Earnings momentum has been strong for
Krispy Kreme Doughnuts Inc.
) since it reported strong fiscal second-quarter results in late
August. The quarter included a positive surprise of 40.0% and a
bright outlook for the full year. Moreover, with a long-term
earnings growth projection of 25.0%, this Zacks #2 Rank (Buy) looks
like a solid growth pick.
Q2 Witnesses Big Beat; Q3 Coming Up
On August 22, Krispy Kreme announced fiscal second-quarter earnings
per share of 7 cents, beating the Zacks Consensus Estimate of 5
cents. Total revenue climbed 4.3% year over year to $102.1 million.
Same-store sales at company stores increased 5.4%, marking the 15th
consecutive quarter of comps growth. Domestic franchise same-store
sales grew 6.7%, but International franchise same-store sales fell
10.0%. Operating income in the quarter expanded 87% to $9.0
During the quarter, the company also completed its $20 million
share repurchase program.
Krispy Kreme reaffirmed its outlook for fiscal 2013, but expects
overall results to be at the higher end of the previously-guided
range. The company continues to see operating income between $29
million and $33 million, including impairment and lease termination
costs. Earnings are expected between 22 cents and 25 cents per
share. On an adjusted basis, management forecasts earnings per
share of 36 cents to 42 cents, which includes only income tax.
Krispy Kreme is expected to release its fiscal 2013 third quarter
earnings on November, 26. The Zacks Consensus Estimates are for
earnings at 8 cents per share on revenue of $105.0 million.
Earnings Momentum on the Rise
Over the last 60 days, the Zacks Consensus Estimate for fiscal 2013
surged 68.0% to 42 cents per share, implying year-over-year growth
of 37.1%. For fiscal 2014, the Zacks Consensus Estimate jumped
51.6% to 47 cents over the same time frame, representing
year-over-year growth of 10.6%.
Though the stock of Krispy Kreme is not cheap by most valuation
metrics, it looks reasonable on a P/B and PEG basis. The stock
currently trades at a forward P/B of 2.17x, a 30% discount to the
peer group average of 3.08x. Given the long-term growth projection
of 25%, the PEG ratio comes in at 0.7, a 30% discount to the
benchmark of 1 for a value stock. Thus, the expected long-term
earnings growth is currently set at a discount. Given a
double-digit earnings growth prospect in the current year, the
valuation presents a window of opportunity for investors seeking
Chart Shows Strength
The company has been continuously outperforming its 200-day and
50-day moving averages since reporting strong second quarter fiscal
2013 results. The year-to-date return for the stock is 17.0%,
compared with the S&P 500's return of 14.0%. Volume is strong,
averaging roughly 234K daily.
Based in Winston-Salem, North Carolina., Krispy Kreme is a leading
branded specialty retailer of premium quality doughnuts. As of July
29, 2012, the company operated 93 company stores and 618 franchise
stores. Founded in 1937, the company plans to operate 900
international stores by the end of fiscal 2017. With a market
capital of about $497.3 million, Krispy Kreme competes with Dunkin'
Brands Group, Inc. (
), among others.
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