Topps SPAC Strikes Out, and Warming Up to Krispy Kreme

While I was looking forward to owning Topps again, not under those circumstances.

One thing you learn as an investor is to never say never. In yesterday's column, I was quite sure that the Mudrick Capital (MUDS) - Topps merger, which was to be voted on next week, was a done deal. Then, late yesterday, in a shocking move, Major League Baseball signed a deal with Fanatics, ending its 70-year relationship with Topps. That's a gamechanger for Topps, and MUDS pulled the plug on the deal. While I was looking forward to owning Topps again, not under those circumstances.

Elsewhere, in donut land...

Late Tuesday, legendary donut name Krispy Kreme (DNUT) was out with it's first earnings release after since it re-joined the public markets following a July 1^st IPO. As you may recall, Krispy Kreme was acquired by JAB Holdings back in 2016 for $385 million, or $21/share. That ended a tumultuous 14-year run as a public company, and one that took the iconic brand from cult stock status to near collapse to comeback-kid.

Second quarter revenue for the purveyor of my all-time favorite white cream doughnut came in at $398.2 million, topping the consensus by $15.9 million. Earnings per share (non-GAAP) of 13 cents missed by a penny. Revenue grew 44% year over year, but the comparable period was a "COVID" quarter.

The company ended the quarter with $38 million in cash, and $1.165 billion in debt, but that period ended pre-IPO. On the company's Q2 conference call, management reported having $118.7 million in cash on hand, and net debt of $646 million as of August 8^th. With a market cap of $2.49 billion, that puts the enterprise value at $3.136 billion. This certainly is not the same company that JAB acquired back in 2016. It is one that is focused on growth and has levered up in the process. One difference between the Krispy Kreme prior to being acquired and the current version is that the company now owns Insomnia Cookies, and opened the brand's 200^th store during Q2.

The stock was up 14% on Thursday, likely due to Morgan Stanley's bullish stance following the earnings report, and a $23 price target. Consensus estimates (with nine analysts weighing in) are calling for earnings per share of 52 cents for 2022, putting the forward price earnings ratio at about 29. Revenue is expected to be $1.53 billion, up 14.2% from full-year 2021 estimates.

Shares are down 29% from the close of its first trading day (7/1).

While not quite there yet, I must admit that I am warming up to the name.

At the time of publication, Jonathan Heller was Long MUDS.