Monday, June 12, 2006

Cold Stone Creamery: IPO in the Making?

The hardest part about being obsessively in love with business and stocks is having to deal with privately held companies. By that we mean this: you visit a business. You like what you see. You feel good inside. Now you want to find out how the firm is doing in a strictly economical sense -- does the company make money? How much in annual sales? Does it throw off cash? Does it grow organically or does it buy sales? Who runs the show, some freshly minted MBA or a seasoned vet? Are they operating in Montana or Mumbai?

Alas, you arrive home to your 6 monitors and ThompsonONE/Bloomberg setup, only to discover that your new obsession is privately owned. Having encountered a dearth of information, you catch a case of the business blues.

Case in point: Cold Stone Creamery. The ice cream shop was founded in 1988 by the Sutherland family. The company now owns 1,000 different stores in 47 states. Each Cold Stone Creamery is privately owned, with each owner setting his/her own catering policy. The concept is unique, we think: Cold Stone is all about ice cream that is “smooth and creamy”, rather than the traditional hard-packed or soft-serve varieties. Using only the finest ingredients, Cold Stone produces the high quality ice cream, made fresh each day in their store. Every ice cream creation is then made to order for each customer by blending in mix-ins on a frozen granite stone (hence the Cold Stone), and served in a fresh-baked waffle cone. In 1995, the first franchise store opened in Tucson, Arizona, followed by the first out-of-state store in Camarillo, California. As of May 2006, the company planned to open another 1,000 stores.

This is big, since it raises the possibility that Cold Stone's looking to sell stock in the open market to raise capital. If Wall Street's not an option, either Cold Stone boasts some terrific organic growth (cash flow pre-cap ex) or it's found a generous regional bank to help it out (line of credit, etc). Either way, this company has our attention, just like Chipotle (CMG) did years ago.

Our prediction: Cold Stone goes public within the next 24 months or it gets acquired by a name like Unilever (UL), the European food giant that snapped up Ben + Jerry's a couple of years ago (although Cold Stone's business model may not be as pliable and amenable to mass market customization). Let the bankers suit and court this Arizona gem. In the meantime, go find your Cold Stone Creamery. We know you'll be impressed.

Our team has been known to get kicked out of restaurants and factories for trying to unearth and extract information from customers or employees. If you know more about Cold Stone's capital structure, financing history, or future plans, please email us

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