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Outside the Box

Analyzing earnings the smart way

Opinion: Krispy Kreme doesn’t have much in common with Starbucks and Dunkin

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What in the wide world of potentially forced correlations is going on here?

Krispy Kreme US:KKD   reports results on Wednesday and we won’t see too many headlines or leads without the words Starbucks SBUX, -2.87%  and Dunkin Donuts US:DNKN  . Similarly, we just emerged from a period in which Abercrombie & Fitch ( ANF, -2.22%   reported and seemed to have a permanent suffix: Gap GPS, -1.85%  .

Marek Fuchs

Sarah Lawrence College

This is like that — and that is like this. Let’s categorize in clumps. It’s a weak battle cry, but welcome to the way the media too often does business. When it comes to analyzing companies in an ideal world, subtle distinctions should be the order of the day. But subtlety is hardly the media’s stock and trade. That is not to say, of course, that there are not similarities between companies. They have to deal with common macroeconomic circumstances and occasionally share merchandising, financing or turnaround strategies.

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But overdrawing these similarities sets traders up for mistakes. A preoccupation with the prim little thought that companies come in matched sets amounts to verbal shorthand, a waste of intellectual breath. That’s why we have to slow it down.

So how about it? Should each in the coffee triumvirate, for example, always be mentioned in the context of the others? Or should we set them apart? And should Abercrombie always be seen through the lens of the Gap? Considering several companies paired together, which are actually like one another, and which are anything but?

Gap and Abercrombie & Fitch

Abercrombie is no closer to Gap that you are to the Queen of Sheeba, but with the pair reporting recently, good reason took its quarterly break.

We saw a raft of headlines like “Gap Falling Out of Fashion as Abercrombie Picks Up the Pace” even though just a few months ago — in the run-up to the last reporting period — we saw headlines on the order of: “What Gap Can Teach Abercrombie & Fitch.”

Too bad there is not a whole lot of customer overlap. Sure: they are both retailers, which means they are alike in the sense that all mammals are. But there is quite a spread between a whale and a shrew. Gap sells predictability, while Abercrombie peddles youth and sex appeal. There is a substantial difference in price points, and they are essentially on opposite ends of the fashion continuum.

Caffeine triplets

Starbucks, Krispy Kreme and Dunkin’ all sell coffee, so it sounds like quasi-good reasoning to treat them all the same. Again, though, there are sharp differences in price points that introduce entirely different dynamics. Moreover, Krispy and Dunkin’ capitalize on America’s love for the junk food group, while Starbucks is adding more healthy fare by the day. They are riding the tide of two different American food trends. Also, Krispy Kreme is actually an international story — with a surprising majority of their stores outside America, while Dunkin’ is a regional one: though strong in the Northeastern United States, few west of the Mississippi know the legend of the Dunkaccino. That’s why a bad turn of weather in New York and New Jersey can impact Dunkin’ way more than, say, Starbucks, which has all but colonized Mars.

Giving Boeing and Airbus their collective due

On this one, let’s concede: Boeing BA, +4.18%  and Airbus EADSY, +1.68%  can be paired up. Both essentially sell to the same market with very-high quality, technologically advanced products and a long-term mindset. There are distinctions, but more on the order of rounding errors.

Usually, though, the concept of paralleling companies is a contrivance, a media construct designed to make them easier to write about. Structurally, it’s easier to deal with several companies in a limited space if you treat them as one. But substantively, that blurs distinctions — which, in the end, tends be earn you little more than one-way ticket to financial Palookaville.

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