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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: peter michaelson who wrote (54247)	4/6/2000 2:09:00 AM
From: Jon Khymn	Read Replies (1) \| Respond to of 122087

Thanks peter, Out of few dozen articles about KREM, Fool's article seem to be helpful. MotleyFool.com - Fool Plate Special Krispy Kreme: Hot Shares Now? By Dave Marino-Nachison The Boy Scout tribe of my youth put a bit of a spin on the cookie peddling methods of our female counterparts, selling boxes of a dozen Krispy Kreme donuts door-to-door to raise cash. The glazed, golden gems weren't easy for residents of Northwest Washington, D.C. to find at the time and, as a result, weren't a tough sell. The venerable, cultish North Carolina company hits the public markets this morning, as Krispy Kreme Doughnuts Inc. (Nasdaq: KREM - news) yesterday sold 3 million shares at $21 apiece -- making the question of the moment whether investors will feel the same way about the company's shares as they have about its doughnuts (the company prefers the formal spelling, it seems) since 1937. That's when Vernon Rudolph decided to branch out from the delivery business and open up shops selling treats made according to a recipe he picked up from a French chef four years previous. Since then, the shops, the eats and the neon "Hot Donuts Now" signs have become so ensconced into American culture that the company has space in the Smithsonian collection. The smart money will tell you to stay away; it's not an Internet company, after all, so that pretty much rules out a triple-digit first-day pop. One money manager actually told a reporter: "It's not a technology company, it's a food company." How 'bout that! Since Foolish investors won't be trying to trade in and out of the stock today, though, I think we can safely ignore said manager and move on to examining the company and its IPO in slightly greater detail. The first thing to do might be to examine what the proceeds after expenses -- an estimated $57 million plus -- might mean to the company. (Well, maybe not quite $57 million: the company will use $30 million to pay down debt and distribute $7 million to shareholders as part of a pre-IPO reorganization.) The new cash is slated for remodeling and relocation of older company-owned stores, increasing mix capacity in preparation for expansion, growth-minded joint ventures, and more. Krispy Kreme sells fresh doughnuts and coffee at 144 stores, about two-thirds of which are franchised, in 27 states across the nation (the Northwest, Big Sky Country and the far Northeast are still wanting). The company also delivers and sells both packaged and unpackaged doughnuts -- in branded, unbranded and private-label forms -- to supermakers and convenience stores. Krispy Kreme's website has company information and some retail capacity, though no food is sold online. Over the last five fiscal years, Krispy Kreme's revenues have increased by a compounded annual rate of 13.2% to more than $220 million as of January 30. Operating income has raced ahead by more than 50% annually over that same time span, though store growth has been modest -- among company-owned stores especially. What investors and Wall Street will want to see, though, is growth achieved in large part by store expansion. The company primarily targets markets with a population of 100,000 residents or more, which suggests plenty of opportunity: census information from 1996 indicates that there were well over 200 such U.S. cities four years ago. And as for opportunity, don't forget, too, that Dunkin' Donuts has some 5,000 U.S. locations. However, the risk for food chains, one that's exacerbated in the case of franchisers, is over-expansion, which has doomed many a would-be national power. Remember the bagel craze? Krispy Kreme seems well-positioned for future franchise growth, investing as it is in preparing to make its trademark donut mix and send it to hungry points around the nation thanks to today's IPO. Systemwide sales, which include both company-owned and franchise revenues but exclude support operations income, have increased by a compounded rate of 16% annually over the last five years. Weekly sales per store are also trending upward. Look for more than 20 new franchised stores in 2001, than another 100 or more through fiscal 2005. All good signs for a company that is spending heavily to keep its secret recipe sacred wherever it may roam and using its IPO to fund future growth and tidy up its balance sheet rather than underwrite operations. Today's offerings from Krispy Kreme both taste nice and seem to offer a pleasant diversion from the hustle and sometimes questionable bustle of the technology world. biz.yahoo.com