I'm shorting Krispy Kreme today

[KaneKungFu123]

DC,

It seems to me that alot of the people holding KKD are going to completely disregard this report because its from way back in 2004, and they now have a new CEO and are going to use international expansion to save the day?

[DesertCat]

[ QUOTE ]
DC,

It seems to me that alot of the people holding KKD are going to completely disregard this report because its from way back in 2004, and they now have a new CEO and are going to use international expansion to save the day?

[/ QUOTE ]

That's fairly likely with individual investors. I'm hoping that analysts and institutional investors will be more savvy, and maybe they'll lead a selling parade that individuals would then follow. But it's a 303 page document and requires a great deal of effort to digest, so it may take some time. I only got to page 20 last night and I have a full page of notes already.

I'm still hopeful this means delisting (should find out Tuesday), which might help as well. But the only sure way for me to profit on this 'bet" is for a bankruptcy filing, or events that show we are on the precipice of a filing.

[waxie]

I don't buy this for a second. Krispy Kreme is extremely tasty.

[DesertCat]

[ QUOTE ]
I don't buy this for a second. Krispy Kreme is extremely tasty.

[/ QUOTE ]

That settles it then, since no company with a tasty product has every failed. Well except for "Big Kahuna Burger", but it's most ardent customers either had vegetarian girlfriends or were shot.

Seriously though, here are my thoughts on their most recent financials. I'm about half way through the 10k and here are the big issues.

1) I'm guessing odds are they'll get an extension from the NYSE since they expect to file last years 10K by July.
2) Their lenders have also given them a waiver until July.
3) They may be generating enough cash flow to avoid armageddeon. It's really hard to tell given the limited recent info. They are close to breaking one lender covenant, not so close to another. Right now they either have a small amount of positive cash flow, or are burning cash rapidly.
4) Even if they have positive cash flow, they are overvalued by at least 2x. One rule of thumb is that private equity will buy a solid company with sales growth from 7x-8x EBITDA/EV. They are at 15x right now, and they aren't solid and still have sales declining.

So the net-net is that I think it's unlikely we'll have a significant enough negative event to kill the stock before end of July.

[AvivaSimplex]

So Cat, since your thesis seems to be disproven, at least in the short term, are you bailing on your May puts, or holding on to the bitter end? You could still probably salvage 40% of your initial bet.

[DesertCat]

[ QUOTE ]
So Cat, since your thesis seems to be disproven, at least in the short term, are you bailing on your May puts, or holding on to the bitter end? You could still probably salvage 40% of your initial bet.

[/ QUOTE ]

Still havent decided. Will think long and hard about it tomorrow after the NYSE gives them their next extension.

[KaneKungFu123]

DC,

Why are people buying this stock now after the report? Did the report contain any new positive news? Also the volume on this rally is low.

I am hoping I can get in cheaply now on Jan 08.

[Sniper]

KKF, people are buying because, unlike Cat, they don't believe the company is going bankrupt.

[schnoodleC]

That is hard to believe but I guess it is true. I so wish I could short this. I actually talked to a trader on the phone today to confirm what the internet had been telling me. We are currently restricted from selling KKD short. As I've said before, I think buying puts is a valid and good play but the options are very expensive as we are not the only ones that see this stock for the dead duck that it is.

[gmandan]

Since it seems that there will unlikely be a negative event to make the May 7.50 puts profitable, wouldn't it be better to take a small loss now and 'roll' them over into the Jan 08 2.50 or 5.00 puts?