U.S. Stock Analysis: Is Krispy Kreme Krispy Kreme (DNUT) a Good Investment?

Is Krispy Kreme (DNUT) a good investment?

We examined the IPO of Krispy Kreme (DNUT) on June 30, 2021 to see if it is a potential investment.

Table of Contents

1. 1. actually went to a Krispy Kreme store
2. Prospectus (Form S-1) filed at the time of the IPO
3. Report on Form 10-Q for 2Q 2021
4. Conclusion.

1. actually went to a Krispy Kreme store

To examine the menu, I went to the Krispy Kreme website (https://www.krispykreme.com) and found that you can order online, so I gave it a try. Click on Order Now on the home page to select either delivery or pickup. When you open the menu, the first thing that comes up is a dozen box choices all over the place. Since I wasn't planning on eating that many, I ordered six, including Original Glazed and Glazed Sour Cream.

In addition to doughnuts, the Web site also had packaged products that appeared to be sold in supermarkets and convenience stores. I later checked and found that they are sold at Wal-Mart and other stores. They also sell merchandise such as T-shirts and mugs.

Although not tried at this time, there are also mobile apps for iOS and Android, and orders can be easily placed through the apps.

When I visited the store at the designated time, the store was clean and bright, the donuts I ordered were ready in a box, and pickup went smoothly. The doughnuts were usually delicious. Here is what the store looked like.

 2. prospectus (Form S-1) filed at the time of the IPO

Krispy Kreme's business invests heavily in omnichannel strategies and has developed a four-pronged approach

1. Selling doughnuts at directly managed stores (fresh stores)
2. Selling doughnuts in grocery and convenience stores
3. Online sales and delivery
4. Sales of packaged products in grocery stores, mass merchandisers, and convenience stores

Other than the above, the Insomnia Cookie (https://insomniacookies.com/Insomnia Cookies generates half of its sales from online orders.

The sales growth rate from 2016 to 2020 is 19.11 TP3T, with the number of access points (combined direct and mass retail stores) increasing from 5720 to 8275.

The hands-on store also serves as a local production facility and employs the HUB & SPOKE model, which allows for the efficient delivery of fresh doughnuts to individual stores and mass retailers daily.

The overall market size for sweets products in the global market is estimated at $650 billion (¥70 trillion), but with sales of Krispy Kreme in FY2020 at $1.12 million (¥120 billion), the potential market is very large.

We report in the following three segments

1. U.S. and Canada - U.S. and Canada
2. International: United Kingdom, Ireland, Australia, New Zealand, Mexico
3. Market Development・・・Franchise (including Krispy Kreme Japan acquired in 2020)

Sales and operating income trends are as follows

Fiscal Year 2018

• 　Sales $748.86 Million
• 　Operating Income $34.47 Million

Fiscal Year 2019

• 　Sales $959.40 Million
• 　Operating Income $37.99 Million

FY2020

• 　Sales $1,122.03 Million
• 　Operating Income $4.28 Million

3. 2Q 2021 Financial Report (Form 10-Q)

• Sales $349 M vs $333.36 M (forecast) 
• EPS $0.13 vs 0.14 (forecast)
• Guidance $1.34B to $1.38B vs 1.34B (expected)

Sales growth is 42.61 TP3T over 2020 and 49.81 TP3T over 2019.

Access points (direct and mass retail stores combined) increased from 8,275 in 2020 to 9,575.

The number of Insomnia Cookies stores has increased to 200.

The number of stores selling doughnuts has increased to 1,527, and the company is present in 30 countries.

E-commerce online sales are now 191 TP3T.

4. conclusion

We have concluded that Krispy Kreme (DNUT) is a potential investment for the following reasons. We will consider it in the future.

• The company has strong brand strength, especially in North America, and a management team that is strategically and aggressively pursuing sales expansion through omnichannel, while efficiently managing the company through a hub-and-spot model.
• There was nothing unimpressive about the actual U.S. store.
• The company is aggressively pursuing online and mobile app-based sales and delivery.
• They are trying to develop cookie products as a new brand.
• There is a large potential market for global expansion and room for future growth.
• The 2Q2021 results showed that EPS fell slightly short of consensus estimates, but both sales and profits grew significantly compared to 2020, and management's confidence is evident in its upwardly revised guidance amid the spread of the delta strain of Corona.
• The chart movement after the earnings announcement showed a decline immediately after the announcement, followed by a rise with a large increase in volume, which is expected to be due to buying by institutional investors.

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