Dunkin' Brands (DNKN) and Krispy Kreme (KKD) are two of the largest retailers of coffee and doughnuts in the world, with over 19,000 locations between them that serve millions of people each day. Both companies have recently released their first-quarter earnings, so let's compare their results and outlooks on the rest of the fiscal year to determine which had the the better quarter and could provide the highest returns for investors going forward.
Breaking down the quarterly reports
Source: Dunkin' Brands.
Dunkin' Brands released its first-quarter report for fiscal 2014 on April 24, and the results fell short of analysts' expectations; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings per share | $0.33 | $0.36 |
| Revenue | $171.90 million | $172.66 million |
Source: Benzinga.
- Earnings per share increased 13.8%.
- Revenue increased 6.2%.
- Comparable-store sales data:
- Dunkin' Donuts United States: 1.2% increase
- Dunkin' Donuts International: 2.4% decrease
- Baskin-Robbins United States: 0.5% increase
- Baskin-Robbins International: 1.4% increase
- Operating profit increased 7% to $75.6 million.
- Operating margin expanded 30 basis points to 44%.
- Repurchased approximately $22 million worth of its common stock.
- Paid approximately $24.5 million in dividends.
- Updated store count: Dunkin' Brands opened 96 new stores during the quarter, bringing its total store count to 18,254 worldwide.
Source: Krispy Kreme
On June 2, Krispy Kreme released its first-quarter report for fiscal 2015, and the results came in mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings per share | $0.23 | $0.23 |
| Revenue | $121.58 million | $126.68 million |
Source: Benzinga.
- Earnings per share increased 15%.
- Revenue increased 0.8%.
- Comparable-store sales data:
- 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 $25.48 million worth of its common stock during the quarter.
- Updated store count: Krispy Kreme opened 27 new stores during the quarter, bringing the company's total store count to 855 worldwide.
Outlook on the year ahead
Source: Dunkin' Donuts.
Even though Dunkin' Brands experienced challenges in the first quarter, the company stated that it remains confident in its ability to achieve its full-year growth expectations and went on to reaffirm its outlook; here's a summary of this guidance:
- Earnings per share in the range of $1.79-$1.83
- Revenue in the range of $756.5 million-$771 million
- The openings of 685-800 new stores globally between both of its brands
Source: Krispy Kreme.
Following the weak first-quarter results, Krispy Kreme went on to lower its full-year earnings-per-share outlook and cited several reasons behind the reduction: "unfavorable" first-quarter results, an increase in the expected costs of its new technology systems, and an increase in compensation-related expenses, among others.
Krispy Kreme now anticipates earnings per share in the range of $0.69-$0.74, which would result in growth of 13.1%-21.3% from the $0.61 earned in fiscal 2014. This is down significantly from its previous estimated range of $0.73-$0.79, which called for growth of 19.7%-29.5%. Also, it is worth noting that the new outlook is well below the consensus analyst estimate of $0.78.
Source: Dunkin' Donuts.
And the winner is...
After reviewing the companies' earnings results and outlooks on the rest of the year, the winner of this match-up is Dunkin' Brands; it reported a quality quarter of growth, even with unfavorable weather affecting a large number of its stores in the Northeastern United States, and its outlook on the rest of the year calls for more of the same, while Krispy Kreme anticipates continued weakness.
On the day of its earnings release, Dunkin' Brands' stock fell approximately 1.9% and the weakness has continued in the weeks since. The stock now sits more than 13% below its 52-week high and yields about 2%, and I believe this represents a great buying opportunity. Foolish investors might want to consider initiating positions in Dunkin' Brands right now and adding to them on any further weakness, because the long-term potential of this global powerhouse outweighs any short-term negativity.
