Krispy Kreme declares in its listing prospectus that its purpose is to “touch and enhance lives” through doughnuts. Investors who consider swallowing this richly valued offering risk financial heartburn instead. For a fried dough merchant Krispy Kreme does not make a lot of dough.
The Charlotte-based company, which operates more than 1,700 shops in the US and overseas, is planning to sell almost 27m shares for $21 to $24 apiece. At the top end of the range, this values Krispy Kreme’s equity at almost $3.9bn. Throw in total debt of $1.2bn and the enterprise value is 35 times last year’s adjusted ebitda.
This is a valuation as sickly sweet as a chocolate-iced custard filled doughnut. Inspire Brands paid 24 times for rival doughnut chain Dunkin’ Brands in October. Unlike lossmaking Krispy Kreme, Dunkin’ is consistently profitable.
Owner JAB Holding will try to drum up investor enthusiasm by fixing their gaze on Krispy Kreme’s sales growth. Revenue grew 17 per cent last year to top $1bn. But so did the tide of red ink. The company made a net loss of $64m in 2020, up from $37m in 2019 and $14m in 2018. Costs related to buying back franchises are partly to blame. But if Krispy Kreme has not been able to make a profit from selling sugary pastries in the past three years there is no reason to expect a sudden turnround.
It makes sense that JAB would want to cash in some of its stake now. The US initial public offering market is red-hot. Companies have already raised $70.6bn since the beginning of the year, a record start, according to Refinitiv. After taking Krispy Kreme private in 2016 for $1.35bn, JAB will continue to own almost 78 per cent of the company’s shares after the IPO.
This is less tempting for investors. With salad chain Sweetgreen and coffee purveyor Dutch Bros also readying to go public, there are plenty of other opportunities to invest in America’s growing appetite.
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