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

Krispy Kreme just released its fourth-quarter report, so let's take a look at the results and see whether we should buy now.

Mar 15, 2014 at 8:00AM

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.

Screen Shot

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

Kkd Fb

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...

Kkd Fb

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

Screen Shot

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.

Joseph Solitro owns shares of Dunkin' Brands Group. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information