Krispy Kreme Doughnuts Earnings: Will Growth Be Sweet?

On Monday, Krispy Kreme Doughnuts (KKD) will release its quarterly report, and investors remain unconvinced that the doughnut specialist will be able to translate growth into higher share prices. Given the cutthroat competition for the breakfast audience that Starbucks (SBUX 1.00%), McDonald's (MCD -0.05%) and a host of other restaurant and coffee chains are fighting, Krispy Kreme will find itself challenged to come up with ways to broaden its appeal beyond its core doughnut offerings to identify more profitable opportunities.

Many investors left Krispy Kreme for dead during the financial crisis, as what seemed like a played-out fad stock collapsed to the point of near-extinction. But in the years since then, Krispy Kreme has fought back, and now, the company has returned to solid profitability and consistent growth. Still, McDonald's and Starbucks want to capture as much business as they can, and that means fighting against Krispy Kreme's attempts to recover fully to its mid-2000s prominence in the industry. Let's take an early look at what's been happening with Krispy Kreme Doughnuts over the past quarter and what we're likely to see in its report.

Source: Krispy Kreme.

Stats on Krispy Kreme Doughnuts

Source: Yahoo! Finance.

Can Krispy Kreme earnings bounce back?
In recent months, analysts have gotten more positive about Krispy Kreme earnings, raising full-year fiscal 2015 projections by about 4%. The stock has stayed in a holding pattern lately, with roughly flat performance since late February.

Krispy Kreme's fiscal fourth-quarter report showed how well the doughnut-maker has done in its recovery. Same-store sales rose 1.6%, marking the latest in more than five years' worth of rising comps for Krispy Kreme. Overall revenue climbed 3.3%, producing a 37% jump in adjusted net income, and Krispy Kreme boosted its earnings guidance for the 2015 fiscal year by about 3% to 4%, now expecting roughly 20% to 30% earnings growth compared to fiscal 2014. Even though those figures weren't quite as optimistic as some investors had hoped, the stock soared on the news.

Source: Krispy Kreme.

One way that Krispy Kreme has been able to recover is by making the most of its international reputation and making its store arrangements more efficient. The company has found that smaller stores all served by a central bakery location has worked well in overseas areas like Korea and Australia, and many investors believe that the same format in the U.S. could be both appealing to potential franchisees and beneficial to Krispy Kreme's overall sales. Attacking the international market is especially important as both Starbucks and McDonald's already are well-known in most major foreign markets.

But Krispy Kreme won't grow without a fight. Starbucks has looked to expand not only geographically and through increased store counts but also by offering a greater variety of products to its customers, including tea and food, beyond its namesake coffee. McDonald's, meanwhile, understands the value of the breakfast crowd to its overall business and is trying to work harder at building up a loyal morning customer base. By contrast, Krispy Kreme has to overcome any perception that it's only a doughnut store if it wants to maximize its growth potential.

In the Krispy Kreme earnings report, watch to see not only whether the company's overall business expands but also where that expansion comes from. If Krispy Kreme can score growth in menu items beyond its classic doughnuts, then it could set the stage for long-term success for the company.

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