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TheStreet Open House

Crumbs Cupcake Chain Going Public: Report

Stock quotes in this article: KKD

Under the terms of the deal, Crumbs will receive $27 million in cash and $39 million in stock. Crumbs owners stand to receive another $44 million in stock, dependent on future earnings and stock performance, according to reports first published late Sunday in the New York Times. The report said the deal should close next month and that Crumbs will be listed on a major stock exchange through the initial public offering .

As a publicly traded company, Crumbs, the largest U.S. cupcake chain, will enjoy the capital it needs to fund its expansion plans, the report said.

Yoshikami said the cupcake space is "unique" with few national brands. Crumbs "could follow the Krispy Kreme (KKD) model but needs to watch out for the same problem that brand ran into." He cautioned that, for Crumbs, "expansion is doable but should be measured and leverage should be avoided to any excessive degree."

Krispy Kreme was founded in 1937, gained popularity in the 1990s and went public in 2000, opening at $8 per share. By mid-2003 the stock had soared to just below the $50 mark amid the rising popularity of hot glazed doughnuts and the lure of flashing lights in store windows to alert customers that a fresh batch had just come out of the oven.

Then the low-carbohydrate Atkins diet swept across America and Krispy Kreme's stock lost well over half its value in less than a year.

The market for cupcakes has grown rapidly in recent years with the success of chains like L.A.-based Sprinkles, Washington-based Georgetown Cupcake and New York's Magnolia Bakery.

Some have argued that the cupcake trend is a fad, and that taking Crumbs public could actualize something of a cupcake bubble.

Yoshikami agreed that the cupcake trend is a fad, but that it is also "a niche with legs."

He said "growth expectations should be scaled back. This does not have the growth trajectory of tech. This is not Google (GOOG).


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