After being underwater for much of the day, a late rally drove stocks into positive territory today. The Nasdaq was the biggest winner, gaining 0.70%. The S&P 500 wasn't far behind. Some say the upturn was driven by the fact the price of oil and the dollar held steady and because complete mayhem did not break out at yesterday's NBA games. Phew. We feel safe for a day.

In today's Motley Fool Take:

Krispy Kreme Clams Up


Seth Jayson (TMF Bent)

If there's one thing the market hates more than a company mired in both an earnings slide and an SEC investigation, it's a company that declines to give forward guidance and refuses to answer questions on its conference call. Combine all of these sins under one roof, and you have the situation at Motley Fool Stock Advisor recommendation KrispyKreme(NYSE: KKD), which has undergone a harsh, 17% weight-loss program as of this morning.

For starters, the doughnut maker missed earnings by $0.09. That's a big whiff when the expectation -- before restructuring costs -- was only $0.13 to begin with. There are plenty of ways to slice and dice the numbers, and things look bad no matter how you do it. Top-line revenues of $170 million were just above flat, notching a slim 1.4% advance. But the gain was owed to new stores.

Operating profits took a major hit, and though much of it looks like it was due to $3 million spent on litigation, the firm warned that the future will bring more of the same. Combined with charges for discontinued operations, the final hurt was -$0.05 per share. For shareholders who remember last year's $0.23 per share in earnings, the news was probably about as welcome as a low-carb doughnut or that ridiculous doughnut-flavored beverage.

A couple of months back, Fool Krispy Kreme bear Bill Mann offered a recipe for saving the firm that included common-sense solutions such as slowing growth down and improving profitability through concentrating on locations very likely to succeed. It's tough to tell whether there's been any improvement along those lines.

Failures in key metrics, such as the 17% drop in sales per week at existing stores, indicate major problems for those who believe in future growth. And while we now know that this is not the next Starbucks(Nasdaq: SBUX), be careful that you don't confuse it with McDonald's(NYSE: MCD) before the turnaround, either.

It's tough enough to face major operational problems, an SEC inquiry, or a sales slump alone. But doing all of this at one time is Krispy Kreme's current curse, and to judge by management's new refusal to peer into the future, investors should expect things to get worse before they get better.

For related Foolishness:

Seth Jayson loves a hot doughnut, but he's awfully glad he didn't partake of Krispy Kreme's hot stock. At the time of publication, he had positions in no firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.

Discussion Board of the Day: Amazon

How is Amazon shaping up for the 2004 holiday season? When will its growth rate slow to that of traditional retailers? All this and more -- in the Amazon discussion board. Only on

Toys "R" Us Hopes for Happy Holidays


Nathan Slaughter

There isn't much to like about a $25 million quarterly loss except, perhaps, when it is stacked up against a comparable prior-year loss that was $46 million, or nearly twice as steep. That is Toys "R" Us'(NYSE: TOY) situation. The struggling retailer announced this morning that it has pared back last year's $0.22 third-quarter shortfall to just $0.12, topping expectations by three cents. Kids "R" Us store closings, though, erased $117 million from sales, which slipped 1.4% lower to $2.21 billion.

Former Kids "R" Us real estate, which was purchased earlier this year by Office Depot(NYSE: ODP), has provided a substantial influx of cash -- more than $130 million already, with another $67 million on the way. Real estate gains totaled $23 million for the quarter (partially offset by $12 million in store closing charges), and additional gains are anticipated in the fourth quarter.

Same-store sales in the U.S. toy division dropped 1.7% and through the first nine months are 5% below last year's pace. Video game sales, though, which constitute about 13% of domestic toy revenues, appear to be on an upswing. After a double-digit decline in the first half of the year, sales of video game merchandise rose 2.4% during the quarter, and further growth is expected next year as a new cycle of game platforms hits the market.

U.S. toy sales fell 8.3% for the quarter to $1.1 billion, but operating losses narrowed slightly to $77 million from $79 million. Year to date, extensive inventory markdowns have caused operating income in the segment to plummet from an $81 million loss to $229 million. Elsewhere, though, things are looking a little brighter.

Toy sales have been more brisk overseas, with the international division reporting a 4.3% gain in comps (excluding currency translation), and a 5.5% increase in sales to $483 million. The same is true in the online world. Despite a contentious disagreement with former partner AMZN), the company's online operations contributed sales of $67 million, a double-digit advance from the year before on a pro-forma basis.

The firm's pride and joy, though, continues to be its more profitable Babies "R" Us concept, the nation's largest baby-related specialty chain. With 10 new stores and a modest rise in comps, sales for the segment increased 5.6% to $473 million. More importantly, the segment posted a 14% improvement in operating income to $57 million.

With the company possibly courting a buyer, there is no better time than the upcoming holiday season for Toys "R" Us to pad its corporate resume. Wal-Mart(NYSE: WMT) has indicated it wishes to avoid a repeat of last year's cutthroat price wars, which bodes well. Furthermore, Mattel(NYSE: MAT), Hasbro(NYSE: HAS), and other toy suppliers have pledged support in the form of product exclusivity and advertising commitments. When shareholders unwrap Toys "R" Us' fourth-quarter results, they may find a belated, but surprisingly good, Christmas present inside.

Take these toy stories off the shelf and give them a try:

Fool contributor Nathan Slaughter owns none of the companies mentioned.

Quote of Note

"Dance is the hidden language of the soul." -- Martha Graham

Campbell Could Be Better


W.D. Crotty

Campbell Soup Company (NYSE: CPB) shareholders, when seeing today's first-quarter earnings report, probably said, "M'm! M'm! Good!" With first-quarter sales up 10% and net income increasing 9%, what is there not to like? Well, plenty.

Operating earnings were up a mere 4% and, as a percentage of sales, declined from 20% last year to 19% now. It was only last May when the CEO was talking about arresting the decline in operating margins. Who wouldn't agree with that? So, where is it?

Part of the reason operating margins were under stress was the company's decision to move more marketing and trade promotion programs into the first quarter. That drove sales higher, but what about the rest of the year?

Analysts had expected another lukewarm performance. Their $0.52-a-share earnings forecast missed the actual results by four pennies. But their pessimism wasn't unjustified. The company stayed with its forecast that earnings would increase 5% to 7% in 2005 (excluding restructuring charges) -- within analyst expectations of $1.66 a share (17 times forward earnings).

President and CEO Douglas R. Conant says, "We are off to a strong start," but realize three cents per share of the jump in net income this quarter comes from a favorable swing in "unallocated corporate expenses."

Campbell's revenues, along with soup peers H.J. Heinz(NYSE: HNZ) and General Mills(NYSE: GIS), are growing slowly. Food giant Kraft Foods(NYSE: KFT) isn't different. All carry significant debt loads.

For investors looking for a food processing industry investments, Motley Fool Income Investor recommendation Heinz, and its 3.0% yield (0.5% more than Campbell), deserves attention. Also of interest is Motley Fool Hidden Gems recommendation Fresh Del MonteProduce(NYSE: FDP). Growing much faster, it sells for 11 times earnings and yields 3.0%.

Campbell's has great brands but is highly concentrated in soups, which, until this quarter, have seen declining market share. This quarter, especially with the increased promotional spending, does not mark a clear trend reversal in soups. Yes, the numbers were good (if operating margins are ignored), but, when compared with the stocks of other food processors, others are: M'm! M'm! Better!

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.

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For a list of all our stories from today, see our Today's Headlines page.