Starbucks (NASDAQ: SBUX ) and Krispy Kreme (NYSE: KKD ) are two of the largest coffee and quick-serve restaurant chains in the world, and both have recently released earnings for their respective quarters. Let's compare the companies' results and outlooks on the rest of the fiscal year to determine which had the better quarter and could provide the highest returns for investors going forward.
Breaking down the quarterly results
Starbucks released its second-quarter report for fiscal 2014 on April 24 and the results were mixed compared to the consensus analyst estimates; here's a breakdown and year-over-year comparison:
|Earnings per share||$0.56||$0.56|
|Revenue||$3.87 billion||$3.95 billion|
- Earnings per share increased 17%
- Revenue increased 9.1%
- Comparable-store sales data by region:
- Americas: 6% increase
- EMEA: 6% increase
- China and Asia-Pacific: 7% increase
- Overall: 6% increase
- Operating profit increased 18.4% to $644.1 million
- Operating margin expanded 130 basis points to 16.6%
- Returned nearly $500 million to shareholders by repurchasing approximately 3.5 million shares of its common stock and paying a quarterly dividend of $0.26 per share; there are now approximately 22 million shares available for purchase under Starbucks' previous authorizations.
- Expansion update: Starbucks opened 335 net new stores during the quarter, bringing its total store count to 20,519 worldwide.
Krispy Kreme released its first-quarter report for fiscal 2015 on June 2 and the results were mixed compared to the consensus analyst estimates as well; here's a breakdown and a year-over-year comparison:
|Earnings per share||$0.23||$0.23|
|Revenue||$121.58 million||$126.68 million|
- Earnings per share increased 15%
- Revenue increased 0.8%
- Comparable-store sales data by segment:
- Company-owned stores: 1.5% decrease
- Domestic franchises: 4.5% increase
- International franchises: 2.2% decrease
- Operating profit increased 6.6% to $16.2 million
- Operating margin expanded 70 basis points to 13.3%
- Repurchased approximately 1.44 million shares of its common stock for $25.48 million; there is now approximately $25 million remaining on the company's existing share repurchase authorization.
- Expansion update: Krispy Kreme opened 27 net new stores during the quarter, bringing its total store count to 855 worldwide.
What will the remainder of the year hold?
Following its strong second quarter, Starbucks increased its earnings-per-share guidance and reaffirmed its full-year growth expectations; here's what the company now expects to accomplish:
- Earnings per share in the range of $2.62-$2.68
- Net sales growth of 10% or more
- Global comparable-store sales in the mid-single-digit percentage range
- Operating margin expansion of 175-200 basis points
- Opening approximately 1,500 net new stores
As a result of its weaker-than-expected first-quarter results, Krispy Kreme lowered its full-year earnings-per-share outlook; here's the company's new outlook versus its previous one:
|Metric||Previous Outlook||Current Outlook|
|Earnings per share||$0.73-$0.79||$0.69-$0.74|
As you can see, Krispy Kreme's new outlook calls for significantly less growth than its previous one had, and the outlook also came in below the consensus analyst estimate of $0.78 per share. Krispy Kreme stated that this reduction resulted from "unfavorable" first-quarter results, higher-than-expected expenses related to its new technology systems, and higher-than-expected compensation-related expenses, among other things.
And the winner is...
After comparing the companies' quarterly results and outlooks on the rest of the year, the winner of this match-up is Starbucks; its growth outpaced that of Krispy Kreme in every key financial category and its outlook calls for much higher growth going forward.
On the day of its earnings release, Starbucks' stock rose 0.51% and it has continued higher in the weeks since; however, even after this rally, it still sits more than 9% below its 52-week high and has a dividend yield of about 1.4%, which represents a great investment opportunity. Foolish investors should strongly consider buying in right now, because I believe the long-term potential of Starbucks is much greater than that of any other company in the industry.
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