Glad to see one couple deciding to make a run at the American Dream. Maybe the coupons will start showing up for Krispy Kreme Donuts.
Nicklaus: Schlegels bet on Krispy Kreme turnaround
Laura Schlegel has managed the local Krispy Kreme Doughnuts stores through bankruptcy, parent-company turmoil and even a fire.
Perhaps surprisingly, she thinks now is a good time to invest in the business. She and her husband, Doug Schlegel, have spent the last 18 months buying four Krispy Kreme locations in the St. Louis area and one in Bloomington, Ill.
It's a significant commitment to a chain whose parent company has lost money for six straight years and has seen its sales fall by half. But Laura Schlegel knows the St. Louis stores and is confident that they can make money. Local sales are up 10 percent this year, she says.
Plus, she bought at a bargain price. Schlegel wouldn't say what she paid for the five stores, but documents filed by their former owner show a sharp drop in value. As of Dec. 31, Allied Capital valued its Krispy Kreme franchises in St. Louis and Chicago at $9.1 million, down from $35.7 million two years earlier.
Schlegel worked for the stores' original owner, a company called Sweet Traditions, which filed bankruptcy in 2007. She stayed on as president after Allied, an investment company based in Washington, bought the stores out of bankruptcy.
In the fall of 2008, Allied told her it wanted out of the doughnut business. The stores would have to close, but she could manage the wind-down process.
That didn't sound like much of a future, so Schlegel made a counterproposal: If Allied would sell her one store, she'd agree to run the others. Allied agreed, but Schlegel still had to find a loan in the midst of a financial crisis.
Several banks turned her down before Montgomery Bank saw the potential in her business plan. "We were literally 30 days from not being able to close on the South County store, but they funded us," Schlegel recounts.
With the first store turning in good results, Montgomery Bank backed the couple's purchases of stores in Bloomington, Fairview Heights and Fenton. They expect to close this month on the Ferguson location, which recently reopened after a fire in May.
They're not done expanding. The Schlegels say they'd like to get back into O'Fallon, Mo., where Krispy Kreme once had a store, and have looked at sites in Chesterfield. They think Illinois cities like Champaign, Decatur, Peoria and Springfield could support stores.
Chicago is out, though. Schlegel is managing two stores there for Ares Capital, which bought Allied this spring, but they're slated to close. Sweet Traditions once ran 15 stores in Chicago but had too much money tied up in expensive real estate.
Back then, Krispy Kreme was more phenomenon than food company. Store openings were greeted with Super-Bowl-level hype, and the doughnut stock soared 700 percent after its initial public offering in 2000.
Then an accounting fraud surfaced in 2004, and the world learned that making doughnuts wasn't as profitable as Wall Street had been led to believe. Several franchisees failed. By last year, the once-yeasty shares had fallen 98 percent from their peak.
Now, analyst Anton Brenner, of Roth Capital Partners in Newport Beach, Calif., thinks Krispy Kreme is in the early stages of a turnaround. "We look for sustained rapid sales and earnings growth," he writes in a recent report.
Even after watching her previous employers struggle, Laura Schlegel is buying into that story of renewed growth. "Timing's everything, right?" she says. "A lot of challenges have happened, but we're glad to be part of the story on the way back up."
Edited by kas, 06 October 2010 - 08:37 AM.
Build the Border Fence
Given a choice, voters in the majority of states have reaffirm The Defense of Marriage Act, each and every time. It was wrong for judges and politicians to enact legal policies that are typically not honored in the majority of states. To be clear to the 'No H8' crowd, many Americans will never except an 'Adam and Steve' union as equal to a traditional marriage. It ain't hatery, they are just living their values.