It seems the U.S.'s craze for cupcakes has fizzled out.
Crumbs Bake Shop, Inc.
) announced the closure of all its 48 stores. Further, the company
is evaluating its options, including a probable bankruptcy filing,
according to the Wall Street Journal.
The shop closings come after the company was delisted from Nasdaq
on Jul 1, and management cautioned that this would lead to
non-payment of certain debts.
In its filing with the Securities and Exchange Commission, Crumbs
stated that the Nasdaq decision was based on its failure to comply
with the minimum stockholders equity obligation of $2.5 million.
When the delisting was announced, Crumbs shares, which once traded
at around $13.00, had plunged to 23 cents.
Cupcake Craze Busted?
Crumbs, which started its journey in 2003, with a shop on the Upper
West Side of Manhattan, went public in 2011 when the cupcake
industry was in its heydays. The company offered specialty cupcakes
in a variety of flavors, like caramel macchiato, milkshake and
cookie dough, for as high as $5 each.
However, trouble began for the cupcake maker a month later, when
same-store sales declined 6%. By Sep 2011, Crumbs' share price had
plummeted 70% to less than $4.00. Although Crumbs engaged in
aggressive expansion and diversified its offerings, the overall
financial performance has been on a downtrend ever since.
Deteriorating financial outlook, years of incurring losses,
dwindling cash supply and persistent decline cupcake demand added
fuel to fire.
In fact, the overall cupcake sales in the U.S. have declined
steadily for the past two years, according to NPD Group consulting
firm. In 2012, cupcake sales dropped 6% but were flat last year.
Sales further slipped 1% through the first four months of this
Health is Wealth?
Health consciousness is increasing among the masses and Americans
are gradually refraining from energy-dense food that are high on
fat and sugars but low on vitamins, minerals and other
micro-nutrients. As a result, the demand for healthier food and
beverage alternatives is growing. It was this growing trend for
health consciousness that backfired for Crumbs and its sugar-coated
Additionally, Crumbs' primary challenge as a public company was to
differentiate itself among the highly competitive space. Crumbs was
primarily a desert-specialty chain and faced competition from
restaurants offering more menu innovation. Although the chain
started innovating with croissant-doughnut hybrid - crumbnut - and
inked deals to sell Crumbs-branded coffee and cake mixes, it did
little to turn around its fortunes. This lack of innovation forced
the company to go out of business, in our view.
Stocks to Consider
Other stocks in the broader restaurants sector which can be
Chipotle Mexican Grill, Inc.
Red Robin Gourmet Burgers Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
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