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Non-Tech : Krispy Kreme Doughnuts, Inc. (KKD) -- Ignore unavailable to you. Want to Upgrade?

To: gladman who wrote (417)	6/12/2000 12:18:00 PM
From: Paul Berliner	Read Replies (2) \| Respond to of 1001

As soon as the options are listed! From my Fund's collection of POV's: ---------------------------------- It is our opinion that all specialty retailers experience the same life cycle, which is in essence a classic boom-bust cycle done in by overexpansion. Let us use Manager-suspected aggressive accounter Starbucks as a hypothetical example. 1. Company opens up coffee shops in one major market. 2. Business booms. Stores are opened in other major markets and franchising begins. 3. Company goes public to much fanfare on the Street. The Street loves the idea and also knows that such a basic growth story is an easy sell to their clients. The Street encourages the Company to aggressively expand nationwide and accelerate top-line growth. 4. More stores are opened - even in secondary markets and certain geographical areas where coffee may not be a popular beverage or where the population is not of the spendthrift NY or SF pedigree that gladly forks over in excess of $2 for a cup. 5. Company is under tremendous pressure from the Street to maintain a certain revenue and earnings growth rate. The only way to achieve this is to open yet even more stores and increase franchising. 6. The ongoing expansion and occassional price hikes enable the Company to satisfy the Street's expectations for several years, and the stock rises accordingly. 7. The Company continues its aggressive expansion, but in a different manner. The Company screws over franchisees by the frequent practice of opening a new franchise right next to an existing franchise. In such a case, SBUX rakes in the franchise fees from both parties while the profits of the respective franchisees suffer due to each franchise working to 'cannibalize' the others' business. In Manhattan, one can clearly see this occurring. Also, one also witnesses some Company-owned stores competing with pissed-off franchisees within half a block of one-another. 8. Inevitably, as the Company's size grows, all its target markets become saturated from the aggressive expansion, the franchisee cannibalism, and the appearance of an infinite number of knock-off competitors with similar products and concepts. 9. Same-store sales (the key health barometer for any retailer) begin to decline, all as a result of the factors listed in item #8. The Company's stock suffers a hefty trunkation upon the first sign of this phenomenon. Starbucks, unable to satisfy the Street using its former gameplan, seeks out any activity that will enhance the top-line, such as bidding for a faster-growing co. to pick up the slack (as Starbucks tried with William-Sonoma, operator of Pottery Barn), or by catering to the Street with flavor-of-the-month strategies such as throwing a huge chunk of change at an Internet effort. 10. The Company fails to impress the Street again for any extended period and their stock becomes dead money. The Company closes underperforming units, restructures, and if successful, avoids bankruptcy as it is acquired by one of several restaurant LBO firms for a fraction of its all-time high price. If the Company does not avoid bankruptcy, then the outcome may be even uglier for shareholders. Recently, Boston Chicken, Loehmanns and Planet Hollywood have both fulfilled #'s 1-10 to a T and went into bankruptcy. We believe Starbucks, which can be gauged as currently entering the scenario in #9, will soon suffer along the same lines. It may just take a hair longer than it did for the other two companies because over-owned SBUX does not have debt burdens and its management is more clever. Still, one does not need a load of debt to blow up after a string of lame same-store sales, so stay tuned! We also believe that Krispy Kreme is entering #4 and PF Chang's is well into #4. -LB Capital