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Donuts Win, Burgers Lose as Stock Markets Finish Slightly Lower

By Dan Caplinger – Aug 19, 2021 at 6:22PM

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A host of restaurant stocks released their earnings on Thursday.

The stock market had a turbulent day on Thursday, although the closing moves for the Dow Jones Industrial Average (^DJI -1.40%), S&P 500 (^GSPC -1.79%), and Nasdaq Composite (^IXIC) ended up being relatively small. The minutes from the latest Federal Open Market Committee meeting on monetary policy had some investors on edge, while others focused on potential fallout from consumers.


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Data source: Yahoo! Finance.

Restaurant stocks were among the many industries featuring companies releasing key news, and different niches experienced different movements. Shares of newly public Krispy Kreme (DNUT -4.11%) finished the day significantly higher, but the news wasn't nearly as good for Red Robin Gourmet Burgers (RRGB -6.68%). Below, we'll look at both reports to see what insight they can provide about the industry.

No holes in this company

Krispy Kreme shares finished higher by more than 14% on Thursday. The donut maker's shareholders reacted favorably to news that it apparently has pricing power to withstand some adverse trends in the restaurant industry.

Child eating a powder- sugared donut.

Image source: Getty Images.

Krispy Kreme shares had initially reacted negatively to the company's second-quarter earnings report despite solid business performance. Revenue climbed 43% from year-earlier levels, and adjusted earnings per share jumped 30% year over year. Guidance for the full 2021 year was also favorable, with expectations for revenue gains of as much as 23% and earnings growth potentially approaching 60%.

However, investors seemed to have second thoughts about punishing the stock after the company revealed that it intends to boost prices in September. With costs of sugar and food oils on the rise, Krispy Kreme faced the difficult choice of either passing through costs to customers or accepting narrower margins. Picking the former, Krispy Kreme emphasized that price increases won't be draconian as it wants to ensure it can continue to grow overall sales volume.

Even with the advance, Krispy Kreme shares are down significantly from their opening price in last month's IPO. It'll take more smart strategic business moves to get Krispy Kreme shareholders to feel confident about the donut maker's long-term prospects.

Red Robin faces worries

Meanwhile, shares of Red Robin Gourmet Burgers finished lower by 16%, prompting some to refer to the downward move as a crash. The fast-casual burger chain saw significant improvement from year-ago levels in its Q2 financial results, but investors seem nervous about what could lie ahead for Red Robin in the months to come.

The numbers for Red Robin's Q2 showed a solid bounce from the worst of the COVID-19 pandemic. Comparable restaurant revenue jumped more than 66% year over year, and although comps were down 2.4% from two years ago, restaurants that had managed to return to 100% capacity and full hours posted a 7% rise in comps from 2019 levels.

Nevertheless, there were some negative points as well. Even with the bounce, Red Robin wasn't able to return to profitability, posting adjusted losses of $0.22 per share. Moreover, the burger chain said that it has had some challenges in finding labor, and it had to respond by reducing operating hours in some locations to ensure an appropriate level of service for patrons.

Going forward, a lot will depend on the extent to which Red Robin's partnership with Donatos Pizza continues to bear fruit. Restaurants with Donatos dramatically outperformed restaurants that didn't partner with the pizza maker, and that could prove to be the difference between success and failure for Red Robin going forward.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Krispy Kreme, Inc. Stock Quote
Krispy Kreme, Inc.
$15.18 (-4.11%) $0.65
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,947.10 (-1.40%) $-482.78
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,998.84 (-1.79%) $-72.86
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,461.50 (%)
Red Robin Gourmet Burgers Stock Quote
Red Robin Gourmet Burgers
$7.69 (-6.68%) $0.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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