really think a populace grown up on French, Dutch, Danish and German pastry is going to suddenly start eating this garbage? Not to mention that Europe is much more health conscious than America to begin with. You'll not find Germans replacing bienenstich with fried lardballs. You'll not find exquisite Dutch and French pastries falling to sugar cream. Have you ever travelled outside your own backyard? Don't you realize that Europe is *famed* for its pastry. Even the Greeks, Italians, and Spanish have superior pastry. About the only country in Europe dumb enough to lard out on donuts is England. And the rest of the world? Most of it is too poor to afford a decent meal to begin with, much less afford wasting money on gooey crap that only appeals to people that have their cars propped up on cinder blocks in the front yard.
Answer to : "nobody yet, repeat, nobody has been able to counter-argue the obvious, long term scenario...what will stop this company from expanding worldwide over the next 2-5 yrs? are you crazy if you want to buy a few shares and hold? sure the P E and P E G are not in line,..but what is the downside long term for a rapidly growing co. that's been around since the 1930's? WHAT? "
I think VLCCFINVESTOR answered this issue very well in message 24,390. Everyone agrees KKD will continue to grow and donuts taste good. VLCCFINVESTOR shows kkd is already resonably price IF THEY SELL ALL DONUTS IN THE US. Selling anything less than all donuts very quickly implies over valuation. That is the answer to your growth question.
I can't believe you would actually try to push this argument. In your own post, you have acknowledged the fact that the PE and the PEG ratios for Krispy Kreme are way too high. Then you have the audacity (or stupidity) to ask why this would be a bad long-term investment.
Well, let's see. With the valuation of this stock at a staggering, nose-bleed level, you will be extremely lucky if you only see zero return on this stock for years to come. However, the far more likely scenario is that the stock price will crash, and you will spend the next ten years trying to recoup the money that you should have already banked when you cashed out your position at this level. The number of stores is irrelevant. The rate of earnings growth is the important thing, and Krispy Kreme's earnings growth can't even justify a stock price of one-half of today's level.
>>>are you crazy if you want to buy a few shares and hold? sure the P E and P E G are not in line,..but what is the downside long term for a rapidly growing co. that's been around since the 1930's? WHAT?>>>
Having been around since the 1930s means zero, nothing, nada, zip! AT&T has been around longer, its down 70%; check out Xerox, that's been around a while also. How about Corning. It was, just a few months ago a "rapidly growing company." It's stock went from about 20 in 9/99 to about 110 in 8/00. Today it trades at 15! Rapid growth and long history couldn't save it from slowdown of that growth and just plain having been valued too high. It won't save KKD either. Both companies are likely to survive and make profits. But if you bought (or didn't sell) at the peak, you will underperform for years. That's not a tragedy, it's just not why I invest.
I am not sure that technicals matter as much with this stock as they do with others, but 36.01 is the 20 EMA. If KKD breaks that and stays below it, we can see 32 or 33 very very very quickly.