Krispy Kreme: A Foolish Treat

Krispy Kreme(NYSE: KKD)was trading at $41.98 on Oct. 27.

Have I got a tasty treat for your Halloween enjoyment! It's one of my favorite companies -- and it produces one of my all-time favorite edible delights. Yes, I'm talking about North Carolina's own Krispy Kreme, maker of doughnuts good enough and sweet enough to turn even the scariest monster's snarl into a smile.

Krispy Kreme's no overnight sensation. The company's been turning out its sugary glazed rings for more than 65 years. Its "Hot Doughnuts Now" sign is legendary, particularly if you're a Southerner like me. Nothing can incite me to slam on the brakes and whip haphazardly (look out, Granny!) into a parking lot faster than a brightly lit "Hot Doughnuts Now" sign.

And I'll certainly eat more than just one. I find it darn near impossible to stop after a single taste of something that good. I'm not alone. I don't want to call the things addictive, but... has anyone tested them for any "special, secret ingredients"? Not that I'm complaining.

Krispy Kreme is rapidly expanding to share the love with people beyond the Mason-Dixon line -- indeed, beyond the U.S. There are currently just 315 stores in 41 states, Canada, Australia, and the United Kingdom. For a bit of context, Starbucks(Nasdaq: SBUX) operates approximately 7,225 locations worldwide -- 5,570 in North America and 1,655 internationally.

Krispy Kreme's first U.K. store just opened this month inside the world-famous Harrod's department store, marking the brand's foray into Europe. There'll be more to come, though, with Krispy Kreme planning to open 25 more locations in England and Ireland over the next five years.

In addition to those, the company hopes to add another 75 international stores over the next five years, and roughly that many North American spots in the next year. Krispy Kreme is only now moving into some of the U.S.'s largest markets.

Along with building new stores, Krispy Kreme is also trying out a partnership with retail's heaviest hitter, Wal-Mart(NYSE: WMT). Krispy Kreme is in the process of opening five locations inside Wal-Mart Supercenters, in a test that started this month. The locations will employ three different concepts: a full-fledged factory store, two "doughnut and coffee" shops (scaled-down versions of a regular store), and two "fresh shops," which will receive doughnuts delivered from nearby stores.

Krispy Kreme will retain control of the locations -- as opposed to a franchisee having the rights to them -- allowing it to see how customers respond to its different concepts in new places. The company will also be able to tap smaller, more rural areas of the country.

Krispy Kreme's most recent quarter (ended Aug. 3) produced a 27.6% jump in systemwide sales to $238.5 million. Same-store sales shot up 11.3%, which means that lots of people are coming back to eat their share of the 7.5 million doughnuts the company makes daily. Krispy Kreme earned $13 million for the period, a 46.8% year-over-year increase.

Given Krispy Kreme's strong brand, hard-to-resist products, and compelling growth strategy, it wasn't surprising when David Gardner recommended it for the September 2003 issue of the Motley Fool Stock Advisor. Eschewing the conventional wisdom about Krispy Kreme's valuation, David wrote, "What is clear to me is that this company is well-managed, profitable, and successful, both today and over its history, and should be around a long, long time." I couldn't agree more.

If you're looking to satisfy your sweet tooth with a sugary stock this Halloween, consider Krispy Kreme. Your portfolio -- and your belly -- will thank you for it.

LouAnn Lofton owns shares of Starbucks. The Motley Fool is investors writing for investors.

The Motley Ghoul's Tricks or Treats represent the opinions of each Fool only and should in no way be taken as the opinion of either The Motley Fool, Inc. or any company in question, or as representative of anyone or anything other than that specific Fool's thoughts. So do your homework, and review The Motley Fool'sdisclosure policy.