The Sweet Return of Krispy Kreme Doughnuts (KKD): Starbucks Corporation (SBUX), Dunkin Brands Group Inc (DNKN)

Page 1 of 2

I love doughnuts. In my opinion, they’re possibly the second best food to have been invented in the USA (the title of “best” belongs to cheeseburgers, to which I believe Warren Buffett would agree).

So it is with great pleasure that I observed Krispy Kreme Doughnuts (NYSE:KKD) make its incredible return from the (near) dead over the past few years. You see, back in the early 2000′s after the company IPO’d, Krispy Kreme was the hottest company around. FORTUNE magazine quite literally named it “the hottest brand in America.”

Sadly, the good times did not last. The company began to stumble due to a multitude of reasons: opening too many new stores, failure to keep up with franchise marketing, and rival competitor Dunkin Brands Group Inc (NASDAQ:DNKN) Doughnuts remade itself as the best place to get coffee and snacks, giving even coffee giant Starbucks Corporation (NASDAQ:SBUX) a run for its money.

By 2009, the company was in dire straights. Short-sellers had squashed the stock into oblivion, quarterly losses were regularly occurring, accounting irregularities were being investigated by the SEC (never something you want to hear as a shareholder), and talk of bankruptcy was rife. Its share price hit an all time low of $1.01.

Thankfully, the company engaged in a massive turnaround. New management came in and engaged in severe cost-cutting measures and slimming its business by reducing the number of physical stores. As a result, the company’s balance sheet was rebuilt, lessons were learned, the business was made more cost-effective, and the share price slowly began to rise once more. The company is now profitable once more after 14 quarters of losses.

As of this writing, the share price sits at around $14.73, which is up almost 80% compared to one year ago, and continually beating its 52-week high. I believe the company is poised to continue this trend, so long as they keep on delivering their sugary goodness.

Stores, stores, stores

To understand Krispy Kreme Doughnuts (NYSE:KKD)’s potential, one needs to look at its growth story.

The company currently has a total of 740 stores in 21 countries, with the majority (506) being stores outside of the United States (Saudi Arabia with the most stores, 95 total). But this isn’t nearly enough: Krispy Kreme is planning a massive overseas expansion, with a particular focus on emerging markets. There have been hints that Russia, the Philippines, India, the UK, and new locations in Singapore are on the list. The doughnuts appear to be particularly popular in the Middle East and Asia

This still isn’t enough. At home, the company hopes to expand to 400 US stores from 240 by 2017. At the same time, the company also seeks to expand franchises abroad to a total of 900 (compared to the current 506) by 2017. We’re talking of increasing the number of stores from a current 740 to a new total of 1,300 by 2017. So clearly, the company has big plans. I suppose it helps that the Al Kharafi family in Kuwait, owners of M.A. Kharafi & Sons and the 29th richest family on Earth, own a 12% equity stake.

So there is still plenty of room for growth (and apparently, demand). The company has very little presence in Latin & South America and Europe. Asia and the Middle East just straight up want more. Africa is just sitting there, ripe for the taking for when the appropriate time comes. And the US is rediscovering the joy of eating the classic glazed American doughnut.

If Krispy Kreme Doughnuts (NYSE:KKD) can keep up its promised pace, the long-term future does indeed look very tasty.

War between coffee & snack giants

Of course, things are never so easy. We have to worry about competition! And in this case, the competition is quite large.

According to the market research firm IBISWorld, Krispy Kreme holds a mere 2.1% of the coffee & snacks industry in the US. Dunkin Brands Group Inc (NASDAQ:DNKN) Doughnuts holds 24.5%, almost ten times as much. Starbucks Corporation (NASDAQ:SBUX), the coffee colossus, holds a whopping 36.6% of the market. In order to compete with these two firms, Krispy Kreme is also entering the world of coffee. Let’s take a brief look at these companies and what investors should expect from them.

First is Dunkin’ Doughnuts. The Massachusetts based giant has around 10,000 stores, which includes outlets for its subsidiary Baskin-Robbins, an ice cream parlor. Like Krispy Kreme, it is also rapidly expanding and continually making its business more cost-effective. The company’s share price has risen 23.78% over the last three months, and its growth still seems secure. In fact, it could also possibly rival Krispy Kreme’s growth.

However, Krispy Kreme Doughnuts (NYSE:KKD) is relatively cheaper than Dunkin Brands Group Inc (NASDAQ:DNKN) Doughnuts, and trades with a more favorable PEG ratio, price-to-sales-ratio, price-to-book ratio, and P/E ratio versus Dunkin Brands Group Inc (NASDAQ:DNKN) Doughnuts (normally I dislike using all those ratios, but I figured they were worth a mention).

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!