20141125 BH Report: Crumbs Bake Shop
Transcript of 20141125 BH Report: Crumbs Bake Shop
BH Report: Crumbs Bake Shop 2014/11/25
Context
When I first cupcakes in high school, I thought they were way too sweet (I think this is common for the
people who didn't grow up in the US). Funny enough, years later – it is one of my most favorite snacks.
New York has many good cupcakes – it's not that I actively go out of my way to buy them, but just by
being in the city, I have already tried the cupcakes from 4 major cupcake places i.e., Crumbs, Magnolia,
Melissa and Sprinkles (ATM version)
Of these I have tasted, Crumbs was the most omnipresent one (you see them everywhere you go), so it
was truly surprising when I first saw the lights being out with a piece of paper saying "good bye." I soon
found out that it went bankrupt – and my initial reaction was "how is that even possible when it was
doing just fine until yesterday!"
In this report, I tried to explore the following:
• Overview – what is it?
• Financials – what happened before & after going public?
• What now?
What is Crumbs Bake Shop?
Source: Crumbs Bake Shop annual reports; Janney Capital Markets; DealBook
• Founded in March 2003
by Mia & Jason Bauer
• First opened in Upper
West Side of Manhattan
• Handled fresh baked
goods – with specialty/
premium cupcakes as the main
product (~80% of sales)
• Quickly became the largest
cupcakes chain in the US
• The company went public
(NASDAQ) in 2011 – market cap
assessment was $66M at the time
What happened before/after going public? High-level summary
Crumbs experienced tremendous growth in the 8 year period since its startup in 2003
• ~60% CAGR in revenue, regardless of the economic downturn
• Acceleration in new store opening: 46% CAGR in 2003-2008, 65% CAGR in 2008-2011
• 9% CAGR in average revenue per store, partially offset by -2% CAGR in 2008-2011
The company went public in 2011 – the market analysts were bullish on the company & Crumbs was expected to accelerate its growth from ~60% p.a. to ~84% p.a. through 2013
• Primary driver being an aggressive new store opening (66% p.a.)
• Coupled with continued revenue per store (11% p.a.)
However, in reality, it experienced significant slow down in its growth rate (~9% p.a.) as a result of both new store opening being below expectation (26% vs. 66% p.a.) and significant decline in average revenue per store (-14% vs. 11% p.a.)
• Haven't gone deep enough to know why this is the case – but most likely explanations being the increasing competition/commoditization of the main product (i.e., cupcakes)
The lowered average revenue per store & the cost associated with new store openings/ changes in product mix resulted in significant cost increase across all components (most notably occupancy and labor costs) – operating margin declined by 33% from 2010 to 2013
Ultimately, Crumbs entered bankruptcy in July 2014
Before going public
('03-'11)
After going public
('11-'14)
Going public (2011)
Prominent decline in average revenue per store
4743
40
31
24
95
3220
20
40
60
+61%
2010 2007 2009 2008 2011 2012 2013
$M
2004 2005 2006
+9%
+59%
65
54
41
29
189
54320
20
40
60
80
+65%
2007
+26%
+46%
2013 2012 2011 2010 2009 2008 2006 2005 2004
732804
9851,090
1,307
1,0531,035
857880750
0
500
1,000
1,500+9%
2013 2012 2011 2010 2009
-2% $K
2008 2007 2006 2005 2004
-14%
Avg # of stores
Avg revenue per store
Revenue
x
Source: Crumbs Bake Shop annual reports
Back-up: Analyst forecast (May '11) had more aggressive assumptions on the pace of expansion and per-store sales
403124
95322 47430
50
100
150
200
2008 2007 2006 2005 2004
+61%
$M
+84%
+59%
2013
135
2012
80
2011 2010 2009
4129
18954326554
0
50
100
150
200
2011 2010 2009 2008
+65%
+66%
67 +46%
2013
111
2012 2007 2006 2004 2005
9851,090
1,307
1,0531,035857880
750
0
500
1,000
1,500
2,000-2%
2006 2005 2004
$K
2007
+11% +9%
2013
1,220
732
2012
1,189
804
2011 2010 2009 2008
Avg # of stores
Avg revenue per store
Revenue
x
Source: Crumbs Bake Shop annual reports; Janney Capital Markets; Morgan Joseph Triartisan
All cost components significantly increased from 2010 to 2013, reducing operating margin by 33%
41 42 44 46
2737 36 35
15
1823 27
1011
13
6
8
0
50
100
150
COGS & Operating expense as % of revenue
Labor
Other
SG&A
Occupancy
4 5
2013
COGS
3
120 112
94
127
2012 2011 2010
'10-'13
change
+3%
+5%
+12%
+8%
+5%
+33%
Source: Crumbs Bake Shop annual reports
Key driver
-
Promotions esp. in new market (e.g.,DC/Chicago) and prof. fees
New store opening/ lower average revenue per store
Lower average revenue per store
Packaging and beverage costs, higher level of discarded merchandise
Lower average revenue per store directly impacted
~20% out of 33% margin decline
Stock price peaked in mid 2011 followed by a sharp drop Decline continued for the following 3 years – the price is ~25 cents post bankruptcy
Source: Yahoo Finance
May 17th, Janney Capital Markets set fair value market estimate
of ~$13 per share
June 29th, Morgan Joseph Triartisan set price target
of ~$16 per share
What happened since bankruptcy... it actually came back!
• On July 8, 2014, the company announced it would immediately close all of its remaining locations and is evaluating its options, including a possible bankruptcy filing
– Shortly after Crumbs closed its shops, an announcement was made that a deal had been reached to transfer the rights to the chain to an investment group including Marcus Lemonis (of the CNBC reality show The Profit) and Fischer Enterprises
– The group stated that their intentions were to rapidly reopen stores with more diverse offerings. As part of the agreement the existing corporation filed for bankruptcy, and court approval was needed to finalize the deal
• On August 26, 2014, Crumbs won court approval to start reopening its stores
• On October 14, 2014, Crumbs reopened its first shop in Manhattan, followed by reopening of additional ~25 stores within a month
• Long story short... I'm very happy
Source: Wikipedia; FOX News; Business Insider
Disclaimer
This document is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. Although the statements of fact in this report are obtained from sources that I consider reliable, I do not guarantee their accuracy and any such information may be incomplete or condensed. Views are subject to change on the basis of additional or new research, new facts or developments.