Krispy Kreme (DNUT) has recently had it's donut hole pounded, with the stock declining over 30% this week following "poor" earnings and ratings downgrades. It is now hovering at an all-time low, and in the past year has declined from $17.84 (!!) to where it is now at \~$6. I'm calling the bottom here, and will lay out why sprinkling some DNUT in your portfolio might make you Kreme your pants in a couple years.
# The Cyber Incident in December
On Dec. 11, 2024, the company announced in an 8k filing that they have been hacked. Unauthorized activity on it's information systems disrupted online ordering, and in their Q4 earnings report announced that this resulted in a *material revenue loss of $11 million*. Hole-y shit. The good news is that the donut in IT who allowed this to happen is most likely terminated, and this should be seen as a one off incident.
# Q4 Earnings: Donut Worry, the Worst is Behind Us
Even so, DNUT persisted and still managed to post their 18th consecutive quarter of organic sales growth, with yearly revenue at 1.65B, and quarterly revs 404m (Would have been 415m if they didn't get hacked). Sure, net revenue in the US declined, but that is also due to the sale of Insomnia Cookies by the company a ($57.4 million impact). Management is really focused on making their main brand bigger and better, so letting go of Insomnia makes sense. What doesn't make sense, is the downward guidance, with management believing 2025's Net Revenue to be around $1.55-$1.65 billion. To be blunt- this is sandbagged, and I am betting 2025 will return to the upward growth of past years thanks to a newer CEO taking significant action in making US businesses more capital light and restructuring management teams.
Past DNUT Net Revenue:
2021: $1.28B
2022: $1.53B
2023: $1.68B
2024: $1.65B
2025: Company guiding $1.55-1.65B? Nah... more like $1.81B if they grow \~10% like previous years.. and here is why I think they will.
# McDonald's: Donut Sleep on This Partnership
DNUT rocketed last year on the news that they would start rolling out their product into McDonald's restaurants. So far, they are in 1,900 locations, but the CEO expects them to be in over 12,000 by the end of 2026. The math on these McDonuts is mind boggling. (Credit to White Brook Capital for pointing this out)
Price of a donut $1.60, McD commission 60% (total guess here but probably over estimating)
KK net rev per donut $0.64 (minus McDonald’s commission)
Average amount of McDonald's breakfast customers per day: 275 people
With an attach rate of 20%, \~55 donuts will be sold each day
Net rev per day $35.20, minus waste (donuts not sold) and delivery cost of $7 and $25 respectively= $3 net revenue a day which doesn’t seem like much until you take into account that that is $22 per week, $95 per month, $284 per quarter… $1153 per year at each store.
**If we are looking at 12,000 McDonald's in 2 years… that is $13,836,000 in profits each year from McDonalds alone.** And these are conservative estimates. Is your hole feeling glazed yet?! And imagine if they strike deals with other diabetes inducing restaurant chains!
Separately, Krispy Kreme donuts main points of access for consumers are at Target, Walmart, and grocery stores like Amazon/Safeway/Giant/Publix. I usually see these neat little stands when I walk in, and they are near the cash registers to ensure fatasses like myself buy them on an impulse.
# International Growth: Raking in the Dough
A big highlight from the recent earnings that I feel is being overlooked is that in the International segment, net revenue grew $7.4 million, or 5.7% and International organic revenue grew 7.8%. Why? Because the company is executing well in places like Japan and Germany, creating nearly 700 new point of access stores last year alone. I know from experience that Japanese people LOVE American food, they can't get enough of our KFC, cheeseburgers, and now apparently donuts. Their international growth also explains the company's 800m long term debt... but they need to spend to continue expanding and I think they are executing. The company expects leverage to trend towards 4.0x by year end 2025, which is not that concerning. Plus international markets are not effected by irrational fears of RFK Jr. somehow cracking down on donuts and junk food.
# Keep it simple and "Old Fashioned"
In conclusion, don't over think this one. With a nearly 70% dip from yearly highs, ~~deez nuts~~ these donuts are on discount. This is a good, established product with a cult following and a dominating social media and online presence (over 1 billion impression last year). I have opened a small position that I will add more to overtime. I expect another small dip or two due to market volatility.
https://preview.redd.it/ors1z5bm4xle1.png?width=1082&format=png&auto=webp&s=8205e2e042e176f88ef4f71dabcc51e0150eefb1