Silicon Investor - Krispy Kreme Doughnuts, Inc. (KKD)

[Jon Koplik] WSJ -- Krispy Kreme Focuses on Reducing Debt, Delivering Fresher Doughnuts ........

Jon Koplik — 8/30/2021 2:53:59 PM

WSJ -- Krispy Kreme Focuses on Reducing Debt, Delivering Fresher Doughnuts ...................

Aug. 30, 2021

Krispy Kreme Focuses on Reducing Debt, Delivering Fresher Doughnuts

The company went public again in July after it bought out franchisees

By Kristin Broughton

Doughnut maker Krispy Kreme Inc. is focusing on paying down debt and delivering fresher pastries after returning to the public markets this summer.

Krispy Kreme, best known for its glazed doughnuts, went public in July, five years after it was taken private through an acquisition by investment firm JAB Holding Co.

The Charlotte, N.C.-based company spent the past three years buying out franchisees, seeking to improve the quality of doughnuts sold outside its so-called hot light theater shops, where customers can watch doughnuts come fresh off the production line.

Krispy Kreme spent about $466 million to acquire 24 franchisees and 469 locations globally during that period, according to a regulatory filing for its public offering. About 80% of U.S. and global sales now come from company-owned locations, up from about 50% in the U.S. and approximately 30% in other markets before going private, Chief Financial Officer Josh Charlesworth said.

Buying out its franchisees, Krispy Kreme racked up debt, and is now looking to deleverage. The company raised about $460 million during last month’s initial public offering and used it to pay down part of its debt load, according to Mr. Charlesworth, who is also chief operating officer. Its net debt as of Aug. 8 was $646 million, compared with $795 million at the end of 2020.

Before those acquisitions, the Krispy Kreme doughnuts sold at grocery and convenience stores were often between four and seven days old, Mr. Charlesworth said. Krispy Kreme wanted them to be made fresh daily, similar to the ones made at its hot-light retail locations. But without control of its store network in major markets, it didn’t have the logistics to make that happen, Mr. Charlesworth said.

“We needed to control the system. It was disparately controlled by a lot of small operators, franchisees -- they just couldn’t make that kind of shift,” he said. Under the company’s new hub-and-spoke model, Krispy Kreme uses capacity in its retail locations to make doughnuts that are delivered to locations such as grocery and convenience stores.

Krispy Kreme operated 378 hot-light theater shops globally and delivered to 7,849 locations as of July 4.

Continuing to pay off debt is a core priority for the company, Mr. Charlesworth said. Krispy Kreme’s leverage ratio -- defined as net debt versus adjusted earnings before interest, taxes, depreciation and amortization -- stood at 3.6 as of Aug. 8. The company aims to reduce that figure to 3.0 in the coming year and to 2.0 over the long term. It plans to bring down its debt using cash from operations, according to Mr. Charlesworth.

The company generated $349.2 million in net revenue during the quarter ended July 4, up 43% from a year earlier, driven by higher sales. It reported a net loss of $17.1 million, compared with $12.6 million a year earlier. Cash and equivalents were about $37 million as of July 4, roughly unchanged from the beginning of 2021.

“We continue to believe it will take a few additional quarters for the hub & spoke model to gain momentum,” particularly when it comes to profitability, Bill Chappell, an analyst at financial firm Truist Securities Inc., said in a note to clients.

Krispy Kreme, like many companies, is facing pressure from higher commodity costs, including wheat and sugar. It has increased the price of its doughnuts in recent years by 2% each year, but it expects to raise prices by more than that in September to offset the higher input costs, Mr. Charlesworth said.

The company’s classic glazed doughnuts, sold as singles or in dozens, will be included in the price hike, he said.

Write to Kristin Broughton at Kristin.Broughton@wsj.com

Copyright © 2021 Dow Jones & Company, Inc.

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[Jon Koplik] New ticker symbol is : DNUT.

Jon Koplik — 8/30/2021 2:49:53 PM

[Jon Koplik] Since the 2013 message : KKD was acquired, and went public again.

Jon Koplik — 8/30/2021 2:49:12 PM

[Jon Koplik] WSJ obituary / Ron Joyce -- Tim Hortons guy .......................................

Jon Koplik — 2/10/2019 1:37:25 AM

WSJ obituary / Ron Joyce -- Tim Hortons guy ..............................................

Feb. 8, 2019

When a Cop Bought a Doughnut Shop, Something Surprising Happened: It Thrived

Ron Joyce expanded Tim Hortons chain across Canada and into the U.S., then regretted selling it to Wendy’s

By James R. Hagerty

A hockey player and a cop team up to sell doughnuts. Neither has much business experience. What could go wrong?

In the case of Canada’s Tim Hortons fast-food chain, the combination proved surprisingly successful.

Tim Horton, a star for the Toronto Maple Leafs, and a business partner opened a coffee and doughnut shop in a converted gas station in Hamilton, Ontario, in 1964. It didn’t take long for a local policeman, Ron Joyce, to notice.

Mr. Joyce, who died Jan. 31 at the age of 88, bought the first franchise in what became the Tim Hortons chain and in 1967 became a partner in the parent company with Mr. Horton.

Less than two years after Mr. Horton died in a 1974 car crash, Mr. Joyce bought his widow’s share of the business, which then had 48 outlets. He expanded the chain to more than 1,000 outlets before agreeing in 1995 to sell it to Wendy’s International Inc. for about $450 million of Wendy’s stock.

He later regretted it. The price proved far too low, Mr. Joyce said, and the new owners ignored his advice. Tim Hortons is now part of Restaurant Brands International Inc., which also operates Burger King and Popeyes.

For consolation, Mr. Joyce had private jets, yachts, a champagne-colored Rolls-Royce and the Fox Harb’r golf resort he built in northern Nova Scotia. His philanthropy, including summer camps for poor children, earned him an Order of Canada award.

Poverty was something he knew firsthand. Ronald Vaughn Joyce was born Oct. 19, 1930, and grew up in the village of Tatamagouche, Nova Scotia. Three years later, his father, a construction worker, was killed by a barrel of oil that rolled out of a truck.

His mother was 23, had two children and was pregnant with a third. They moved into a house without electricity or running water. Ron was only so-so as a student and decided school was a waste of time. He dropped out of school at age 15, even though a girlfriend told him he would end up digging ditches, according to his 2006 memoir, “Always Fresh.”

He got a job with a construction company and was put to work digging a drainage trench. “I told you so,” the girlfriend said when she saw him in the ditch.

Looking for steadier work, he moved to Hamilton, Ontario, where he arrived broke after spending his last few dollars on beer. By 19, he was married and working in a factory. Two years later, he started a five-year hitch in the Canadian Navy, which taught him the Morse code and took him to ports from Korea to India.

Back in Hamilton, he joined the police force but found it was hard to support a growing family. He moonlighted as a truck driver and worked construction before finding something he liked better: Running a Dairy Queen.

In 1964, he spotted a former gas station that had recently been turned into a coffee and doughnut shop. After buying the franchise, he discovered it had no established recipes or operating procedures. The baker he inherited with the shop consulted a Ouija board to decide how much flour to use. By trial and error, Mr. Joyce learned to make doughnuts and coffee with a consistent quality.

No coffee snob, he sought a middle-of-the-road brew, made more tempting with a creamier cream than competitors used. The menu evolved to include soup. Some renegade franchisees started serving croissant sandwiches, and they were so popular that the parent company imposed them across the chain.

While spreading across Canada, the chain opened its first U.S. store in Pompano Beach, Fla. in 1981. Nearby, Mr. Joyce checked out a rival chain featuring topless waitresses. He was pleased when one of those servers confided that the doughnuts were bought from Tim Hortons.

After selling the chain, Mr. Joyce relished his ownership of the Fox Harb’r golf resort on the Northumberland Strait near his hometown. “The economics don’t make any sense, and they never will,” he told the Globe and Mail in 2006.

While landing near the resort in 2007, Mr. Joyce’s Bombardier Global 5000 jet crashed, leaving him with fractured vertebrae and limiting his mobility for years. “It scared the hell out of me,” he said shortly after the accident.

Mr. Joyce’s survivors include seven children, 10 grandchildren and six great-grandchildren. His two marriages ended in divorce. Forbes last year estimated his net worth at $1.4 billion.

Wealth didn’t bring him peace. In a 2010 interview with the Hamilton Spectator, he recalled the letdown after he achieved his dream of owning a private jet: “I know it sounds stupid, but that time became a low in my life. I had accomplished my goal.... It becomes the end of a dream and you have to find a new dream.”

Still, he counted himself lucky. “I have a quality of life economically that’s beyond my comprehension,” he said.

Write to James R. Hagerty at bob.hagerty@wsj.com

Copyright © 2019 Dow Jones & Company, Inc.

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[richardred] JON I took a look also and didn't buy. I was thing the same thing about Panera B...

richardred — 10/5/2013 10:34:45 AM

JON I took a look also and didn't buy. I was thing the same thing about Panera Bread when the Carbs are bad for you craze took hold, Now look at the stock! Obviously you still have to consider many other factors. RE: Hostess/Interstate brands.

[Michael Wong] I think that the present price, about 22, up about 1.4 today is definitely in th...

Michael Wong — 10/4/2013 12:06:22 PM

I think that the present price, about 22, up about 1.4 today is definitely in the overvalue range. I sold mine in the 18 to 19 range and have no complaints, though I wish I bought more

I have noticed in the past 9 to 10 months is that on big up days and sometimes on down days, the bid ask spread can be 2 to 4 cents and usually on the up days.it is as though something or someone is holding the price up. A similar thing happen but in the opposite direction during the down phase in 2011 thru around November 2012 where the down direction, and the price is driven down.

You have bunches of days in the sub million to million days, the all of a sudden a pop to 2+ to way more on no news. On all of these heavy days, outside of earnings announcement days, the bid ask spread widens.

It just feels to me that someone is holding up the price and is strategically popping the price up at critical times.

I could be all wet in this, but I could not work out the logic of the last 2 years move when the stock in literally trashed and then walked up.

Any idea or comments ?

PE is about 70 with the forward PE in the mid 30's. Is a donut company worth that much when AAPL is at 12 ?

[Jon Koplik] My thought on KKD (when the stock was "crazy low" ) was always : WTF is the stoc...

Jon Koplik — 10/3/2013 10:23:07 PM

My thought on KKD (when the stock was "crazy low" ) was always : WTF is the stock doing down so low ???

As I think I said here on this message board previously --

Just the rights to the KKD name / logo / "brand" / etc. should be worth a LOT of money.

According to the Yahoo finance page on KKD

finance.yahoo.com

the market capitalization of KKD based on today's close (a bit above $21.00 per share)

is about $1.4 billion.

This (to me) does not seem "irrationally" high to me.

(It does not appear "crazy low," either.)

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Main conclusion / analysis of KKD price / trading behavior over the past years :

The market was just WRONG when the shares were around $2 or $3 (roughly three years ! ) ( late 2007 through mid-2010)

It was "priced for" imminent Chapter 11 Bankruptcy, possibly (?)

The thing that annoys me ("to this day") is :

during those three years, several times, I seriously considered buying a lot of KKD, and the plan was : to then ... TRY real hard to do "buy and hold"

But -- three years of "the whole world" saying : you (Jon) are just stupid, and all of KKD is worth only a few hundred million dollars ...

just "wore me down," and I never bought any.

This "episode" will be "etched" in my memory for the rest of my life.

A business that has been around since ( I think) the 1930s, with huge "brand recognition," should be worth a fair amount of money !

Jon.

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[Michael Wong] This stock seem to be coming back from the dead. Is it for real or is it a zombi...

Michael Wong — 10/3/2013 8:40:43 PM

This stock seem to be coming back from the dead. Is it for real or is it a zombie this time around.

The financials does not seem to support the present price at a hair over 20.

Comments ?