Why Krispy Kreme Stock Won't Come Back from Its Last IPO Disaster

A Krispy Kreme IPO could be on the way... again. But Krispy Kreme failed as a public stock before. In the event that Krispy Kreme returns to the New York Stock Exchange, here's what we think of second chances...

We do not know much at this moment, since the company said it filed confidentially with the U.S. Securities and Exchange Commission earlier this month, May 4. We do, however, know enough about this company's first go-around to make our own judgment call.

Its first public offering was in the year 2000. Not long after, the donut company had to file for bankruptcy and was taken private.

Now, the $167 billion capital market in 2020 has enticed Krispy Kreme to go for it again.

Here's why that makes Krispy Kreme hard to recommend. Could there be a right time to buy?

What Is Krispy Kreme Up To?

You probably know Krispy Kreme as an infamous American donut company. It was founded all the way back in 1937 in North Carolina. Since then, it's become a massive chain of more than 1,000 stores worldwide. Krispy Kreme sells its donuts in 12,000 grocery and convenience stores as well.

The company ran into some trouble in the early 2000s, following sales drops and revisions to financial statements that led to investigations into its accounting practices.

This all led to the company going bankrupt. Luckily, JAB Holding Co. swooped in with $1.35 billion to buy Krispy Kreme in 2016. JAB was private, and it took Krispy Kreme private in the buyout as well.

After a record-setting IPO year and some revenue success, Krispy Kreme wants in.

For 2020, the company also saw customers increase as snacks and sweets came in demand during the COVID-19 lockdowns. To capitalize on its "stay-at-home stock" status, Krispy Kreme went even further and offered anyone with a valid COVID-19 vaccination card a free glazed donut.

But if you were around in the early 2000s, Krispy Kreme stock is a tough sell, no matter how charming it comes across. Here's why.

Krispy Kreme's Brand Whiffs of Trouble

Krispy Kreme's latest financials come from six years ago, back in 2016, before it was taken private. Now that it's going public, investors will be eager to see what information the company discloses in its prospectus leading up to the IPO.

What we know from 2016 is that the company took in $518 million in revenue, which translated into a $32.29 million profit. However, revenue and profits were sinking. In 2004, in fact, the company made $94.7 million in profits on $665.6 million in revenue.

It all went downhill from there. Krispy Kreme disappointed analyst expectations for the company's more than 400 stores combined over the next year. In the first fiscal quarter of 2004, it took a loss, then more quarterly losses after that.

As a result, Krispy Kreme stock tanked as much as 80%.

Everyone had thought this company had solid fundamentals. The company disappointed at every turn, even with how it rationalized the losses. CEO Scott Livengood blamed it on more health-conscious dietary trends. But it turned out to be misleading accounting practices the whole time.

Other analysts pointed out that the company expanded too aggressively. Many franchises opened following the first Krispy Kreme IPO. It bumped sales up initially. But ultimately, stores suffered.


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You see, franchisees pay franchisors royalties to help stay current with their technologies and supplies. When you have too many franchisees, too fast, you create competition among them, and royalties inflate. That chips away at each individual store's profitability.

In short, Krispy Kreme has had some leadership struggles over the last several years. It's likely much has gone into fixing this and improving the company's image under new ownership.

Plus, IPO shares could be made available through the new Robinhood IPO Access feature - many users could buy whatever IPO shares are offered there just because they can. So, a buzzing IPO market could fuel the Krispy Kreme stock price for a while.

Most likely, however, it won't stick.

Is Krispy Kreme Stock a Buy After Its IPO?

Krispy Kreme was fortunate to have JAB Holdings interested in buying the company when it did. JAB is the conglomerate behind Peet's Coffee, Caribou Coffee, Einstein Bros. Bagels, Panera Bread, and other big-time national brands.

Backed by JAB, the parent company of Peet's had an IPO in Amsterdam last year. And despite the pandemic, it raised $2.5 billion. The stock has remained relatively flat since, give or take some broad market shifts amid the volatile year.

Of course, this is no indication of how Krispy Kreme, an entirely different subsidiary, will perform when its IPO comes. But the change in leadership will no doubt provide confidence in the stock. The company has been successful in spreading and sustaining the above brands over many years.

So, the temptation would be that, with the revival of Krispy Kreme stock, you could be looking at an almost brand-new company in terms of leadership. What remains is the infamous brand name.

One problem, however, is that Krispy Kreme competes with other infamous brands. Dunkin Donuts comes to mind, with over 11,000 stores worldwide. This has always been a thorn in Krispy Kreme's side. So, not only does it have to claw back to a "normal" reputation, but it also has to beat the first name everyone thinks of in the commercial donut world.

Dunkin does more than donuts as well. People will go there for a coffee, smoothie, or breakfast sandwich. Not many go into Krispy Kreme for anything other than a fresh donut.

Also, even while that previous CEO's comments about a "health craze" driving Krispy Kreme losses came across as comical 15 years ago, it could be truer today than it was then.

Really, people are growing more health conscious over time: 9.6 million people claim to be vegans today - that's 300% more than 15 years ago.

Sure, donuts are vegan; but a trend so big should make you at least think twice about how consumer preferences affect markets. People will grow more health conscious in the next decade. And the markets will reflect that.

In the end, it's probably not a good time to invest in the donut business.

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About the Author

Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.

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