Shares of donut giant Krispy Kreme (NASDAQ: DNUT) fell 32.2% this week through Thursday trading, according to data from S&P Global Market Intelligence.
The donut slinger reported fourth-quarter earnings this week, and investors were clearly left wanting. A reported cyberattack and cautious 2025 guidance didn't help matters, either.
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A Q4 miss and cautious 2025 guidance
In the fourth quarter, Krispy Kreme saw revenue of $404 million, down 10.4% from the prior-year quarter, while adjusted non-GAAP (generally accepted accounting principles) earnings per share sank 89% to $0.01. Both figures missed analyst expectations.
Krispy Kreme was hit with a cyberattack in December that affected online ordering. Not only did the attack affect costs to remediate the problem, but revenue was affected as well.
Moreover, management set a cautious tone for the year ahead. Revenue is now expected to be $1.55 billion to $1.65 billion, with adjusted EPS of just $0.04 to $0.08. That marks a decline from fiscal 2024's revenue and EPS of $1.67 billion and $0.11, respectively.
The guidance isn't quite as bad as it may look on the surface, as Krispy Kreme sold its Insomnia Cookies brand last year, so that revenue won't recur in 2025. Krispy Kreme is also looking to refranchise more stores. When a company franchises stores, it gives up 100% of the store's revenue in exchange for a franchise fee and ingredients sales, but also doesn't have the costs and burdens of running operations. On an organic basis, Krispy Kreme still expects revenue to grow 5% to 7%.
However, that sales figure was still below the consensus of Wall Street analysts, which stood at $1.78 billion prior to the report. Management also pointed to a cautious consumer and California wildfires affecting the early-2025 outlook.
There will also be elevated costs and investments in the year ahead, as Krispy Kreme continues to pay to fix its cybersecurity vulnerabilities. Additionally, Krispy Kreme has to invest in its new partnership with McDonald's (NYSE: MCD), announced last May. Krispy Kreme management noted it expects to be in 6,000 McDonald's by the end of 2025 and 12,000 by the end of 2026.
A post-sugar high crash
After going public at the height of the IPO market in mid-2021, Krispy Kreme has crashed to an all-time low this week.
The sell-off could potentially an opportunity; shares now go for roughly 10 times enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization), based on forward guidance of $180 million to $200 million in 2025 adjusted EBITDA.
That's not that expensive for a reliable, growing branded franchise business. However, as growth has stalled over the past couple years, investors may want to see how management puts the cyber incident behind it and assess the benefits of the McDonald's partnership before taking a bite of the stock.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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