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In today's Motley Fool Take:
- What's Eating Krispy Kreme?
- Discussion Board of the Day: Olympic Games
- Berkshire Digs ServiceMaster
- Quote of Note
- Starbucks Takes a Slide
- More on Fool.com Today
What's Eating Krispy Kreme?
It's official: The sugar high is over.
This morning, Motley Fool Stock Advisor pick Krispy Kreme Doughnuts
CEO Scott Livengood summed up the stickiness of the situation by admitting Krispy Kreme wasn't getting the job done on the fundamentals. I appreciate the hit-me-between-the-eyes honesty, but this may be the understatement of the year. Sales rose 11% from last year's second quarter, but operating costs rose 21% over the same period. Comparable store sales were up less than 1%. So what accounted for the revenue growth? Capital spending to open new stores. No wonder net income suffered.
Unfortunately, this isn't even the worst of the news. Krispy Kreme said it wouldn't provide earnings guidance for the third quarter and that it can no longer provide an accurate prediction for the full fiscal year. In other words: Remember when we said we'd earn between $1.04 and $1.06 per stub in May? Sorry, we were wrong. We can't tell you how long it will take to right the ship. And this after the Securities and Exchange Commission has decided to go out for a box of classic glazed.
Part of the problem, according to management, is the low-carb phenomenon. The company says its research shows that more than 1,000 low-carb products have been introduced during 2004, and -- get this -- media coverage of carb-conscious diets is apparently up more than 200% over last year. The alternatives, and the media blitz, may be forcing some of Krispy Kreme's normal constituency into the gym.
But is the ever-expanding appetite for all things low-carb really what's killing Krispy Kreme's business? Uh, no. The company continued to spend like a hyperactive teenager on a $10,000 shopping spree at Nordstrom
You can call it irony, or maybe just desserts, but it turns out that Krispy Kreme is headed for a diet of its own. And that's probably a good thing. Investors are much more likely to appreciate a slimmer, sexier doughnut king.
For more jelly-filled Fool coverage:
- Chief Operating Officer John Tate traded in sweet treats for stained tables at Restoration Hardware
- Motley Fool co-founder David Gardner provides some perspective on Krispy Kreme's business.
- The SEC has decided to go out for a box of doughnuts.
- Fool Bill Mann says it's folly to blame low-carb diets for Krispy Kreme's problems.
Fool contributor Tim Beyers loves a good jelly doughnut as much as the next guy, but he doesn't frequent Krispy Kreme. He doesn't own any of its stock either, nor any of the other companies mentioned. You can view Tim's Fool profile here.
Discussion Board of the Day: Olympic Games
Do you know the Olympic anthem by heart? Have you been groggy at work after staying up late watching swimming, wrestling, or table tennis? What will you do when the games are over? Discuss these issues and more at the Olympic Games discussion board. Only on Fool.com.
Berkshire Digs ServiceMaster
In a Securities and Exchange Commission filing, Warren Buffett's insurance conglomerate Berkshire Hathaway
Mathew Emmert made ServiceMaster -- a lawn care, maid service, and pest control company -- a selection for his Motley Fool Income Investor due to its rock-solid business, its strong corporate culture, its discount to intrinsic value, and its 3.5% dividend yield. Berkshire most likely bought ServiceMaster for the same reasons.
Berkshire also disclosed that it had purchased $138 million worth of Comcast
The size of these transactions suggest that the person at Berkshire who made these purchases was not Buffett, but rather the equally astute investor Lou Simpson, who runs the investment portfolio at Berkshire subsidiary GEICO. Although a combined $180 million is a great deal of money, it isn't enough to move the needle in the Berkshire portfolio, which exceeds $80 billion, including uninvested cash.
Berkshire, like many investment companies, can request that investments like these be treated as secret for as much as a year -- the SEC will keep such filings confidential. Last week Berkshire disclosed that it had purchased 9% of Pier 1 Imports
But that's just conjecture: There are plenty of other reasons why an investment company would want to keep a purchase confidential for a period of time after its transactions are complete.
The purchase of ServiceMaster and Comcast, along with Pier 1 seem to fit into a pattern of Berkshire purchases of the last few years -- all seeming to focus on the home. With these new purchases, we have lawn care, air conditioning, and pest control at ServiceMaster, entertainment provided by Comcast, not to mention the assorted Pier 1 knickknacks and furnishings. Then there are the Berkshire subsidiaries that make Carpet (Shaw), brick (Acme Brick), paint (Benjamin Moore), insulation (Johns Manville), kitchen stuff (Pampered Chef), and so on. You can even just buy the home from Berkshire outright, through Clayton manufactured homes, or through HomeServices of America, one of the nation's largest residential real estate companies. It's owned by MidAmerican Energy, which is majority owned by Berkshire.
Now, if only Berkshire had a place -- a big place -- where one could buy all of the furniture for a house....
Bill Mann owns shares in Berkshire Hathaway.
Quote of Note
"Never discourage anyone...who continually makes progress, no matter how slow. " -- Plato
Starbucks Takes a Slide
I'm just kidding. But everybody else is doing it.
There isn't actually anything wrong with those numbers; it's just that investors have been spoiled. Starbucks has been projecting long-term same-store sales growth of 3% to 7% and then has simply blown that figure away month after month. August represents the first time in 2004 that the company hasn't registered a double-digit gain in same-store sales, as well as the lowest gain since May 2003.
While Starbucks remains a Fool favorite, it's worth noting that the stock still commands a healthy premium at 45 times this year's earnings. The stock has also reflected the company's performance, gaining 58% over the past year and 110% over the past two.
Despite competition from other specialty coffee retailers such as Peet's Coffee & Tea
That said, while the current stock price offers zero margin of safety for a buy, Starbucks remains the kind of company that every Fool should aspire to own.
For more Foolish coverage of the company, see:
Fool contributor Jeff Hwang owns shares of Starbucks.
More on Fool.com Today
How much of your retirement savings is consumed by your mutual funds? Robert Brokamp discusses the issue in My Fund Manager Ate My Retirement!... There's hope for the next generation when teens begin investing their money, Selena Maranjian says in How Millionaires Are Born.... Cyclical stocks are not your buy-and-forget holdings. So what are they? Jim Mueller finds out in Ride the Cyclical Wave.
In other news:
For a list of all our stories from today, see our Today's Headlines page.