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Gaming Guru

Richard N. Velotta

Krispy Kreme Casino Locations Bring in Dough

1 October 2004

LAS VEGAS -- When Krispy Kreme Doughnuts Inc. located a handful of manufacturing stores in Las Vegas casinos, many customers thought they'd be winners even if their luck was bad.

In the seat of decadence, there were sweet treats that were equally decadent to ease the pain of any losing streak.

Winston-Salem, N.C.-based Krispy Kreme, through local franchisee Lincoln Spoor, put stores in the Excalibur, Circus Circus, the Venetian and Fitzgerald's. Retail outlets were opened at Station Casinos Inc.'s Palace, Sunset and Texas Station properties.

Alas, the Krispy Kreme outlet at Texas Station has closed. But don't worry, Spoor said. Just because the eyes of Texas aren't upon Krispy Kreme doesn't mean the 67-year-old company is bailing out of casinos. And the move isn't related with the company's recent woes, which included buy-out rumors last week.

"They're good venues, but there are better venues elsewhere," said Spoor, who added that the doughnut factory stores will remain at current casino locations and more stand-alone factory stores are on the drawing board.

"The great thing about casino stores is that the universe of people changes every 2 1/2 days, so the sales rate is pretty incredible," said Spoor, the owner and area developer of Krispy Kreme in Nevada and Utah.

The Texas Station operation was the first satellite store where the doughnuts weren't manufactured on site. The company debuted a store on Spring Mountain Road and Rainbow Boulevard in March 1998 and subsequently opened factory operations at Eastern Avenue and Silverado Ranch Road and in North Las Vegas at Craig Road and Martin Luther King Boulevard.

"We talked to the Fertittas (the family that has a majority stake in Station Casinos) and Texas was expanding," he said. "We jumped on board, even though we don't normally like being in a food court."

Actually, the Texas location was slightly removed from the casino's food court. The new tenant of the site will be Quizno's Classic Subs, a submarine sandwich franchise that has numerous outlets in Southern Nevada.

Lesley Pittman, a spokeswoman for Station Casinos, said Quizno's bought out the lease and will open at the end of October. She said the company already had a highly successful operation at the company's Santa Fe Station property and that encouraged the company to take over the Krispy Kreme space.

Spoor said Krispy Kreme is expanding its reach with retail sales to convenience stores, grocery stores, coffee shops and even from outlets at the airport and at sports and entertainment venues.

Spoor said a new doughnut manufacturing store is planned at U.S. 95 and Ann Road near a cluster of car dealerships in northwest Las Vegas.

Spoor said the strategy is a bid to increase the company's marketing reach. Some analysts have blamed a drop in Krispy Kreme's appeal to the surge in popularity of low-fat, low-carbohydrate dieting.

Others worry that the company can't maintain quality with its explosive growth.

The company bought back franchises in New York, Baltimore, Dallas and Shreveport, La., with some of those transactions drawing the attention of the Securities and Exchange Commission over the accounting of the transactions. The New York State Society of CPAs said regulators questioned the company's practice of not amortizing assets on its books over time.

Krispy Kreme went public in April 2000 and its stock price had a meteoric ride. In November 2000, the stock price hit $105 a share and in the next year, the company had two 2-for-1 stock splits.

But earlier this year, the price hit a 52-week low of $11.48 a share. It closed Thursday at $12.66 a share.

Shares fell 17 percent in August after the company failed to hit earnings projections.

The stock price spiked a week ago on an analyst's report that two fast-food giants could be eyeing the acquisition of Krispy Kreme.

Shares were up 2.5 percent last week after J.P. Morgan analyst John Ivankoe said in a note to investors that both McDonald's Corp., and Triarc Cos. Inc., operators of the Arby's restaurant chain, were both "likely" interested in the doughnut chain.

Earlier this month, the company reported having 387 factory stores in operation. Each of its stores has the capacity to produce from 4,000 dozen to 10,000 dozen doughnuts a day.