Turnaround Stories: One Year Later at Cosi and Krispy Kreme

NEW YORK (TheStreet) -- Nearly a year ago, I wrote a column entitled Turnaround Stories From Smallville which focused on two names that were showing some positive signs. In the markets, a lot can happen over the course of a year, and that has certainly been the case for the companies featured in that column, Krispy Kreme (KKD) and Cosi (COSI). During that time, however, their paths have been very different.

Formerly troubled doughnut maker Krispy Kreme, has all but re-entered the mainstream, after being abandoned by investors in the mid-2000s. The company got what it deserved at that time. After attaining cult-stock status following its 2000 IPO, Krispy Kreme nearly imploded due to over-expansion, poor management, and accounting issues. After closing stores, and losing money for five consecutive years, the company broke even in 2010, and has been making solid progress ever since. This time around, however, much of the company's growth is via international franchising.

Krispy Kreme has been delivering very solid results, and same store sales growth, and shares, which have risen more than 250% since last August, now trade at a nine year high. A once skeptical Wall Street, at least when I started taking a position, is now falling in love with the company all over again. For a value investor, that is actually a scary prospect, and may mean that the "easy" money -- if there is such a thing -- has already been made, at least in the near term. I am the first to admit that in these turnaround situations, when successful, I tend to be early to the party, and early to leave. While I still maintain a Krispy Kreme position, I have also written call options against that position, so there's a good chance my shares will be called away, unless I intervene. Nonetheless, it's been a great run. KKD Chart KKD data by YCharts

Small restaurant chain Cosi, on the other hand, has taken a different path. Last year at this time, the company had just reported its first ever profitable quarter, remarkable given the fact that it has been publicly traded for 11 years. Cosi had altered its very complicated menu, was attempting to cut costs, and had also completed a rights offering to raise cash. However, further progress has not materialized, and it's been a rough year. Following last year's profitable second quarter, the company has been back in the red ever since. In May, Cosi commenced a 1 for 4 reverse stock split in order to get its share price back above $1 to remain listed on NASDAQ. The following month, new CEO Carin Stutz resigned after just 18 months on the job. COSI Chart COSI data by YCharts

If there's been any good news for Cosi, it's that the company does have some cash, $12 million at the end of last quarter, and just $142,000 in debt, so there is some life left. A couple of new stores opened recently, and there has been some insider buying as well. But the restaurant business is difficult at best, and this company needs to demonstrate that it can turn a profit. We'll get the latest progress report on Thursday when the company reports second quarter earnings.

A lot can happen in a year in the wonderful world of investing in "turnaround" situations. Krispy Kreme and Cosi are living proof.

At the time of publication the author is long KKD, COSI.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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