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

To: Jon Khymn who wrote (852)	11/30/2003 11:56:37 AM
From: Jon Koplik	Read Replies (1) \| Respond to of 1001

WSJ -- Krispy Kreme Analysts Fret Over Growth Strategy. November 26, 2003 Krispy Kreme Analysts Fret Over Growth Strategy By MARY ELLEN LLOYD Of DOW JONES NEWSWIRES CHARLOTTE -- Some Wall Street firms seem to be losing their craving for Krispy Kreme Doughnuts Inc. (KKD) Two of six analysts following the treat-maker cut their investment ratings on the stock to hold after Krispy Kreme posted third-quarter earnings last week that met analysts' forecasts. Those downgrades swung the consensus recommendation to hold from buy, according to Thomson First Call's survey of six analysts tracking the Winston-Salem, N.C., company. Of six analysts reporting to First Call, two rate the stock at outperform, three at hold and one at underperform. Analysts worry that Krispy Kreme's days of record-breaking store openings are winding down as the 333-store chain enters a new phase of its development. Krispy Kreme's first Massachusetts store, for example, set new records when it opened in June near Boston, selling nearly $507,000 its first week. Krispy Kreme says break-even for its stores is $20,000 a week in sales. But Krispy Kreme announced Friday it has completed its entry into large U.S. markets and will begin back-filling those regions and entering smaller markets. Store openings in those markets are unlikely to generate the same level of publicity and sales as initial stores in a market, company executives and analysts have said. Also worrying analysts is whether smaller outlets and overseas stores, expected to play a key role in this next stage of the chain's expansion, will lead to slower earnings growth or lower returns in the near term. "Longer term, we remain believers in Krispy Kreme's growth opportunity, but changes in direction, and the possible increase in risk profile that they bring, merit a more cautious approach," CIBC analyst John Glass said in his research note Friday downgrading the stock to sector performer from sector outperformer. The focus next year on satellite stores in particular increases risk and could hurt financial results due to pre-opening expenses and the costs to build infrastructure for the next leg of growth, he wrote. BB&T Capital Markets analyst Andrew Wolf downgraded the stock to hold from buy. "In summary, 2004 appears to be shaping up as a transition year, during which earnings growth should slow modestly, while management refines its new domestic growth vehicles, and international expansion marches on towards likely eventual profitability," he said in a research note. "We believe the sideline is the appropriate place to be during such a time." Wolf expects per-share earnings will increase 38% this year to 81 cents but decelerate to 30% growth, or $1.18 a share, next year. He also reduced his three-year EPS growth forecast to 30% from 35%. Analysts polled by Thomson First Call forecast earnings of 91 cents this year and $1.16 a share for the fiscal year that ends January 2005. Shares of Krispy Kreme recently traded at $40.90, down 10 cents, or 0.2%, on volume of 368,800 and average daily volume of one million. Company Says It's On Track For it's part, Krispy Kreme says its business strategy is on track. "I couldn't be more pleased about what we have accomplished and more optimistic about our prospects," Chairman and Chief Executive Scott Livengood told analysts during the company's conference call. Per-share earnings of 23 cents were 35% higher than a year earlier and a penny ahead of company guidance. Systemwide same-store sales increased 9.5%. Other restaurant companies boosted per-share earnings about 2% in the third quarter, with same-store sales rising an average 1.9%, according to BB&T Capital. But bears continued to say declining average weekly sales at Krispy Kreme's stores are contributing to lower-than-expected systemwide sales. Systemwide average weekly sales fell 3.2% from a year earlier, after a 1.1% decline in the second quarter. Chief Operating Officer John Tate said in an interview Wednesday that analysts' concerns over near-term results may be shortsighted. Sure, smaller stores will inherently sell fewer doughnuts than the company's factory stores, which produce hot doughnuts for sale at the store and also ship to third-party vendors. But the smaller stores will help increase Krispy Kreme's market penetration, and returns should be comparable, given the lower costs associated with them, he said. Indeed, the increased number of smaller stores, Krispy Kreme's early success overseas and its opportunity to increase sales in acquired markets, Tate said, "gives us confidence we can sustain 25% to 30% revenue growth as far on the planning horizon as we could see." The accelerated development of smaller stores will help increase Krispy Kreme's market penetration, he said "If a slight reduction in return on equity...reflects a business problem, that's a problem," he said. "If it reflects an investment in the future for proven earnings growth, we'd be prudent to make that investment." Many on Wall Street have long been skeptical of Krispy Kreme shares, which have gained more than 700% since their IPO and have been a favorite of short-sellers. Krispy Kreme is the top performing IPO based on percentage gain since its debut, The Wall Street Journal has reported. But it remains pricey on a price-to-earnings basis, trading recently at around 36-times next year's estimated earnings, compared with a restaurant industry average multiple of around 19. Other analysts aren't as worried, and many still consider Krispy Kreme's growth impressive. "Their growth is going to slow, but it's slowing from very high levels," said Dennis Milton, an analyst with Standard & Poor's Equity Research, who rates the stock at hold because of its valuation. Krispy Kreme is in the early phase of its growth cycle, said Thomas Weisel Partners analyst Skip Carpenter, who rates Krispy Kreme at outperform. "Our outperform investment rating...reflects our view that this business possesses one of the strongest growth stories in our universe coverage with a business model capable of generating +30% EPS growth over the next five years," he wrote in a research note. Carpenter couldn't be reached immediately to determine whether he owns Krispy Kreme shares. Wolf, Glass and Milton don't own shares. CIBC, BB&T and Thomas Weisel expect to receive or seek investment-banking fees from the company, and other affiliates of Standard & Poor's Equity Research may offer services to the company. Corporate web site: krispykreme.com -By Mary Ellen Lloyd, Dow Jones Newswires; 704-371-4033; maryellen.lloyd@dowjones.com Updated November 26, 2003 3:53 p.m. Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved.

To: Jon Khymn who wrote (852)	3/10/2004 9:47:42 AM
From: Jon Koplik	Respond to of 1001

I guess WSJ cronies are still short KKD. (WSJ "trashes" KKD (again)). (And, this time, they did it the same morning as KKD's earnings announcement ! Sure sounds like an attempt to manipulate the price of a stock) ... Jon. ************************************************************ March 10, 2004 Ahead Of The Tape By Jesse Eisinger The Hole at Krispy Kreme Investors in Krispy Kreme are starting to get that leaden feeling in the pit of the stomach that comes from overindulgence in sweet treats. Krispy Kreme Doughnuts announces its full fiscal fourth-quarter earnings Wednesday, having already previewed its sales performance three weeks ago. The sales performance was ostensibly solid and the company forecast that it would meet earnings projections for fiscal 2005. But there have been some cracks in the glaze. And these raise questions among investors about whether Krispy Kreme is the kind of growth story that deserves a stock price that is trading at 33 times the Wall Street estimate of fiscal 2005 sales. The increasingly likely scenarios seem to be that the multiple shrinks over time, which would mean the stock remains flat even if the earnings rise, or the company misses earnings estimates and the stock collapses. The main concern of the bears -- one that has persisted for about a year now -- is that new stores seem to have lower average weekly sales than the older stores. Krispy Kreme stores no longer are opening with the blockbuster sales of old, nor are they getting the free media attention from the likes of local TV stations. Krispy Kreme had all the hallmarks of a fad. And despite the strenuous objections of the true believers, the frenzy is now looking like it may have been just that. J.P. Morgan's John Ivankoe, who rates the stock an "underweight," points out that the company plans to open 95 to 100 new stores this year, up from his expectation of 78 stores. He reads that as an attempt to hit earnings targets by accelerating new store development at a time when new stores sales are below expectations. Investors must worry about the relatively new and therefore untested business model experiments that Krispy Kreme has recently embarked upon. For one, the company is opening increasing numbers of satellite outlets, which don't have bakeries on the premises. The appeal is that the stores cost less to build and the returns should be higher. Unfortunately, the company is rolling this strategy out aggressively before it's been proved. One risk is that the quality of the doughnuts suffers. This is, in fact, the same risk that the company runs as it pushes its sales into places such as supermarkets. It just may be that investors start to lighten up on the carbs. • Send comments to tape@wsj.com and check Mondays for some letters at WSJ.com/Tape Updated March 10, 2004 Copyright © 2004 Dow Jones & Company, Inc. All Rights Reserved.

To: Jon Khymn who wrote (852)	3/10/2004 2:27:55 PM
From: Jon Koplik	Read Replies (1) \| Respond to of 1001

WSJ -- Krispy Kreme To Add 6 More In-Store Bakeries At Wal-Marts. March 10, 2004 Krispy Kreme To Add 6 More In-Store Bakeries At Wal-Marts DOW JONES NEWSWIRES By Mary Ellen Lloyd Of DOW JONES NEWSWIRES CHARLOTTE -- Krispy Kreme Doughnuts Inc. (KKD) and Wal-Mart Stores Inc. (WMT) are expanding their test of putting doughnut bakeries inside the retail giant's stores, Krispy Kreme officials said Wednesday. Krispy Kreme Chairman and Chief Executive Scott Livengood said the company will add six more factory-style stores in Wal-Marts by the end of the second quarter. During a conference call with analysts and investors, Livengood, who is also president, didn't say where the Wal-Mart stores are located. The company's first factory store to be placed within a U.S. retailer has done well, Krispy Kreme officials said. The store, in Mt. Airy, N.C., generates average weekly sales of about $20,000, Chief Operating Officer John Tate said. That is below the average of company-owned stores, which generated weekly sales of $69,100 per store, but start-up and operating costs are also much lower than stand-alone stores, Krispy Kreme has said. Chief Financial Officer Mike Phalen said Krispy Kreme's fiscal 2005 earnings guidance of $1.16 to $1.18 a share assumes quarterly per-share earnings will be as follows: 26 cents in the first quarter, 27 cents in the second, 30 cents in the third and 34 cents in the fourth. On average, analysts had expected first-quarter earnings of 28 cents a share, compared with 21 cents a year earlier, according to Thomson First Call. Analysts had forecast earnings of 27 cents a share for the second quarter, compared with 21 cents a share a year earlier. Earlier Wednesday, Krispy Kreme posted net income of $16.4 million, or 26 cents a diluted share, for the quarter ended Feb. 1, up from $5.6 million, or 9 cents a share, a year earlier. Last year's results included a $5.7 million charge, related to an arbitration award against the company. Excluding the charge, net income rose 45% from a year earlier. Fourth-quarter revenue increased 36% to $185.5 million on 9.1% growth in same-store sales systemwide. Krispy Kreme CFO Phalen said the Winston-Salem, N.C., company expects capital expenditures of $110 million in fiscal 2005, excluding acquisitions, up from $80 million last year. The majority of the capital spending will be for store development, and Krispy Kreme expects cash from operations will be sufficient to fund such expenditures, excluding acquisitions, he said. Average weekly sales per store continued to decline during the quarter, primarily as a result of adding more of its stores to mature markets, Chief Operating Officer Tate said. For example, 60% of new stores opened by area developers in the fourth quarter were in maturing markets, he said. In the year-ago quarter, only 38% of new stores were opened in more developed markets. Krispy Kreme's stores in new markets have historically opened to high volumes and then declined. For example, Krispy Kreme's store in Mexico City opened in January to first-week sales of $218,000, and sales are now about $135,000 a week, Tate said. "We continue to monitor this metric carefully and are fully confident our store system is developing and maturing, as we expected it would," Tate said. Average weekly sales were also hurt in California by grocery-workers' strikes, Tate said. Krispy Kreme estimated it lost about $1.5 million in sales as a result of the strikes, not including new programs that had been approved in stores but didn't get started as result of the strikes. Krispy Kreme continues to expect it can build 750 to 1,000 retail bakery stores in North America and four- to six-times that number of smaller, satellite stores before it approaches market saturation, Tate said. The retail bakery stores generate a large portion of their revenue from servicing third-party accounts, such as grocers and convenience stores. Satellite store formats include kiosks or small shops selling cold doughnuts delivered daily to the store from a nearby retail or wholesale bakery, and doughnut and coffee shops, which are smaller than typical factory stores but still produce hot doughnuts for retail sales only. Tate said Krispy Kreme's share of the national packaged doughnut market was 30.6% at the end of fiscal 2004, up 670 basis points from the previous year. But that figure '"doesn't even begin" to capture all of the company's business generated from sales outside its own retail outlets, he said. And based on Krispy Kreme's usual market share and the number of major accounts among U.S. grocers and convenience stores it hasn't yet tapped, the company estimates it has about $500 million in "remaining opportunity" for off-premises sales. That's slightly more than the company's current wholesale business, he said. There is additional sales opportunity among mass merchants, smaller accounts and businesses and institutions, he said. Krispy Kreme has said sales of doughnuts delivered to groceries and other third-party outlets from its retail bakeries help boost brand awareness and generate foot traffic in its own stores. But some analysts and investors worry serving cold doughnuts will eventually undermine the brand, built on serving hot, fresh doughnuts. That concern was raised again during Wednesday's conference call by one institutional investor. Corporate web site: krispykreme.com -By Mary Ellen Lloyd, Dow Jones Newswires, 704-371-4033; maryellen.lloyd@dowjones.com Updated March 10, 2004 11:54 a.m. Copyright © 2004 Dow Jones & Company, Inc. All Rights Reserved.