Krispy Kreme (KKD) beat analysts earnings estimates after market closed yesterday, but the big surprise already came May 8 when JAB Holdings announced plans to acquire the chain for $1.35 billion, or $21 a share. That's a steal -- and I'm still holding out some hope that another suitor will emerge, although my hopes are diminishing by the day.
Twenty-one bucks a share is indeed a disappointing end for one of the great stand-alone brands that's still publicly traded. But while Krispy Kreme continues to trade near or above JAB's offer price, no one has come forward with a better offer.
Krispy Kreme's board has also unanimously approved JAB's $21-a-share offer, and both sides expect the deal to close during the third quarter. The merger will add to JAB's already impressive portfolio of breakfast/coffee companies, which includes Peet's Coffee and Tea, Caribou Coffee, the Einstein Noah Restaurant Group and Keurig Green Mountain.
So, I don't believe that Wall Street paid much attention when KKD reported fiscal first-quarter earnings yesterday. Many investors have already moved on, so few cared that the company beat consensus earnings-per-share estimates by a penny or rang up revenues in-line with the consensus.
But buried within KKD's report were two interesting nuggets:
KKD Used Cash for Stock Buybacks
First, cash on the balance sheet fell by $22 million to just $28.7 million in the first quarter, reaching its lowest level in years. The primary reason for this was that Krispy Kreme bought back 2.4 million shares of its stock for $39.6 million during the latest quarter, paying an average of $16.50 per share.
Buybacks aren't new for KKD, but the timing just prior to the company's sale is interesting (to say the least). In fact, I'm still trying to wrap my head around it. Since the company bought back nearly 4% of its shares outstanding for a price below JAB's offer, these moves conceivably benefited shareholders.
Store Count Shot Up
Same-store sales were lackluster for the quarter, but KKD's systemwide store count rose 13% year over year to 1,133.
That's impressive -- in fact, it's a reminder that KKD is still in growth mode. That's a potentially lucrative position to be in, but it's one that current shareholders will no longer be able to participate in if the JAB deal closes.
The Bottom Line
Looking at yesterday's earnings report, I find it hard to believe that there's no entity out there that would pay more than $1.35 billion for Krispy Kreme.
Starbucks (SBUX)? McDonald's (MCD)? Are you out there?
