Krispy Kreme Doughnuts Inc.
(
KKD
) posted third quarter 2012 earnings of 7 cents per share, beating
the Zacks Consensus Estimate by a penny. Quarterly earnings more
than doubled from the year-ago level of 3 cents a share.
Total revenue climbed 9.4% year over year to $98.7 million in
the quarter. Within segments, company store revenues jumped 9.8%
year over year to $61.6 million, Domestic franchise revenue grew
14.1% to $2.3 million, International franchise revenue escalated
22.4% to $5.4 million, driven by higher royalty revenues, and KK
Supply Chain revenues (including sales to company stores) increased
11.7% to $50.3 million, largely driven by price inflation across
all major product categories.
Same-store sales at company stores rose 4.0%, reflecting the
twelfth consecutive quarter of comps growth. Domestic franchise
same-store sales grew 7.9%,but International franchise same-store
sales fell 8.5% .
Direct operating expense, as a percentage of total revenue,
declined 70 basis points to 87.7% and general and administrative
expenses dropped 30 basis points to 5.0%. As a result, operating
income shot up 36.6% to $5.6 million. Interest expense also fell
due to lower debt as well as refinancing of credit facility.
KK Supply Chainraised selling prices t o counter higher input
costs, leading to a decline in operating margin in the third
quarter of fiscal 2012 compared with the year-ago quarter.
Store Update
During the quarter, Krispy Kreme opened 22 franchise stores and
one company-owned stores and closed 14 franchised stores. At the
end of the quarter, the company had 89 company stores and 589
franchise stores.
Financial Position
Krispy Kreme ended third quarter 2012 with cash and cash
equivalents of $37.6 million and shareholders' equity of $102.4
million. As of October 30, 2011, long-term debt less current
maturities was $25.3 million versus $32.9 million as of January 30,
2011.
Outlook
The company raised its fiscal 2012 outlook for operating income
in the range of $24 to $26 million (earlier $22 to $24
million).
For 2013, operating income has been guided to a range of $29
million to $33 million inclusive of impairment and lease
termination costs. Earnings are estimated to remain between
35 cents and 41 cents.
In 2013, the company anticipates opening 5 to 10 company stores,
10 to 15 domestic franchise stores and more than 60 international
franchise stores.
Our Take
We heard a clear positive tone from Krispy Kreme's third-quarter
earnings, echoed by the increased guidance, consistent growth in
company same-store sales efficient cost-containment efforts and
stable financials. The year 2012 has so far been solid for Krispy
Kreme.
The company also remains committed to expanding it s business in
both international and domestic markets. According to management,
the company's overseas expansion is expected to be more in 2013
than in 2012.
On the flip side, the company's effective income tax rate for
years after fiscal 2012 will rise substantially.
Furthermore, prices of agricultural and other commodities will
remain volatile, as expected. Krispy Kreme is resorting to all
possible measures like reduction in consumption of certain key
ingredients to weather this pressure.
Krispy Kreme, which competes with the likes of
Red Robin Gourmet Burgers Inc.
(
RRGB
) and
Papa John's International Inc.
(
PZZA
), currently retains a Zacks #3 Rank that translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on the stock.
KRISPY KREME (
KKD
): Free Stock Analysis Report
PAPA JOHNS INTL (
PZZA
): Free Stock Analysis Report
RED ROBIN GOURM (
RRGB
): Free Stock Analysis Report
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