Krispy Kreme (DNUT) has been popular for 83 years, but it only recently hit the market again as a public company. You should take advantage of this and buy the stock as a play on an iconic brand, a powerful growth model, and the consumers’ ongoing love of sweets, suggests Michael Brush, editor of Brush Up on Stocks.
The company describes its doughnut line as an “affordable indulgence,” particularly its original glazed doughnut which it says offers a “melt-in-your-mouth experience.” It also has a cookie line called Insomnia, developed in a college dorm room in 2003.
Yes, sweets get a bad name. But let’s be honest, people still love them. Krispy Kreme posted a compound annual revenue growth rate of 19% over 2016 to 2020. During the same time, what it calls “points of access” increased 45% to 8,275 from 5,720 (its own stores, and its display cases in retailers etc.).
The company has a plausible roadmap for growth, in my view.
1) It has plenty of room to grow in several key U.S. markets where it is underrepresented, such as New York, Chicago, Boston and Minneapolis. It also thinks it has a lot of room to grow in China, Brazil, and parts of Western Europe. Not all U.S. products export well, but Krispy Kreme has a track record of successfully entering foreign markets in the Philippines, South Africa, Guatemala and Saudi Arabia.
2) Next, Krispy Kreme wants to keep expanding into the third-party retail channel by expanding its partnerships with retail outlets. Here, the company is acting on two fronts.
* It has a “delivered fresh daily” operation. Krispy Kreme deploys branded, in-store display cases in grocery and convenience stores. The prominent placement “creates a greater degree of impulse purchasing and ensures that Krispy Kreme remains top-of-mind,” says the company.
* It will continue to roll out its Branded Sweet Treat Line’s products. It already offers nine different shelf-stable packaged products, including Doughnut Bites and Mini Crullers. It wants to introduce more products linked to seasonal events, and big cultural events.
3) It has room to grow its e-commerce and delivery business, via “click and collect” or home delivery.
We just got evidence this growth plan is working. Krispy Kreme posted 18% year-over-year sales growth in the third quarter, and it expanded global “points of access” by 46% to more than 10,000. Then on December 20 it reiterated its 2021 projection for 23% sales growth, tightening up the low end of growth guidance to 22% from 19%.