Monday, November 22, 2004

Smoked O's: Krispy Kreme Gets Whipped

by D.A. Jacome, Catablast! Staff

Things just keep on getting worse for the donought folks. SEC probes, insider nebulousness, poorly calculated capital expenditures have all plagued Krispy Kreme over the last couple of years. One Monday, things got much worse for the glazed confection maker (KKD).

Shares of the North Carolina company fell 17% after third quarter estimates missed analyst's expectations by nine cents. While management continues to cite the Atkins Diet craze for their losses, it's about time they come to terms with the "real" problem with Krisy Kreme. Because let's face it--the doughnuts are not a "fad," as many have claimed.

Krispy Kreme is getting hammered because management is as lost as Little Red Riding Hood: they've miscalculated everything, from buying back poorly operating franchises to perpetuating an aura of murkiness around estimate guidances and insider transactions. And there is nothing the Street hates more than uncertainty.

In addition, a poorly strategized initiative to dietize their product has severely marred their brand. The company tried to grow too fast, too soon and like Icarus from Greek Mythology, they're getting cooked for it. Instead, they should've capitalized on gluttony. Heck, it worked for sixty years. Forays into unproven territories are not always to a company's benefit. Solution--slow down growth and pare down debt. At under $10 and 80% off its high, Catablast! wouldn't be surprised to see a massive managerial change soon, or even better yet, a buyout.

(While the author loves the donoughts, he has opted out of owning any shares of Krispy Kreme.)

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