Later today, after the market closes, Krispy Kreme Doughnuts (NYSE: KKD) will serve up second-quarter numbers for fiscal 2009. And as far as I'm concerned, I'm expecting nothing great at all from this horrible company and its equally horrible stock. Yeah, I know, Krispy Kreme been a trader's dream this year. Krispy Kreme's shares have risen nearly 27% this year. On a six-month basis, the performance is even better: the stock is up more than 54% during that timeframe.
Sure, some have made money this year trading the famous doughnut maker. Still, on a 5-year basis, the stock has lost 90% of its value, and on a 3-year timeline, the decline is around 40%. The stock closed at $4 per share on Wednesday. Do I really want to buy this lottery ticket ahead of the earnings? Maybe if ultra-risk capital were involved, and I was willing to lose it all. I really don't expect to be blown away by the earnings report if the past is any indication. According to Earnings.com, Krispy Kreme has reported many misses. Granted, last quarter wasn't too bad. As Trey Thoelcke found, the company swung to a profit of $0.06 per share. This represented a good round of earnings growth. Revenues, however, had decreased 7%.
Last quarter's bottom-line improvement in no way excites me. The way I see it, this is a speculative idea at best, one that really doesn't have much of a bull thesis. Again, the stock performance argues against me, and the company could beat estimates if it can repeat its recent performance. The call for Krispy Kreme's Q2 income is a loss of $0.01. I mean, would it be so difficult to merely break even, or maybe book a penny or two of positive earnings per share?
I could maybe see that happening. But I don't have any confidence in the company delivering the goods. There have been too many times in the past when it hasn't. I'd have to see an undeniable trend of success suddenly take hold with Krispy Kreme to make me feel that management is on the right track to break the stock out of the single-digit doldrums. And considering the infamous fall from grace this once-hot company/stock has experienced (I'm sure we all remember the accounting issues the business went through), it's no wonder that Krispy Kreme is still trying to dig itself out of a deep hole.
Turnarounds are tricky things. But they're very difficult to trade, especially around an imminent earnings release. Heck, trading Starbucks (NASDAQ: SBUX) these days is a tricky enough turnaround story, and that chain is no Krispy Kreme. The best thing I can say about this stock is that it will take a string of positive earnings releases to make me look at it again. If I end up being late to the party, so be it. I'd rather not engage such a high level of risk.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
12-01-2008 @ 7:12PM
Big Dog said...
The problems at Krispy Kreme is that the people in charge of running the comany have no knowlege of the baking industry. Everyone on the board comes from outside the industry, and it takes knowlege of the Doughtnut Industry to be able to run this company. All of the people in charge are trying come up with new ideas to make money when all they have to do is go back to the basics that got KKD to the place it was when it went public. Simple is better. Don't spend millions trying to make a few bucks on new gimics , when you can go back to your basics and sell the products you have always sold without the add cost of all the new equipment needed to produce the gimic crap!!1