A Krispy, Krafty Comeback?

Posted by: Roben Farzad on March 7, 2006

Don’t Kreme Krispy Just Yet

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The moribund shares of Krispy Kreme Doughnuts (KKD) soared 21% today on the hiring of Kraft veteran Daryl G. Brewster as president and chief executive. Whatever KKD is paying the guy it more than recouped with the market cap gain. It's a breakout headline for the doughnut chain as it struggles to make it back from the brink.

Oh, to walk down memory lane with this stock. Its December 1999 IPO prospectus listed a glaze shortage as a prominent risk to the KKD story. Never mind dishonest management and the accounting alchemy that prompted restated earnings and a 92% decline in the share price ... not too long after some were calling Krispy Kreme the hottest brand in America.

The Krispy comeback won't be an easy one. The stores are closing left and right and Dunkin Donuts, which was recently taken out by a private equity consortium for $2.43 billion, is eager to fill the sugary void. KKD hasn't been able to file an earnings report with the SEC in more than a year. Strategically, it can't seem to figure out how much of its revenue mix should come from less theatric reselling by grocers, delis and gas stations -- and how to finally catapult its inhouse coffees out of obscurity.

But the Krispy Kreme brand still retains quite a bit of goodwill, and I suspect that the virtuous cycle of analyst upgrades and institutional buying will set in the instant Brewster shows progress. A prominent value manager told me he was looking for this kind of news to get "constructive on the name."

Krispy's original glazed are crazydelicious when they're hot. But the shares were best served at their $3.91 coldest, when the possibility of Chapter 11 looked very real. They've since nearly doubled, like my chin count whenever I down an original glazed.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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