Starbucks, Dunkin' Brands, or Krispy Kreme: Who Had the Best Quarter?

Starbucks (SBUX -1.02%), Dunkin' Brands (DNKN), and Krispy Kreme (KKD) have widely outperformed the overall market in 2013, rising 44.96%, 42.95%, and 98.26%, respectively. All three have reported earnings over the last few weeks, showing strong growth from 2012 while also providing updated guidance for the coming quarters. Let's break down the reports to determine which is the best stock to own right now.

The giants
Starbucks is home to the world's largest chain of specialty coffee shops. It currently operates 19,767 locations in more than 50 countries. The United States is its largest market with over 13,000 locations, but China and Japan are growing quickly and the company has just opened its 1,000th location in each of these countries. The company will exceed 20,000 stores by the conclusion of fiscal 2014, and its current plans call for much more expansion after that.

Dunkin' Brands owns, operates, and franchises quick-service restaurants under the Dunkin' Donuts and Baskin Robbins brands. Dunkin' Donuts is one of the world's largest coffee and baked-goods restaurants with 10,900 locations worldwide, while Baskin Robbins is the world's largest specialty ice cream chain with 7,100 locations worldwide. Being home to two of the world's leading brands gives Dunkin' an edge in the industry.

Krispy Kreme is a leader in the specialty retail and wholesale of premium-quality sweet treats and coffee. It is most known for its Original Glazed doughnut, which it has sold since the company was founded in 1937. Krispy Kreme currently operates 812 locations in 23 countries.

The earnings
Starbucks

On Oct. 30, Starbucks released record fourth-quarter results that were mixed compared to analyst estimates. Here's a summary of the report:

Earnings per share increased 37% and revenue rose 12.8% year-over-year, driven by U.S. comparable-store sales growing 8%. Operating income increased 28.7% to $668.9 million, helped by the operating margin expanding 220 basis points to 17.6%. These strong results allowed the company to raise its quarterly dividend by 24% to $0.26, resulting in an annual yield of about 1.30%. Overall, it was a very strong quarter for Starbucks, and these earnings can easily support a run much higher. 

Dunkin' Brands

Third-quarter results were released on Oct. 24, and the numbers were mixed compared to analyst estimates. Here's an overview of the report:

Earnings per share increased 10.8% and revenue rose 8.5% year-over-year, as U.S. comparable-store sales for Dunkin' Donuts and Baskin-Robbins grew 4.2% and 3.2%, respectively. Operating income increased 4.6% to $89.33 million, driven by the operating margin expanding 310 basis points to 44.1%. The company maintained its quarterly dividend of $0.19, keeping its yield steady at approximately 1.56%. It was a great quarter for Dunkin', and I believe the company can carry the momentum over into the fourth quarter.

Krispy Kreme

The last of the three to report was Krispy Kreme, which released third-quarter results for fiscal 2014 on Dec. 2. Here's a breakdown of the report:

Earnings per share increased 33.3% and revenue rose 6.7% year-over-year, as comparable-store sales grew 3.7% at domestic company-owned stores and 10.7% at domestic franchise stores; this marked the 20th consecutive quarter of comparable-store sales increasing at company-owned locations. Operating income increased 27.2% to $11.72 million, as the operating margin expanded 166 basis points to 10.26%. In review, this was a good quarter for Krispy Kreme on the earnings front, but revenue was disappointing; I would have liked to see double-digit growth year-over-year.

Updated outlook
In the earnings reports, each company also provided updated guidance for the coming quarters. Starbucks announced its updated 2014 outlook, Dunkin' narrowed its fiscal 2013 expectations, and Krispy Kreme raised the low-end of its full-year earnings forecast. Here's an overview of what the companies expect:

Starbucks

The strong earnings report allowed Starbucks to raise its full-year guidance for fiscal 2014. The updated outlook calls for earnings per share to be between $2.55 and $2.65, an increase of 12.8%-17.3% from 2013. The company also expects 10% or greater revenue growth and the opening of 1,500 net new stores. These expectations would result in another record-setting year for the company.

Dunkin' Brands

Dunkin's management provided narrowed guidance for the full year of 2013. The full-year results will be announced in January. The company now expects to earn $1.50-$1.53 for an increase of 17.2%-19.5% from 2012. It also expects revenue growth of 6%-8%, and 10%-12% in adjusted operating income growth. These expectations are at the low end of the previous guidance, but will still result in a very strong year for Dunkin' Brands.

Krispy Kreme

In its report, Krispy Kreme raised the low end of its fiscal 2014 earnings forecast by $0.01 and maintained the expectation for the high end. The company now expects full-year earnings to be in the range of $0.60-$0.63, which would be an increase of 27.7%-34% year-over-year. Krispy also gave its outlook for fiscal 2015, calling for earnings of $0.71-$0.76 and the opening of 115-125 new locations worldwide. Wall Street liked the estimate for 2014, but the 2015 projection fell well below the consensus, which has caused the stock to drop about 20% since then. I believe a 10% sell-off would be warranted after the weak guidance, but 20% seems over-done.

And the winner is...
After factoring in the recent earnings reports and the updated guidance provided by management, Starbucks wins this three-way match-up. Starbucks has been reporting record quarter after record quarter, and I believe this will continue through fiscal 2015 at least. Dunkin' Brands was not far behind and I think its rapid expansion in the western United States will drive earnings growth for the next decade. Krispy Kreme takes last due to its dismal guidance for fiscal 2015, but I do believe that it has fallen too much and it is arguably a value play. 

The Foolish bottom line
Starbucks, Dunkin' Brands, and Krispy Kreme all have the potential to outperform the market over the next 12 months. With this said, I believe Starbucks is the best option in the industry today. Starbucks and Dunkin' have been hot lately, so it would be smart to wait for pullbacks before initiating positions in these stocks, but do not wait too long. Krispy Kreme, on the other hand, is over 25% below its 52-week high, so investors could begin initiating a position at any time.