It could be morning, noon or night, just tell me there's not some Pavlovian action working in the back of your pituitary right now. I could make my bullish argument in 1002 words. Homer Simpson going "Ooooh, Doughnuts" would be two -- and that Old Fashioned Glazed picture would be worth the other thousand.
But you deserve better than that. Krispy Kreme <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KREM)") else Response.Write("(Nasdaq: KREM)") end if %> deserves better than that. Next week Krispy Kreme will celebrate 63 years in the doughnut-making business. That's right. It was a teenager when Dunkin' Donuts was first setting up shop.
Famous investor and Lily Tomlin sidekick Peter Lynch made a fortune on Dunkin' Donuts back when he managed Fidelity Magellan to mutual fund prominence. The secret recipe? Find that proven retail concept and ride its growth. His fund bought into Dunkin' after its 1968 initial public offering and raked it in as the stock matched the concept's expansion.
Will history repeat? Why not? While Krispy Kreme has been around since 1937 -- and is churning out three million doughnuts a day -- it is still in its infancy as a chain. The company has nearly doubled its units over the past five years. It plans to nearly double over the next five years, too. Yet, even then, the 260 outlets projected by 2005 will still pale in light of the 5000 Dunkin' Donuts locations open today.
Now, I don't think I've ever met a person who prefers Dunkin' over Krispy. Well, maybe Barbara, but more on that later. The reason Krispy has been so slow in cashing in on its quality concoctions and choice brand with a more intensive rollout is that founder Vernon Rudolph simply liked it that way. It wasn't until after his death in 1973, and eleven uneventful years under Beatrice Foods ownership, that the company found the catalyst for growth.
Beatrice changed the doughnut-making formula and franchisees were steamed. They bought the chain back from Beatrice in the 1980s and restored the doughnut shop to its former glory. Once the magic was back, the company decided to pick up the pace in terms of expansion in the mid 1990s.
Granted, Krispy is much bigger than its storefronts. The company has become an icon of Americana -- inducted into the Smithsonian in 1997 and having played cameo roles in hit TV shows like Ally McBeal and The Practice -- making it an easy sell on the retail shelf level. Distributed through convenience stores and supermarkets, Krispy Kreme is a household word even if there isn't a store near your household.
But it is that relationship with leading grocery stores that has helped roll out the red carpet every time Krispy enters a new market. It's a perfect combination that should ensure steady growth for the company over the next few decades.
Well, that is, assuming doughnuts aren't made illegal or given some kind of 300% sin tax surcharge. Knowing Barbara, I'm sure she will hit on the health risks of loading up on the fried yeast-raised treats. I respect my Foolish friend's knack for eating right. We went out for dinner earlier this year and she brought her own dinner rolls. Really. She quizzed the waiter on the contents of the She-Crab Soup -- but I can't blame her on that one. What exactly was in that thing, Barb?
But if she begins arguing that fatty snacks will be given the same treatment as lung candy I'm just going to have to resort back to Plan A. Here you have a company in which analysts are having to revise their bottom line projections higher. Earlier this month the expectations called for $0.80 a share in earnings this year and $1.00 next year. Did you catch all those zeros? Yes, they too are apparently smitten by circular sweetness. But after a bang-out first quarter as a public company, those estimates now stand at $0.85 and $1.04, respectively.
You see, Krispy isn't only growing the number of locations. It is also improving the production at each existing location. In the April quarter, same-store-sales shot up a staggering 25.6%. A lot of that can be credited to performance-oriented management that has set out to remodel older locations. But the comps have been climbing for years now. Since 1996, weekly store sales have gone from an average of $22,000 to $38,000. For the more-inspired company-owned locations, the average has risen from $39,000 to $54,000 a week.
Yes, there are company stores and franchised locations. Now that the company has ex-restaurant executives from chains like Chili's and T.G.I. Friday's clamoring for franchise deals, the company is laying low on its own stores and letting the easy royalties and residuals roll in from franchisees who are more than happy to take on the risk and expenses to wave the Krispy Kreme banner.
So, in closing, vote for me!
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