The details of my Big Bet against Krispy Kreme

[hawk59]

This is my 2 cents, I haven't followed this closely for the past couple years so take it for what it's worth, but maybe talking in generalizations is a good thing. If shorts are even admitting now that the company is very unlikely to go bankrupt, then it's turned into a valuation short. And if you're making a valuation short, then at the least you have to be very confident that the stock is significantly overvalued, without any way to increase the value. Is it really impossible for a very good operator to make the KKD brand worth $650mm?? I don't see how anybody could say it's not possible. I have no idea what steps they would need to take, I have no idea of what the numbers could look like, but I'm pretty sure you could make it worth $650mm if you ran it well. Anyone who is short should have a pretty good reason why it absolutely cannot be ever worth $650mm.

[Scorpion Man]

OK, more feedback from franchisees, etc and verdict is.... you win! Business sucks with insufficient signs of turning. I ain't looking long anymore. good luck with this.

[critikal]

DC-

Are you sure they're all gone in Arizona? Pretty sure I've seen one in Tucson.

[DesertCat]

[ QUOTE ]
DC-

Are you sure they're all gone in Arizona? Pretty sure I've seen one in Tucson.

[/ QUOTE ]

Closed two months ago. Employees just getting their final checks through bankruptcy court now. The store is still there, I actually drove by the N. Scottsdale store last night, and the lights were still on. But Chik-Fil-A or someone else will be taking over the location in a few months.

There have been some local articles on the closings, the employees getting stiffed, and the auction of the properties and equipment. Looks like the Donut Peddler in Mesa bought one of the big donut making machines.

[DesertCat]

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Anyone who is short should have a pretty good reason why it absolutely cannot be ever worth $650mm.

[/ QUOTE ]

It's actually around $800M in enterprise value right now with debt and the new dilution from the shareholder settlement. I don't believe in absolutes when it comes to valuations, of course it's possible that KKD could eventually be worth $800M. But I'm betting that it's worth a fraction of that now, and that the obstacles to creating more value are very high. It's just a lousy business with lousy margins, and worse, has trapped itself in too-expensive real estate.

Maybe brewster can sell the good real estate locations, re-open more cost efficient stores, and figure out how to do coffee right to generate repeat business. I'm betting it's going to take a very long time, if he can even do it.

"When management with a strong reputation enters a business with a reputation for poor economics, usually it's the reputation of the business that stays intact"

[Off Duty]

It doesn't look like your horse is going to come in on this one.

The bigger question is why. How KK hasn't fallen completely apart yet astounds me.

[NajdorfDefense]

Because it is very hard for large companies to go utterly bankrupt. It takes years and possibly decades of mismanagement and also a liquidity crisis.

Witness Lockheed's behavior in the mid-late 70s. Got caught bribing foreign officials and everything.

[DesertCat]

[ QUOTE ]
It doesn't look like your horse is going to come in on this one.

The bigger question is why. How KK hasn't fallen completely apart yet astounds me.

[/ QUOTE ]

It seems clear they are generating a small amount of positive cash flow (beyond asset sales). Exactly how I can't say until they issue some timely financials, but it makes BK very unlikely at this point. I'm hoping they'll catch up their financials by the annual meeting in a month or so.

[pig4bill]

I didn't read the whole thread, but if it makes you feel any better, a friend of mine lost a quarter million on KKD. He shorted it when it ipo'ed and go shafted when they changed their unlock date from 30 days to a year.

[Off Duty]

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Because it is very hard for large companies to go utterly bankrupt.

[/ QUOTE ]

Mostly because of debt service issues. Whoever holds the paper DOES NOT want it to go busto. Same for the location leaseholders.