Iconic donut brand Krispy Kreme (NASDAQ: DNUT)
stock has again become listed as a publicly traded company after being acquired in 2016 by JAB Holdings for $1.35 billion. Old-timers recall when Krispy Kreme under the symbol KKR was one of the precursors to the meme stocks
as shares soared to triple digits on a short-squeeze. The new Krispy Kreme has expanded to reach a broader audience with a packaged distribution of its donuts, pastries, and coffee products
. The Company was able to weather the pandemic
by expanding it omnichanne
l distribution and is recovering with the reopenings
. It has also added the Insomnia Cookies brand to its portfolio, which his highly popular among millennials and college campuses. This second listing provides prudent investors with an opportunity to get in at lower prices considering Dunkin was acquired for $110 per share last year. Krispy Kreme is a long-term takeover target but is going through near-term price discovery. The reopening should continue to help spur a recovery in sales as the acceleration of COVID-19
vaccinations continues to spread.
About Krispy Kreme
The Company went public after pricing 26.66 million shares at $17 as it opened at $16.30 on July 1, 2021. This Company intends to utilize a hub and spoke expansion strategy. Krispy Kreme sold 1.3 billion donuts across 30 countries in fiscal 2020. Nearly 75% of donuts were purchased in quantities of six or more. Nearly 75% of all purchases are the signature original glazed donut. Since being acquired in 2016 by JAB (who also acquired Panera, Bon Pain and Pret a Manger), sales have doubled from $557 million to $1.12 billion. Interestingly, underwriters and management were aiming for $21 to $24 per share range for the IPO but settled for $17 due to lackluster demand. In 2019, the Company had $959 million in sales with a $38 million operating profit. In 2020, sales were $1.12 billion with profits cut to $4 million, due to COVID-19. However, the recovery was underscored by Q1 2021 revenues up 23% year-over-year (YoY) with operating profits coming in at $14 million. Krispy Kreme CEO Mike Tattersfield spoke on CNBC on the day if its IPO to express that Company is pursuing a get the donuts to where customers are approaching. This includes maintaining over 400 theater stores that make the donuts and transports them to grocery and convenience stores. He noted the pricing values the company at 2.5X its acquisition value in 2016. CEO Tattersfield underscored access points for customers to buy its products as a key driver of growth.
Growth and Metrics
Krispy Kreme sees room for expansion in the U.S. notably in highly populated New York and Chicago metropolitan areas with a combined 28 million residents. Boston and Minneapolis are also in the cards. International is a growth sweet spot with opportunities in China, Brazil, and Western Europe. International sales were 24% of total revenues in 2020, down from 27% in 2019 likely due to COVID-19. Insomnia Cookies is a high margin direct-to-consumer (DTC) business that Krispy Kreme owns a 75% stake in. The Company performed well during the pandemic as the U.S. and Canada actually a 30% increase in adjusted EBITDA compared to just 1.2% increase overall. Krispy Kreme has also been mentioned as a potential meme stock. Shares have a 180-day lock-up period as JAB has distributed most of its shares to over 100 minority partners. The Company has nearly 165 million shares outstanding. Pundits add that the menu is limited to just coffee and donuts, while competitors like Starbucks (NYSE: SBUX) and Dunkin also sell high-margin sandwiches and food items. This is a valid point and the competition for coffee and donuts is everywhere, but an 80-year iconic history goes a long way. The question is whether growth can rebound to justify its valuation.
DNUT Opportunistic Pullback Levels
Using the rifle charts on the daily and 60-minute time frames provides a precision view of the landscape for DNUT stock since it’s such a recent public listing. The daily rifle chart will need to for the indicators to materialize but is starting to show a flattening 5-period moving average (MA) support at $18.28. The 60-minute rifle chart has been showing a support just above the $16.87 Fibonacci (fib) level. The 60-minute market structure high (MSH) sell triggered on the breakdown below $20.70. The 60-minute market structure low (MSL) buy triggered on the breakout above $17.20. The stock is still in a price discovery process. Prudent investors can monitor for opportunistic pullback levels at the $17.95 fib, $17.20 60-minute MSL trigger, $16.87 fib, $16.23 fib, $15.50 fib, $14.55 sticky 5s level, and the $13.55 fib. Upside trajectories range from the $24.58 fib level up to the $34.52 level.
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