Krispy Kreme is an iconic American donut company with operations globally. It went public in 2021 after being taken private in 2016. As a newly listed public company again, many investors are interested in the prospects of Krispy Kreme and how to invest in this donut maker. There are a few key things to consider when evaluating Krispy Kreme stock. First, understand Krispy Kreme’s business model and strategy for growth. A core part of this is expanding its fresh donut points of access globally in a capital efficient way via Delivered Fresh Daily model. Second, assess Krispy Kreme’s financial performance including revenue growth, profitability and cash generation. The company aims to expand margins over time. Lastly, be aware of valuations and analyst expectations baked into the stock price. Krispy Kreme trades at an elevated valuation so expects strong execution. With a view on Krispy Kreme’s operations, financials and valuation, investors can make an informed decision on investing in this iconic donut brand.
Krispy Kreme aims to expand global donut points of access
Krispy Kreme’s biggest growth opportunity is increasing its fresh donut points of access globally. It currently has around 11,000 points but sees potential to reach over 50,000 over time. The key way Krispy Kreme expands is via its Delivered Fresh Daily (DFD) model. This involves delivering fresh donuts daily to grocery and convenience stores from Krispy Kreme production hubs and branded merchandising units. Krispy Kreme leverages efficiencies of its existing production hubs to deliver fresh donuts conveniently. DFD costs $2,000 to $10,000 per unit for Krispy Kreme, a capital light way to grow its presence. In the U.S. and Canada, Krispy Kreme has grown DFD door count 27% and aims to boost sales per door further. Likewise, international points of access grew over 600 in Q1 2022. The DFD strategy provides a runway for low cost expansion globally.
Krispy Kreme focusing on driving higher profit margins
In addition to topline growth from more points of access, Krispy Kreme aims to expand profit margins over time. In Q1 2022, it grew adjusted EBITDA to $48.9 million with consolidated margins over 13%. This was achieved despite macro headwinds like inflation and supply chain crunch. Krispy Kreme improved margins in the U.S. and Canada and internationally. Key initiatives to boost profitability include premiumizing DFD offerings in the U.S. This involves limited time donut flavors and upgraded merchandising displays. Krispy Kreme is also rightsizing costs across the organization to improve efficiency. While still early days as a public company, the focus is clearly on translating revenue growth to higher profitability.
Krispy Kreme trades at premium valuation amid high expectations
Since going public at $17 per share in July 2021, Krispy Kreme trades around $13 to $14 currently. This translates to a market cap of approximately $2.2 billion. On an enterprise value to revenue basis, Krispy Kreme trades at a premium 3.6x multiple. This contrasts with more established food peers at 2x to 3x EV/Revenue. The premium multiple bakes in high expectations of Krispy Kreme’s growth trajectory. Analysts expect 29% revenue growth in 2022 and 19% in 2023. With analysts forecasting over $730 million revenue in 2023, Krispy Kreme trades around 3x this figure. The high growth prospects explain the premium valuation today. Execution is key to grow into the valuation over time.
Krispy Kreme has a strong brand and growth runway but trades at a high valuation currently. Investors need to assess its strategy and financial execution before investing. Expanding donut points of access and boosting profitability are central to the investment case.