Krispy Kreme is seeking to raise $560-640M in its IPO this week. The $21-24 offering range values the company between $3.46-3.96B. JAB Holdings will own 38.6% of the company after the offering, but it seeks to purchase between $50M and $100M worth of additional shares. In addition, Chairman Olivier Goudet intends to purchase $5M worth of shares. We are currently forecasting $203M and $247M in EBITDA in 2021 and 2022, respectively, putting valuation at 22x and 18x. So they are not giving this away!
Krispy Kreme is an 80-year-old growth company with a great brand name. After JAB Holdings acquired the company in 2016, a new management team was put into place. The focus was put back on doughnuts (93% of sales in retail stores are doughnuts), operations were centered on fresh, daily delivery, franchisees and franchised operations in several countries were repurchased, and store growth was driven with a smaller store concept with better returns. The company considers the Atlanta metro market the only market approaching maturity, leading to future fill-in market growth.
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- Consumer Demand: Krispy Kreme sells indulgent treats. Customers on average only visit 2.5x a year. The top 10% of customers visit 8x a year. Increasing frequency and distribution is a visible growth driver.
- Digital: The growth of delivery has widened the demand for Krispy Kreme. E-commerce represents nearly 20% of sales. Delivery is 82% incremental to retail sales.
- Store growth: Management believes points of access in the U.S. can be expanded by two-thirds.
- Wholesale transformation (not the old KKD): In the grocery channel, the company has changed from a five-day shelf life product to one that is made fresh every day and flash frozen. The focus in partnered stores is a build-out display featuring fresh products daily.
- International: The company has proven demand across countries and cultures and generated significantly higher margins. 30% of sales are outside the U.S. 70% of the global system is majority-owned by the company.
- Sweet Indulgences: In 2018, the company acquired Insomnia Cookies. The brand is viewed as the next Krispy Kreme internally and adds incremental top-line growth. The omnichannel concept is warm cookies delivered at night, with its core markets are college towns.
- Growth Model: The company’s growth formula is 9-11% organic growth, with modest margin expansion driving 12-14% EBITDA growth, and free cash flow / balance sheet use driving 18-22% net income growth.