Krispy Kreme (KKD)

Company

" Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme is a leading branded specialty retailer of premium quality doughnuts including the Company's signature Hot Original Glazed. Krispy Kreme currently operates more than 380 stores in 45 U.S. states, Canada, Australia, Mexico, the Republic of South Korea and the United Kingdom.' (company website)

Buy

16-Jun-05. After Krispy Kreme went public in 2000, its shares shot up and it was a hot stock. In 2004, however, KKD fell from grace, and has been struggling back up from bottom in February (see sidebar). I'm jumping in as it recovers from a pullback to the 50-day moving average after a recent peak. I believe the downtrend has been reversed.

• Price momentum (PPO) — overall trend is up, although slowed in the last week
• Trend (ADX) — weakened a bit in last week, but buying pressure (+DI) picked up again this week
• Money flow (CMF) — strong
• Relative strength (RSI) — strong positive flow of money into KKD

Kremed!

21-Jun-05. Yesterday's trading session saw KKD plunge at the opening, creep back up during the day, then give up most of the gain in the last 30 minutes of trading. This made me nervous, and I was anxious to track today's session.

KKD 2-day chart, 10 minute bars

Hello? What's this? Forty-five minutes into the session, not a single share had changed hands. That could mean only one thing — trading was halted. Then I noticed the flurry of news items crossing the wire about the dismissal of six top executives (summary article).

Will this be good news or bad news? It could be good news if the reaction is, "Good riddance." It could be bad news if the reaction is, "How many more shoes will drop?"

Predictably the initial reaction (see chart) seems to have been the latter, but at this moment (an hour and 20 minutes before the close) KKD is only 3¢ lower than my purchase price. To me, that suggestions a lot of confidence in the turn-around team brought in to fix the company after the disclosure of accounting and legal irregularities currently under investigation by the SEC. Gut check time: How confident am I that this is going to turn out OK, at least in the near- to mid-term?

Sell

14-Sep-05. I sold half these shares in June, and hung onto the remainder to see what would happen. Bad instinct!

For a time this summer it looked like KKD might still pull it out. Despite appearing regularly in the list of "analysts' lowest rated stocks" KKD shares rose as management reported on steps to correct mismanagement. But this week the company announced that once more they would postpone the filing of their quarterly report, which suggested that there are even more shoes to drop in the story. I set a stop-loss order to trigger if my loss grew to more than $1 per share, which happened today.