Krispy Kreme (NASDAQ: DNUT) is an iconic brand that has been around since 1937 and sells more than 1.3 billion donuts annually in 30 countries worldwide. Older traders may remember the meme stock like a short squeeze propelling its shares in the triple digits under the old symbol KKD. The company had since been acquired by private equity firm JAB Holdings in 2016 for $1.35 billion. They spun it again in 2021 under the current symbol in a $500 million IPO. The company has expanded its product line from donuts to ice cream, coffee, cookies, shakes, snacks, and various freshly baked goods. The company competes with privately acquired Dunkin and loosely with Starbucks (NASDAQ: SBUX). A possible deal with McDonald’s (NYSE:MCD) could be one game changer if the test program is successful. The company has been developing its business model and fine-tuning its growth strategy since the new CEO took over in 2016 and now it is finally reaching the tipping point.
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Krispy Kreme .’s Transformation
Krispy Kreme’s “new” transformation was led by CEO Michael Tattersfield, former CEO of Einstein Bagels and Caribou Coffee. He has evolved the strategy from the focus of the old retail and wholesale distribution model to strengthening the direct-to-consumer (DTC), e-commerce and omnichannel sales funnels. The legacy strategy favored more franchised donut shops, long shelf life donuts in supermarkets and capital-heavy Hot Light Theater stores. The new Krispy Kreme has expanded its omnichannel sales pipeline with its asset light fresh access points (FAB), focus on freshly made daily premium quality donuts, asset light hub and spoke model and focus on growing its own stores.
Daily Cup-and-Handle Breakout Chart Formation
Krispy Kreme shares collapsed on Aug. 17 on its earlier Q2 2022 earnings report, as they not only missed EPS estimates, but also lowered the outlook for the remainder of 2022. This formed a gap between $13.86 and $13.51. The stock continued to slide to a swing low of $11.25 before rallying for second-quarter earnings. The daily Bollinger Bands (BBs) formed tight compressions in September as a rounding bottom formed. By October, selling pressures had eased as the daily MSL finally got going on the breakout to $12.52, where it had failed twice before. If the stock rejects the “lip” and falls back to hold the gap between $13.50 and $13.81, it could continue attempting a cup and deal breakout when it bounces back up through the “lip” level of $14.82 with heavy volume equal to the breakout volume of $12.52. If the pullback fails to hold the gap levels, the remaining support levels will sit at the $13.11, $12.52 MSL trigger, $11.25 swing low and the stinking 5s price level of $10.50.
Access is the growth engine
One of the biggest shortcomings for Krispy Kreme is the lack of nearby locations or access. It has just over 1,800 Krispy Kreme and Insomnia Cookies locations spread across 30 countries around the world. Krispy Kreme has over 11,000 Access Points (POA), which are locations where you can purchase Krispy Kreme donuts from its 1,200-plus owned and franchised stores to 385 Hot Light theaters, 42 donut factories, and 9,000 Daily Fresh (DFD) locations. DFDs are strategically placed cabinets, carts, food trucks and placements in high traffic retail locations. DFDs are the growth engine of FABs. Krispy Kreme’s long-term goal is to grow to over 50,000 POA in a universe of 1.3 million.
McDonald’s Test Sales Program
Krispy Kreme Donuts began a test sales program for McDonald’s restaurants featuring Original Glazed, chocolate sprinkles and raspberry-filled donuts at nine McDonald’s locations in Louisville, KY. The outcome of the test will determine whether McDonalds will become a FAB again with its over 40,000 locations. A joint statement was issued: “McDonald’s is always looking for ways to give our fans more of what they crave, and we often run tests to inform future menu decisions. This small-scale test will help us understand how offering new bakery products like Krispy Kreme can impact operations in our restaurants.” Awaiting the test results, shares rose. Investors recall how a McDonald’s approval could be a game-changer for its stock Beyond Meat (NASDAQ: BYND) did when they approved a McPlant co-branded hamburger rollout. More color on this is expected when Krispy Kreme reports the premarket for the third quarter of 2022 on November 15, 2022. Analysts expect revenue of $366.3 million and earnings per share of $0.05.
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