Krispy Kreme had been a popular doughnut chain in the South
since 1937, but remained unknown to the rest of us until about
1996. That's when the first Krispy Kreme popped up in New York
City, on West 23rd Street.
Believe it or not, the town went nuts.
Doughnuts are a major food group in New York, where people eat
many of their meals while walking. These fabulous new doughnuts
were favorably reviewed by local newspapers. Lines formed when the
"Hot Doughnuts" sign was lit. The two young men who owned the
franchise were extolled as modern entrepreneurs.
I lived one block away from the store, and thought Krispy Kremes
were a much better thing than sliced bread. I was soon as
knowledgeable about the product as any potential investor could
be.
Krispy Kreme went public in 2000. Luckily, by then I was living
out of the country and didn't hear about it.
After all, what could go wrong? Just about everything.
Krispy Kreme stock hit a high of about $49 in 2003. Then it
started on a long downward spiral, losing about 90% of its
value.
This company had problems that had nothing to do with its
doughnut recipe.
It over-expanded and took on crushing debt. There were
allegations of management misconduct. Some franchises went
bankrupt. Competition was fierce in the cheap eats category. More
people started consuming healthy foods.
In short, Krispy Kreme managed to lose money selling something
that is both cheap and delicious.
Now the company is under new management and seems to be on a bit
of a roll.
Since February, when its share price hovered around $1, it has
climbed steadily, topping $4 a share before settling at $3.49 as of
October 8, 2009. It has fewer and smaller stores, but is parking
them in strategic locations around the world. Is there hope for
Krispy Kreme? Apparently, the answer is "maybe."
At the end of September, Standard & Poor's raised its
outlook on the company's junk credit ratings to Stable from
Negative (still just above "highly speculative") and indicated that
its sales declines had slowed and cost pressures would ease.
In its latest quarterly report, the company announced it was
close to breaking even, and reported a 5.9% increase in
year-over-year, same-store sales for company-owned locations.
The company even got some good press recently, if you want to
call it that. A new junk-food craze involves a bacon cheeseburger
sandwiched between two Krispy Kremes (Original Glazed). It weighs
in at 1,500 calories, give or take a few.
(With this company's luck, everyone who eats one will have a
coronary within the hour.)
So, taking the common sense investing strategy to its illogical
conclusion, what about
McDonald's(
MCD)?
You hate it, right? Everybody says they do. Nutritionists
condemn it as a major cause of the American obesity crisis. Fat
teens have tried to sue it for damages. French farmers demonstrated
when it started expanding its presence there. In India, people
rioted -- all because of a little fib about what those French fries
were fried in. For more, see
Bad Boys of Business:
McDonald's.
McDonald's will announce its latest quarterly earnings on
October 22, when it's expected to report earnings of $1.10 per
share on revenues of $6.09 billion. The company's sales grew 4.5%
last year.
So much for tough competition in the fast-food industry.
Meanwhile, the company's share price over the past five years
has climbed steadily from the mid-20s to mid-50s. They also pay a
dividend, currently 3.87%.
So, if there's a shred of truth in the common sense investing
strategy, maybe it's this: Forget about everything you understand,
think is new or wonderful, or ought to take the world by storm.
Instead, watch what everybody else is doing.
Pretty soon, what they'll be doing at The Louvre in Paris is
eating at the city's newest McDonald's restaurant. They probably
needed one because those on the nearby Rue de Rivoli and Champs
Elysee are always overcrowded.
Nothing contained in this article is intended as a solicitation
for business of any kind or for investment in the firm.
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Title: Interesting story and perhaps
Posted by billrosen on 14th of Oct 2009 at 08:15 am
Krispy Kreme had been a popular doughnut chain in the South since 1937, but remained unknown to the rest of us until about 1996. That's when the first Krispy Kreme popped up in New York City, on West 23rd Street.
Believe it or not, the town went nuts.
Doughnuts are a major food group in New York, where people eat many of their meals while walking. These fabulous new doughnuts were favorably reviewed by local newspapers. Lines formed when the "Hot Doughnuts" sign was lit. The two young men who owned the franchise were extolled as modern entrepreneurs.
I lived one block away from the store, and thought Krispy Kremes were a much better thing than sliced bread. I was soon as knowledgeable about the product as any potential investor could be.
Krispy Kreme went public in 2000. Luckily, by then I was living out of the country and didn't hear about it.
After all, what could go wrong? Just about everything.
Krispy Kreme stock hit a high of about $49 in 2003. Then it started on a long downward spiral, losing about 90% of its value.
This company had problems that had nothing to do with its doughnut recipe.
It over-expanded and took on crushing debt. There were allegations of management misconduct. Some franchises went bankrupt. Competition was fierce in the cheap eats category. More people started consuming healthy foods.
In short, Krispy Kreme managed to lose money selling something that is both cheap and delicious.
Now the company is under new management and seems to be on a bit of a roll.
Since February, when its share price hovered around $1, it has climbed steadily, topping $4 a share before settling at $3.49 as of October 8, 2009. It has fewer and smaller stores, but is parking them in strategic locations around the world. Is there hope for Krispy Kreme? Apparently, the answer is "maybe."
At the end of September, Standard & Poor's raised its outlook on the company's junk credit ratings to Stable from Negative (still just above "highly speculative") and indicated that its sales declines had slowed and cost pressures would ease.
In its latest quarterly report, the company announced it was close to breaking even, and reported a 5.9% increase in year-over-year, same-store sales for company-owned locations.
The company even got some good press recently, if you want to call it that. A new junk-food craze involves a bacon cheeseburger sandwiched between two Krispy Kremes (Original Glazed). It weighs in at 1,500 calories, give or take a few.
(With this company's luck, everyone who eats one will have a coronary within the hour.)
So, taking the common sense investing strategy to its illogical conclusion, what about McDonald's( MCD )?
You hate it, right? Everybody says they do. Nutritionists condemn it as a major cause of the American obesity crisis. Fat teens have tried to sue it for damages. French farmers demonstrated when it started expanding its presence there. In India, people rioted -- all because of a little fib about what those French fries were fried in. For more, see Bad Boys of Business: McDonald's .
McDonald's will announce its latest quarterly earnings on October 22, when it's expected to report earnings of $1.10 per share on revenues of $6.09 billion. The company's sales grew 4.5% last year.
So much for tough competition in the fast-food industry.
Meanwhile, the company's share price over the past five years has climbed steadily from the mid-20s to mid-50s. They also pay a dividend, currently 3.87%.
So, if there's a shred of truth in the common sense investing strategy, maybe it's this: Forget about everything you understand, think is new or wonderful, or ought to take the world by storm.
Instead, watch what everybody else is doing.
Pretty soon, what they'll be doing at The Louvre in Paris is eating at the city's newest McDonald's restaurant. They probably needed one because those on the nearby Rue de Rivoli and Champs Elysee are always overcrowded.
Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.