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Krispy Kreme Misses on Fourth-Quarter Earnings and Raises Outlook, Shares Rally

Krispy Kreme Doughnuts (NYSE: KKD  )  has just released its fourth-quarter report to finish off fiscal 2014. The results have caused Krispy Kreme's shares to spike higher and investors hope this indicates the start of a sustained rally to a new 52-week high. Let's take a thorough look at the report and the company's outlook on the year ahead to determine whether we should buy shares right now or if we should wait for shares to come down a bit.

Source: Krispy Kreme's Facebook

Krispy Kreme's quarterly results
Krispy Kreme released its fourth-quarter report for fiscal 2014 after the market closed on March 12 and the results missed analysts' expectations; here's a breakdown:

Metric Reported Expected
Earnings Per Share $0.12 $0.13
Revenue $112.75 million $119.59 million

Source: Benzinga

Source: Krispy Kreme's Facebook

Krispy Kreme's earnings per share increased 33.3% and revenue increased 3.3% from the same period a year ago, driven by comparable-store sales growing 1.6% at company-owned stores; this represents the 21st consecutive quarter of such growth. Operating income increased 26.7% to $9.07 million and the operating margin expanded a very impressive 149 basis points to 8.05%.

In addition, Krispy Kreme increased its share repurchase authorization to $80 million from $50 million; the increase likely came because the company showed approximately $55.7 million in cash on hand at the end of the quarter. Overall, it was a great quarter for Krispy Kreme regardless of whether or not it met analysts' expectations, but the best news came when the company provided its outlook on fiscal 2015...

Source: Krispy Kreme's Facebook

Outlook on the year ahead
In the report, Krispy Kreme raised its outlook on 2015 by calling for earnings per share of $0.73-$0.79. The new outlook would represent a 19.7%-29.5% increase from fiscal 2014 and offset the disappointing third-quarter release; in the third quarter, Krispy Kreme projected earnings per share in the range of $0.71-$0.76 for fiscal 2015.

This fell short of the consensus analyst estimate of $0.77, which caused shares of Krispy Kreme to plummet more than 25% over the next few weeks. Needless to say, the new outlook more than makes up for the temporary weakness. In addition, Krispy Kreme noted that it expects to open 10-15 small factory shops, 20-25 domestic franchises, and 85 international franchises over the next year.

In our earnings preview, two of our three keys to the quarter were expansion of the operating margin and affirmed or raised guidance, and Krispy Kreme accomplished both of these. The earnings may have missed expectations, but the quarters ahead seem very bright so I am bullish on the stock going forward. Foolish investors could look to pick up positions immediately and add to them if the market provides lower prices in the coming days.

An industry on the rise
Starbucks (NASDAQ: SBUX  ) and Dunkin' Brands (NASDAQ: DNKN  ) , two of Krispy Kreme's largest competitors, have also reported strong quarterly results and outlooks on 2014; this shows that the industry as a whole has experienced growth and provides a positive sign going forward. Here's a breakdown of what Starbucks and Dunkin' Brands accomplished during their most recent quarters:

Metric Starbucks Dunkin' Brands
Earnings Per Share $0.71 $0.43
EPS Growth 24.6% 26.5%
Revenue $4.24 billion $183.20 million
Revenue Growth 11.8% 13.3%

Source: Quarterly Reports

Source: Starbucks' Facebook

Starbucks' earnings per share came in better-than-expected and revenue missed by just $50 million in comparison with analysts' expectations. Estimates aside, this resulted in the best first quarter in the company's history and its outlook on the rest of the year calls for three more record-setting quarters.

For the full-year, Starbucks affirmed its guidance with a call for earnings per share in the range of $2.59-$2.67, an increase of 14.6%-18.1% from fiscal 2013. Needless to say, the world's largest operator of coffee shops had a very strong quarter. 

Source: Dunkin' Donuts' Blog

Dunkin' Brands reported earnings in-line with estimates and revenue exceeded analyst expectations, led by strength in the Dunkin' Donuts brand.

The great results allowed the company to raise its quarterly dividend by 21.1% and authorize a $125 million share repurchase program. Dunkin also provided guidance for fiscal 2014 which called for earnings per share of $1.79-$1.83, an increase of 17%-20% from fiscal 2013; the openings of more than 680 new locations worldwide will help with this growth, and it would propel the company to the best year in its history.

As you can see, the coffee and quick-serve restaurant industry is very strong right now, and for this reason I believe all Foolish portfolios should have one of these three powerhouses in them.

The Foolish bottom line
Krispy Kreme's earnings may have narrowly missed analyst expectations, but its raised guidance points toward a fruitful fiscal 2015. Also, its expansion plans will continue to drive earnings and revenues higher, which will enable the company to continue on its path of growth. Shares spiked after the report, but the stock still sits well below its 52-week high, so Foolish investors could look to pick up positions immediately and add to them if weakness sets in. 

Krispy Kreme represents a very good opportunity today, but there's a huge difference between a good opportunity and one that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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Joseph Solitro

A fan of innovation, strong fundamentals, and all things baseball. Follow on Twitter @JoeySolitro. Fool on!

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8/28/2015 4:02 PM
KKD $17.22 Up +0.12 +0.70%
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