Is Krispy Kreme Low Hanging Fruit or Sour Dough?

Source: Krispy Kreme

On June 3, shares of Krispy Kreme Doughnuts (NYSE: KKD  ) fell nearly 15%. The significant falloff in share price came after management released adjusted earnings that matched expectations but revenue that fell far short of what analysts anticipated. In spite of this poor news and because the company's stock is currently trading at a discount, is now the best time to buy into this coffee and donut chain? Or would a stake in Starbucks (NASDAQ: SBUX  ) or Dunkin' Brands (NASDAQ: DNKN  ) make more sense?

Krispy Kreme's results weren't sweet enough for investors!
For the quarter, Krispy Kreme reported revenue of $121.6 million. Even though this result was 0.8% higher than the $120.6 million management reported for the same quarter last year, it fell shy of the $126.7 million Mr. Market wanted to see.

According to the company's earnings release, the main driver behind its higher (but lackluster) sales was a 3.3% increase in store count combined with a 4.5% improvement in domestic franchised comparable-store sales. This was, however, offset by comparable- store sales declines in the business' company-owned stores and its international franchised locations.

Source: Krispy Kreme

While Krispy Kreme missed the mark on sales, it did manage to do alright on earnings. For the quarter, the business reported earnings per share of $0.14, up from the $0.11 management reported in last year's quarter. After factoring in certain adjustments, the business earned $0.23 per share, beating out the $0.20 per share in adjusted profits reported last year and coming in line with forecasts.

In spite of just marginally higher revenue, Krispy Kreme's profitability rose at an impressive rate because of a decline in its direct operating expenses. During the quarter, the business saw these expenses make up 78.3% of sales, down from the 80% of sales reported for the first quarter of 2014.

Source: Krispy Kreme

How does Krispy Kreme look compared to its peers?
Over the past five years, Krispy Kreme has done pretty well for itself. Between 2009 and 2013 (its 2010 through 2014 fiscal years), the donut chain saw revenue climb 33% from $346.5 million to $460.3 million. For this period, the company can attribute its top-line results to a greater number of locations in operation, which jumped 42% from 582 to 828, along with its aggregate company-owned comparable-store sales increase of 27%.

During a similar five-year period, Dunkin' Brands posted results that were in line with Krispy Kreme's. Between 2009 and 2013, the donut and coffee chain reported a 33% increase in revenue from $538.1 million to $713.8 million; its points of distribution rose by 18% from 15,373 locations to 18,158, and aggregate comparable-store sales in its Dunkin' Donuts U.S. segment rose 14%.

SBUX Revenue (Annual) Chart

Starbucks revenue (annual) data by YCharts

While both of these businesses have done well during this time frame, the real winner of the bunch has to be Starbucks. Over the past five years, the coffee giant reported a massive 52% jump in revenue from $9.8 billion to $14.9 billion. Performance was driven, in part, by a 19% increase in store count from 16,635 locations to 19,767 but mostly attributable to a 24% rise in aggregate comparable- store sales.

Foolish takeaway
Based on the data provided, it's clear that Mr. Market wasn't very happy with Krispy Kreme's results. Yes, the business did meet earnings expectations, but it couldn't come anywhere near the level of sales investors were anticipating. Over the long run, however, the company's results have been strong enough to make it (and Dunkin' Brands with its strong metrics) attractive, but the most interesting company appears to be Starbucks because of its stellar growth.

Leaked: Apple's next smart device (warning, it may shock you)
While coffee and donuts can be an exciting business, all these companies combined might not make up the value of the next big thing being developed by Apple!

You see, Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


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