I'm shorting Krispy Kreme today

[Sniper]

The price of KKD is now "Event" driven... Cat's thesis cannot be properly evaluated (by the market), until the financials are released (presumably later this month).

[DesertCat]

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I missed it somewhere, what is the filing date? By the 14th?

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I think their deadline with the exchange is by the end of the month. If they don't make it, they'll get delisted, unless given another extension. They might also have consequences with their lenders that would require another waiver.

[DesertCat]

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He also wonders what shorts will be forced to do, and to what extent they may do so collectively, as a crowd, if and when they reach their "collective uncle point".

Mr. Now wonders out loud, asking himself if a stock price of $9.90 or $10.05 might be just enough to send the shorts into absolute panic mode.

With so many shares short, just a few variables need to change to create conditions that are right for predictable crowd behavior to be made manifest in KKD.

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The short thesis on ValueInvestorsClub.com is a year old and was written at roughly these prices. It's actually "round tripped" down to $5 and back. My guess is that most shorts came in at around these prices (some probably at much higher prices) and can handle $11 or $12 without flinching.

But the scenario you describe is why I don't short (except to hedge). You don't know whether other shorts are over-leveraged and if they get squeezed, it might drive prices to levels so high you get squeezed as well. Of course, the potential for a squeeze is also why my short term (May and Aug) puts are so risky, but at least I can only lose my investment. Fundamentals can't predict short term price action, which is why I'm essentially betting on events with my short term options.

[El Diablo]

DC,

I have only read your initial post and nothing else in this thread, but based on the information written in your OP, it might be helpful for you to do some research on Boston Chicken. A lot of what you describe w/ KK sounds eerily similar to the BC story of the late 90's which ended up in their bankruptcy. Here's the first article I found via a Google search, I'm sure there's tons of detailed financial analysis out there.

http://www.fool.com/EveningNews/foth...foth981007.htm

[KaneKungFu123]

I think you mentioned in this thread or the other one that KK's model wont work. Why does Dunkin Donuts model work? Have you compared the two companies?

[DesertCat]

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I think you mentioned in this thread or the other one that KK's model wont work. Why does Dunkin Donuts model work? Have you compared the two companies?

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The Dunkin Donuts model works very well, I believe the vast majority of their sales are coffee (they are thinking of dropping "donuts" from the name), which leads to great repeat business. There was an article in the wall street journal this weekend that covered their model in depth. Tim Hortons works very well, for similar reasons. Both also have broader menus. If you ever look at their financials, note their strong operating margins, margins which KKD has never had, even in the 5 years before the IPO (and presumably before the alleged fraud hit high gear).

ElD, Boston Market is a perfect comp for krispy kreme. Franchises like KKD and BM can be great businesses, or they can be weak businesses that are great frauds. Obviously there have been many great businesses in this category, such as McD's. But there is also an opportunity to mask poor operating results at the franchisee and company store levels for years at a time, by opening stores at a rapid rate. This, apparently, was the same basic method used by Boston Market and KKD. In both cases, the parent company loaned or guaranteed loans to new franchises that would never make money. These franchises then opened store after store, driving the companies overall sales higher. As franchisees lost money, the company made more money on franchise fees, startup fees, equipment & supply sales, etc.

In KKD's case, they apparently owned big chunks of some large franchises, and mis-accounted for their ownership interests.

[Sniper]

Link to the KKD Trade thread

[KaneKungFu123]

If people havent read Boston Market Article, they should. This sounds exactly the same.

[KaneKungFu123]

I am just curious, did this Kuwaiti group recently make this purchase or did they previously hold these shares and have now made it public?

[DesertCat]

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I am just curious, did this Kuwaiti group recently make this purchase or did they previously hold these shares and have now made it public?

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They apparently just went over 5%, that forces them to report. No other details in their filing, but I assume this means they've been buying recently.