* Crumbs debuts on the Nasdaq on Thursday
* Opening trade puts market value at almost $59 million
By Lisa Baertlein and Mary Slosson
LOS ANGELES, June 30 Investors in Nasdaq
newcomer Crumbs CRMB.O hope to cash in on the cupcake craze.
Will they whip up big profits or get creamed by another food
Shares in Crumbs debuted at $13.10 on the Nasdaq on
Thursday, giving the biggest U.S. cupcake chain a market value
of $58.9 million. They rose to $13.30 in midday trading.
The gourmet cupcake pioneer, which got its start in 2003 on
Manhattan's Upper West Side, now sells 1.5 million cupcakes a
month through 35 stores located on both U.S. coasts.
"We launch our brand where people work and we expand to
where they live," said co-founder Jason Bauer, whose goal is to
"bring back the neighborhood bakery that disappeared in the
'70s and '80s."
Crumbs cupcakes aren't your grandmother's chocolate,
vanilla and strawberry.
Its signature products are $3.75 cupcakes in flavors like
caramel apple, chocolate pecan pie or red velvet. They are
stuffed with fudge and other goodies, piled high with frosting
and sold in sizes ranging from a dainty "taste" to a "colossal"
cupcake that serves six to eight.
Bauer wants to open 200 stores by 2014. He said he can
envision 500 to 600 outlets, but not 10,000.
He said Crumbs would not follow in the footsteps of
doughnut chain Krispy Kreme KKD.N, which crashed after an
"That was the downfall of the brand," said Bauer, who added
that Crumbs will not license its products or franchise stores.
SUGAR-FUELED FOOD FIGHT
The business of peddling cupcakes is so competitive that it
has inspired a Food Network TV show called "Cupcake Wars."
First-time cupcake sellers must carve out a profitable
niche if they want to compete with icons like New York's
Magnolia Bakery --- whose vintage-inspired frosted treats had a
cameo on the popular cable TV show "Sex and the City."
California-based Sprinkles, which also is opening stores
around the United States, has deployed cupcake trucks to take
its fare directly to customers. Other bakers have abandoned
brick-and-mortar storefronts in favor of online sales.
Los Angeles blogger Tara Settembre, organizer of a popular
cupcake meet-up group, says weaker operators are washing out.
"It got a little crazy," said Settembre, who counts herself
among the fans of Crumbs cupcakes.
Asked if she would invest in Crumbs, she said, "I worry
about this bubble and how many (shops) they would be opening."
Crumbs had a profit of around $34,400 on revenue of $9.7
million in the latest quarter. A year earlier, it earned almost
$219,500 on revenue of $7.1 million. The year-over-year profit
reduction was mostly because of expansion costs.
A so-called blank-check company bought Crumbs in May for
$66 million. Buyer 57th Street General Acquisition used a
public offering to raise the money for its Crumbs purchase, and
Nasdaq gave it clearance to start trading on Thursday.
John Gordon, principal of Pacific Management Consulting
Group, says there are enough wealthy and densely populated U.S.
markets like Manhattan, Malibu and Beverly Hills to support as
many as 250 Crumbs stores.
While moving into suburban U.S. markets could lower Crumbs'
average annual store sales from the current level of $1.1
million and threaten margins, emerging markets like China
present ample opportunity for strong growth, Gordon said,
Michael Yoshikami, president and chief investment
strategist at YCMNET Advisors, is cautious about Crumbs, in
part because he sees cupcakes as a discretionary item.
"I wouldn't be investing ... although I like their
cupcakes," Yoshikami said.
CUPCAKES ARE DEAD, LONG LIVE CUPCAKES
Like other growing food-service chains, Crumbs aspires to
be the next Chipotle Mexican Grill (CMG.N), the popular burrito
chain that moved upmarket with high-quality ingredients and now
trades above $300 per share.
The difference between Chipotle and Crumbs is that burritos
are a meal and cupcakes are dessert -- while you need a healthy
meal every day, you don't necessarily need a daily cupcake.
Still, cupcakes have proven a resilient craze.
"I have predicted the demise of the cupcake so many times
that I'm actually going to go to the dark side now and say the
cupcake trend is not going to abate," Dana Cowin, Food & Wine
magazine's editor-in-chief, told Reuters.
"It's so big it's spawning mini trends" like mini cupcakes,
frosting shots and cupcake pops, said Cowin. She added that
that macaroons, doughnuts and other treats that were predicted
to trump the cupcake failed to knock it from its perch.
Settembre says it's easy to explain the cupcake's enduring
popularity: "You can't be unhappy eating a cupcake."
(Reporting by Lisa Baertlein. Editing by Robert MacMillan)