Krispy Beats, Outlook Maintained - Analyst Blog

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Krispy Kreme Doughnuts Inc. ( KKD ) posted first quarter 2013 adjusted earnings of 14 cents per share, topping the Zacks Consensus Estimate by 6 cents and the year-ago earnings by a penny. On a reported basis, Krispy Kreme earned quarterly earnings of 8 cents per share.

Total revenue climbed 3.7% year over year to $108.5 million in the quarter. Within segments, company store revenues grew 5.6% year over year to $73.3 million, Domestic franchise revenue increased 11.1% to $2.6 million and International franchise revenue escalated 6.9% to $6.0 million, driven by higher royalty revenues. Total KK Supply Chain revenues remained flat year over year at $53.8 million.  

Same-store sales at company stores rose 2.1%, reflecting the fourteenth consecutive quarter of comps growth. Domestic franchise same-store sales grew 5.8%, but International franchise same-store sales fell 7.4%. Operating income in the quarter increased to $10.8 million from $9.8 million in the first quarter of 2012.

Store Update

During the quarter, Krispy Kreme opened 23 franchise stores and closed 25 franchised stores. At the end of the quarter, the company operated 92 company stores and 600 franchise stores.

Financial Position

Krispy Kreme ended first quarter 2013 with cash and cash equivalents of $51.5 million and shareholders' equity of $247.5 million. Long-term debt less current maturities was $24.8 million versus $25.4 million as of January 29, 2012.

During the quarter, the company also repurchased 255,000 shares at an average price of $7.27 per share.

Outlook

The company reaffirmed its outlook for 2013. The company continues to expect operating income in the range of $29 million to $33 million, inclusive of impairment and lease termination costs. Earnings are expected between 21 cents and 24 cents per share. On an adjusted basis, management expects 35-41 cents in earnings per share, which includes only income tax. The big difference in both the guidance is due to an estimated tax rate to 45% for 2013. The increased tax rate burden arises out of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012.

In 2013, the company plans to open 5 to 10 company stores, 10 to 15 domestic franchise stores and more than 75 international franchise stores.

Our Take

Krispy Kreme remains focused regarding its expansion plan, menu innovation and development of its beverage line.  Last year, Krispy Kreme introduced Coffee Blends in cups, brew boxes and fresh retail bags for home brewing. Buoyed by the strong results in coffee transaction, the company now looks steadfast to triple coffee sales by the end of fiscal 2015. At the current level, on-premises coffee sales account for about 4% of in-store mix. Moreover, Krispy Kreme puts concerted efforts in menu improvement to drive traffic in order to excel in its under-penetrated day parts along with crowded morning and afternoon hours.

 

The company also remains committed to expanding its business in both international and domestic markets. Management targets to operate 900 international stores by the end of fiscal 2017. Krispy Kreme is also focusing on building new, smaller factory stores in order to increase its presence in smaller markets.

 

On the flip side, the company's effective income tax rate for the years after fiscal 2012 will rise substantially.

 

Krispy Kreme, which competes with the likes of Einstein Noah Restaurant Group, Inc.( BAGL ) and Dunkin' Brands Group, Inc. ( DNKN ), currently retains a Zacks #4 Rank that translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.


 
EINSTEIN NOAH (BAGL): Free Stock Analysis Report
 
DUNKIN BRANDS (DNKN): Free Stock Analysis Report
 
KRISPY KREME (KKD): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BAGL , DNKN , KKD

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