Krispy Kreme Doughnuts
You might be skeptical of these results, though, and with good reason -- the company does not have a stellar reputation for honest reporting. Indeed, in the recent third edition of Howard Schilit's book Financial Shenanigans, Krispy Kreme is cited at least four times for three different "earnings shenanigans," including improperly inflating revenue and same-store sales.
I'm tempted to give Krispy Kreme the benefit of the doubt, though. While growth in revenue per store hasn't been quite as consistent as same-store sales, there haven't been any alarming drops, either. This is a method Schilit uses to confirm that same-store sales isn't being redefined in favorable ways in order to inflate the metric. If same-store sales were truly increasing, one would expect systemwide revenues per store to also be increasing.
Similarly, the huge growth in operating income can be explained by simple math -- because operating margins are relatively tight, a small change in expenses can easily have a large percentage change on net income. The company has been closing fewer stores, and so there have been fewer lease-termination charges, which had contributed significantly to narrower margins in previous quarters.
While less dramatic, relatively stable free cash flow over the last several quarters lends more believability to Krispy Kreme's results. Fellow over-expander Starbucks
Fortunately, Krispy Kreme isn't just closing its stores. It has been taking a page out of Jamba's
While skepticism is understandable given Krispy Kreme's sordid past, the company appears to be taking part in the Great Restaurant Turnaround going on. I'm tempted to take a bite out of this one, but I'd stay cautious about any undue fluff.
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