Is Krispy Kreme's (NYSE:KKD) growth story getting stale? According to "internal figures" obtained by The Wall Street Journal, sales at about 40 outlets that were opened during the past year averaged some $35,000 during the quarter ended Aug. 4. That's well below the $64,000 the company has averaged in the past.
Krispy Kreme's biggest franchisee provides even more evidence of slowing growth. Great Circle Family Foods saw same-store sales fall 10% last quarter in its 22 Southern California outlets, says the Journal, and the number of people visiting those locations declined by almost 20%.
Management says the Journal's numbers are mostly accurate but do not show the complete picture. Chief Operating Officer John Tate told the paper his company is "exactly on our target and on strategy for our growth model." Still, this is not what investors have come to expect from a Wall Street darling that has shown incredibly sugary 63% quarterly growth in operating earnings over the past decade.
Could there actually be a saturation problem for a chain with only 313 shops nationwide? Consider that while same-store sales company-wide are up about 15%, weekly per-store sales have fallen in the last couple of quarters. As J.P. Morgan analyst John Ivankoe told the Journal, that can only happen if weekly sales at recently opened stores are "meaningfully lower" than the $64,000 system-wide average. This indicates that new stores in existing markets aren't being met with as much enthusiasm as the first new shop.
But while you'd expect a stock that's richly valued by traditional measures to take quite a hit on this news, Krispy Kreme (a recent Motley Fool Stock Advisor selection) only saw its shares trading down about 4% today. Perhaps investors are taking Mr. Tate at his word, and are keeping their eyes on that expected 32% growth rate over the next five years.
