Krispy Kreme Doughnuts Earnings: Will Growth Be Sweet?

On Monday, Krispy Kreme Doughnuts (NYSE: 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 (NASDAQ: SBUX  ) , McDonald's (NYSE: MCD  ) 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

Analyst EPS Estimate

$0.23

Change From Year-Ago EPS

15%

Revenue Estimate

$126.68 million

Change From Year-Ago Revenue

5%

Earnings Beats in Past 4 Quarters

2

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.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour. (That's almost as much as the average American makes in a year!) And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click here to discover more about this industry-leading stock, and join Buffett in his quest for a veritable landslide of profits!

Click here to add Krispy Kreme Doughnuts to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2978249, ~/Articles/ArticleHandler.aspx, 10/21/2014 11:40:47 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement