Last month, Krispy Kreme CEO Scott Livengood joined David and Tom Gardner on The Motley Fool Radio Show. A self-proclaimed Krispy Kreme "fan for life," Livengood discusses his company's customers, his own predilection for doughnuts, and how they figure out how much a glazed doughnut should cost.
Tom: When I think Krispy Kreme
David: We ran the numbers two years ago, and we thought it looked a little overvalued.
Tom: If you go back to the company's IPO, Krispy Kreme has more than tripled since the year 2000 during a very, very difficult market for investors.
David: Now over the last year, though, looking at the chart, it is a little bit behind the market.
Tom: That's right, but the business continues to be very strong. Krispy Kreme announced better-than-expected first-quarter earnings, and the stock shot up on the news.
David: Which I guess makes it a good time to speak to our next guest, Krispy Kreme CEO Scott Livengood. He joins us from Krispy Kreme headquarters in Winston-Salem, N.C. Scott Livengood, welcome back to The Motley Fool Radio Show.
Livengood: Hey, Tom and Dave. It is great to be back with you.
TMF: First, congratulations on your earnings report. This week, you announced a 48% rise in quarterly earnings, thanks in part to booming sales from your new stores. Scott, is this the best quarter in your company's history?
Livengood: Well, there were record earnings. Sales have hit an all-time high. Obviously, as we are going through this growth and expansion phase in the business, margins continue to expand. And we leveraged the business model that we put in place to support our expansion. So, everything came together very well this quarter.
TMF: Scott, let's talk about your individual consumption. What percentage of those sales are you personally responsible for?
Livengood: (Laughing) Probably too much, but I have been a Krispy Kreme fan my whole life. I grew up in Winston-Salem. The first store was founded here in 1937. I grew up with Krispy Kremes and even had a Krispy Kreme birthday cake for my 16th birthday. I had 16 chocolate-covered, cream-filled doughnuts. So I am a fan for life, and I can't wait to get my doughnut every day [when] I come to work.
TMF: Scott, how many doughnuts does the average Krispy Kreme customer eat each month?
Livengood: What we really know is how many doughnuts people buy. It is cheaper by the dozen, literally. So when our customers come though the store, half of our transactions are a dozen or greater purchases. It is people that are buying doughnuts either to take to the office, take to their church meeting, or to have maybe for a treat that night or for breakfast the next morning. So we tend to sell more dozens of doughnuts.
TMF: If you had to pinpoint one statistic that you would like to improve of these two, which one would it be: Would you like to have more customers in the next five years than you have today, or you would like your existing customers to buy more doughnuts in the next five years?
Livengood: I would always want more customers. The broader the base of folks that become part of the Krispy Kreme experience I think strengthens the company. We always have the chance -- by elevating the customer experience -- to get folks to purchase more things that they want. We are focused on creating value. I always opt for more people coming through the store.
TMF: How do you figure out how much to charge for a single glazed doughnut? What are the factors that go into that?
Livengood: Well, I could try to make it sound complicated. At the end of the day, it is about what is fair. We really do believe that one of the strengths of Krispy Kreme is the universality of the product. It really doesn't skew to any demographic; it is a reflection of the community. We love the diversity that our stores attract, and I think one of the keys to keeping that universal appeal is to be affordable. So it has to pass that threshold of what is a fair price.
Come back tomorrow for part 2 of David and Tom Gardner's interview with Krispy Kreme CEO Scott Livengood, as they discuss the competition and the skeptics.
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