This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
Oh, how the sugary have fallen. Ten years ago, even five, you and I both know how this would have come out. In the standoff between longtime national fried-dough pusher Dunkin' Donuts and upstart sweet freak Krispy Kreme Doughnuts (NYSE: KKD), Krispy reigned supreme. The chain was rolling out new franchises as fast as dough circles could parade around its restaurants on shiny metal racks, and each time it did local police stations did overtime directing traffic.
Somehow, the mighty fell after the considerable sugar high, largely connected to poorly-managed finances, badly-handled expansion, and a sudden national fear of carbohydrates. All the while, Dunkin' Donut managers everywhere continued to plod along, making the doughnuts, and quietly stirring a blue-collar breakfast revolution. One day America woke up and realized, hey, Dunkin' Donuts' coffee is good! Someone named it "Better than Starbucks" and it soon became clear that the product guys had realized something: we make a lotta money off of coffee. Actually, more than half of the company's revenue.
Some believe the current financial crisis is the most serious since the Great Depression and if so some of the largest companies in the country could be taken over and cease to be independent public corporations. Huge firms with vulnerable businesses, competitive pressures, and weak balance sheets may end up being takeover targets. Here is 24/7 Wall St.'s predictions of possible takeovers that could happen in the near future if the current crisis persists. They include McDonald's buying Wendys, VW acquiring Ford Motor, Wal-Mart getting Sears, Wells Fargo buying out Washington Mutual, J&J nabbing Boston Scientific and more.
Dealbook is reporting (although speculating is probably a better word) that Krispy Kreme Doughnuts (NYSE: KKD) may be preparing to put itself up for sale. This shouldn't come as too much of a surprise given the problems Krispy Kreme has experienced over the last few years.
Just in 2007, Krispy Kreme fell from nearly $14 a share to under $3. Although this is bad enough, the long-term picture is even worse. In 2003, Krispy Kreme hit $50, so the five year performance is something like negative 90%. While health fads are in part to blame, with carbohydrates being vilified in many popular diets, most analysts suspect that Krispy Kreme's management is largely responsible for the poor performance.
Marketplace's Herb Greenberg, who has long thought that Krispy Kreme's old CEO needs to go, is the main source of speculation that Krispy Kreme may be looking for a buyer. He argues that the recent resignation of the old CEO, Daryl G. Brewster, suggests that the board is finally getting serious about turning things around. More importantly, the new CEO, James H. Morgan, has an investment banking background, and his involvement suggests that the company is looking for outside intervention.
Say what you want about the tasty warmth of its fresh-from-the-fryers glazed confections, Krispy Kreme Doughnuts (NYSE: KKD) hasn't been leading the sweet life of late. Beleaguered and beaten down in the midst of what CNN Money calls a "sputtering turnaround effort," the company remains challenged with an anemic share price, struggling sales, and folding franchise locations.
Today, Chief Executive Daryl Brewster, who took the reins in March 2006, announced plans to retire for personal reasons. Brewster will leave his post at the end of this month. The board quickly named James Morgan, board member since 2000 and chairman of the board since 2005, to take the vacated seat.
In other news, Krispy Kreme has followed the lead of many fast-food concerns to announce that all products sold in the U.S. are now free of trans fats. KKD officials said it has been introducing zero-grams trans fat products across the country during the past several months.
Investors are cheering this combination of news, as the stock has spiked 9.5% in today's trading. Of course, given the stock's current price (around the $3 level), this represents an absolute increase of 27 cents per share.
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The Coming Credit Card Crunch The subprime mortgage crisis has cost millions of homeowners their homes. Now it threatens to put the squeeze on even more consumers by spilling into the credit-card market. Here's what you should watch out for this year. The Coming Credit-Card Crunch | SmartMoney.com
Shares of doughnut chain Krispy Kreme (NYSE: KKD) are surging today as the company reported its loss had narrowed to $798,000, or 1 cent a share, in the third quarter ended October 28, from $7.2 million, or 12 cents a share, a year earlier. For the last four years the Krispy Kreme stock has been as tasty for investors as a week-old doughnut lying around uncovered. After trading in the upper $40s a few years ago, the stock has been hit by healthier eating trends, mismanagement, and even bankruptcy by some of its franchisees.
For full disclosure, I try my best to help the stock, as I buy the doughnuts whenever possible, as I think they are awesome. For me, nothing's like a glazed Krispy Kreme.
Notwithstanding today's surge in the stock, the outlook for the company is murky at best. It said that there will be more store closures which will impact revenues. Its balance sheet is nothing to write home about either. As of October 28, the company had about $23 million in cash on its balance sheet, and $88 million in debt. It had about $11 million in additional debt capacity available under its credit facilities.
While I probably wouldn't get near the stock until we see continued evidence of a turnaround in their financials, I would jump at the chance of getting another dozen to eat while I write my next few posts! What's your favorite flavor?
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/6/07.
CEO of the Year Coming into his own in his third year at the helm of McDonald's, Jim Skinner has made a deep impression. The evidence is on the bottom line, on the menu and on employees' lapels. Other finalists for CEO of year are Indra Nooyi of PepsiCo, Jeff Bezos of Amazon, Michael Ahearn of First Solar and Terri Lanai of MGM Mirage. CEO of the Year 2007 - MarketWatch Also: Worst CEO of Year Is Sears' Eddie Lampert
5 Stock Surprises of 2007 These companies should see continuing 2008 growth despite market and economic woes. They are Coca-Cola, Costco, Expedia, Eaton Vance and Chicago Bridge & Iron. Five Stock Surprises for 2007 - Kiplinger.com
New Rate Freeze May Help Borrowers Bear ARMs If you're a homeowner sitting with an adjustable rate mortgage that is about to reset to a much higher rate, what should you do? For now, wait to see what help the government will bring. Homeowners may benefit from relief plan - Bankrate.com
Jamba Juice (NASDAQ: JMBA) has been an extremely disappointing performer since it went public through its acquisition by a special purpose acquisition vehicle.
Shares closed at $3.39 on Monday, down from a 52-week high of $11.25 on this day of last year -- A spread of 365 days between the current price and the 52-week high is usually a sign of a difficult stretch.
Perhaps things are getting better: Jamba Juice has reached a deal with Nestle to sell its products at groceries stores in eight states in the western United States. The plan is to eventually expand the program nationally, perhaps internationally, and also target convenience stores and other possible outlets. Nestle (OTC: NSRGY) will manufacture and distribute the beverages.
With its stock in the toilet in light of operational underperformance, this may be just what Jamba needs. But as anyone who witnessed the Krispy Kreme (NASDAQ: KKD) saga can attest, rapid expansion by a premium stand-alone specialty food retailer into mass market distribution can lead to bad results: big losses and irreparable damage to the brand.
Savvy marketing and responsible stewardship of the Jamba franchise on the part of management could make this a big success. But if the company's performance as a public company is any indication, that's not something investors should bet on.
Fidelity Magellan fund manager Peter Lynch became a legend in the 1980's with his supersized returns and folksy wisdom: Buy what you know. In his books, he urged investors to exploit their amateur edge and invest in the stocks of companies they knew from shopping. By latching on to an up and coming chain, investors could find those elusive ten-baggers, he suggested.
Fast forward to 2007. In the past few years, we've seen instances of this strategy leading to disastrous results. Krispy Kreme Doughnuts (NYSE: KKD) was all the rage as it expanded nationally. But alas, overexpansion and accounting woes made that stock a -10 bagger, with investors losing 90% of their value in some cases.
And as the New York Timeswrites, Starbucks Corporation (NASDAQ: SBUX) stores are as hot as ever, in that they always seem to be packed. But same store sales are struggling, and the stock is well off its highs.
Is Lynch's wisdom outdated? Maybe. One problem is that the eighties were an era filled with regional going national stories. Now, nearly every industry seems to have a dominant player with a national presence. It just isn't easy to find a company that's selling hot in your city but hasn't yet reached the other coast yet.
Just when I thought flying couldn't become more unpleasant comes word that US Airways (NYSE:LCC) passengers will have to fly over New Mexico dry. Apparently, the airline is in a tiff with the state's alcohol regulators, who have refused to give them a permit to serve booze while in or over the state. Apparently, the state extends into orbit.
Stuck for what to bring to that Thanksgiving potluck? I'm thinking a cheesecake would be nice, but...I wish there was a way to make it a little more fattening. Thankfully, Lisa Robertson of North Carolina showed me the way with her award-winning Krispy Kremey White-Chocolate Raspberry-Filled Cheesecake, which uses Krispy Kreme (NYSE:KKD) donuts for its crust.
Story Stocks or Fairy Tales? Some companies' growth potential causes investors to go weak in the knees, as they did for Crocs. Here are some signs of a hot prospect that's headed for an unhappy ending. As investors look for the next Google or Apple they look to story stocks like Crocs along with Jones Soda, First Solar, Krispy Kreme, Taser, Sirius & XM, Under Armour and more in hopes of making a killing in the stock market. Story Stocks or Fairy Tales? Also: Are These 11 Stocks 'The Next Big Thing'?
Hidden Mortgage Fees As foreclosures continue to plague the subprime market, a little-known industry practice is further hurting homeowners who are already having trouble keeping up with their ballooning mortgage payments: excessive and questionable fees. Struggling Homeowners Faced With Hidden Mortgage Fees | SmartMoney.com
The Greatest Givers BusinessWeek's fifth annual ranking of the top U.S. philantropists include 16 people who gave over $100 million this year. The top giver this year is billionaire investor Warren Buffett who has committed $31 billion to the Bill & Melinda Gates Foundation. The Greatest Givers In Pictures: 50 Most Generous Philanthropists Also: Philanthropy Hall of Fame which includes Paul Newman, Bob Geldof, Bono, Oprah, Jimmy Carter, Lance Armstrong and more.
The Boston Globe reports that "For more than four years, a small team huddled in the Dunkin' Donuts research lab trying to crack the code for a doughnut without trans fats that tasted just like those on which the chain had built its reputation over the last half century."
And now, at last, they have done it. In a few weeks, Dunkin's 5,300 stores will introduce trans-fat free donuts. While they can hardly be considered a health food -- they still contain the same amount of total fat -- this has to be considered a major accomplishment. Just a few years ago, there was doubt about whether such a feat could be accomplished. Competitor (sort of like saying the Tampa Bay Devil Rays compete with the Yankees ...) Krispy Kreme Doughnuts (NYSE: KKD) is still working on a trans-fat free donut, and doesn't yet have anything ready to market.
What's next for these doughnut-engineers? How many years are we away from a truly healthy donut? Will fat-free, sugar-free ice cream ever taste like something other than opening the freezer and sticking your head in? All of this talk about healthy junk food reminds me a bit of alchemy, but researchers seem to be making progress.
But would a healthy donut even be fun? Or would it become to common-place to count as a treat, and lose its allure?
If you had a target of $11 on Krispy Kreme (NASDAQ: KKD) when the stock was at $6.33 and then the company reported a horrible quarter and the stock tanked more than 38%, what would you?
If you're CIBC, you would issue an "oops", but still manage to maintain an authoritative tone. CIBC "removed" their price target of $11. Not lowered, just removed. Poof. Gone!
The analyst pointed out, quite correctly, that many of the cures management talked about in the earnings release and on the conference call have already been tried or are currently in place. The company is also facing a liquidity crunch, and declining revenues are doing little to help that.
Revenue fell 7.5%, and the company lost $27 million, compared with $4.6 million in the same quarter of last year. Results were hurt by impairment charges and lease termination costs as the company closes underperforming locations. The shares closed at their low for the day, $3.91, which is roughly the lowest the shares have traded in the company' history. The stock had traded at over $12 as recently as January.
Analysts quoted in the latest AP coverage of this mess have a hard time being optimistic. As BB&T Capital Markets analyst Andrew P. Wolf said, "the nascent turnaround at the company has (at best) stalled."
Hmm. Krispy Kreme's CEO Daryl Brewster talked about the company's turnaround plans, and added that "The only things nonnegotiable are our consumers, our brand and our quality."
But the company's overly-aggressive expansion may have hurt its brand and quality: Are donuts available at grocery stores and kiosks really something you associate with a premium brand?
It's great that the current management is focused on the brand, but overexpansion may hurt that image beyond repair. And although takeover rumors have surrounded the company since its decline began, it really doesn't look all that cheap, even after the decline.
In a blog post today, MarketWatch's Herb Greenberg wonders about the company's solvency: "Especially troubling is the company's concession that for the six months it's not in compliance with EBITDA covenants with its lenders -- not good when cash and cash flow are going down, as is the case at Krispy Kreme."
Restructuring would appear to be a real possibility at some point, and dieters as well as investors would do probably do well to avoid Krispy Kreme for now.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
Dealbook is 
Say what you want about the tasty warmth of its fresh-from-the-fryers glazed confections, 
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If you had a target of $11 on 
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