Krispy Kreme Is Sweet No More

Krispy Kreme Doughnuts (NYSE: KKD  ) used to be mentioned in the same breath as Starbucks (Nasdaq: SBUX  ) as one of the hottest food and beverages retailers. These days, the only hot topic about the company is determining when doughnuts sales might stop plummeting.

Krispy Kreme reported fiscal 2007 results last Thursday. The fourth quarter saw glimmers of hope, but total sales continued to slide. Plus, the full year witnessed an operating loss and even larger bottom-line deficit, because of hefty interest expense from the high debt load that continues to haunt the company.

On a more positive note, operating cash flow grew significantly, which could signal the early innings of a healthier operational turnaround. Krispy Kreme continues to close underperforming stores, but it's also opening new factory stores, which act as both retail outlets and wholesale operations to sell doughnuts to grocery stores and convenience stores. Management also mentioned international expansion as a potential source of faster growth at some point down the road.

However, Krispy Kreme is still embroiled in ongoing Securities and Exchange Commission and other government inquiries, disputes with franchisees, and other unfriendly litigation matters. It has now posted three straight years of losses, and it's still uncertain when profitability might return, making the cumbersome debt levels loom even larger.

In other words, the company may have offered investors a crumb of hope, but the entire picture remains as hazy as the glaze on Krispy Kreme's doughnuts. I don't think it's time to make the doughnuts yet, if ever, due to plentiful food- and beverage-related investment alternatives. Investors may want to head to Starbucks, Chipotle Mexican Grill (NYSE: CMG  ) , or Buffalo Wild Wings (Nasdaq: BWLD  ) for more compelling offerings.

Buffalo Wild Wings and Chipotle are Motley Fool Hidden Gems selections. Find out why with a free 30-day trial subscription.

Starbucks is a Motley Fool Stock Advisor recommendation and Chipotle has been one of the many fast-growing recommendations from the Motley Fool Rule Breakers newsletter service.

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Fool contributor Ryan Fuhrmann is long shares of Starbucks but has no financial interest in any other company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.


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