Let's hand it to Krispy Kreme KKD .
The company put up some decent first-quarter numbers on Monday, beating the consensus by 5 cents a share. And with shares off 36% from the 52-week high it hit last July, there's a solid argument for value there.
Somewhat quietly this name, which was all but a disaster just a few years ago, has made great progress. Company-owned same-store sales have risen 14 consecutive quarters and Krispy Kreme is once again in growth mode. It's not the type of rapid growth that was a contributing factor to the company's near demise, but much more controlled. Total store count has risen to 692 from 652 last year, as of the end of Q1. But much of that growth is coming from international franchising. In fact, nearly two-thirds of stores are not located in the US and the plans for expansion are getting even more interesting.
Krispy Kreme recently announced a franchise deal in India, which will place 35 stores in that country over the next five years. At year end there were 87 locations in Saudi Arabia. Who would have thought this possible, back in the company's heyday?
I've been asked before why a value investor would be interested in, let alone own, this name. The simple answer is that I believe it's cheap. Perhaps not on an earnings basis at this point anyway, but certainly as a brand. This is not the cult stock it was back in 2002. It's not the high-flying growth story that nearly imploded due to overexpansion, poor management, and accounting issues. It's a slimmed-down version of a great brand on the comeback trail, with an enterprise value of just over $400 million.
This time around the balance sheet is strong. There's $51 million in cash and just $27 million in debt. There's a small real estate angle here as well. the company owns the land and building for 43 locations and the building only for another 22.
It appears as though part of what's happening with Krispy Kreme, the pick up in volume and poor recent performance, may be short-term noise due to the fact that Green Mountain Coffee founder Robert Stiller did indeed sell his entire Krispy Kreme stake, 8 million shares or nearly 12% of the company, on May 7. There may be an excess supply of shares at this point, but I believe there's a longer-term story here that is still very much intact.