Krispy Kreme Shares Dunked on Earnings Miss

Andrew Klips  |

Shares of Krispy Kreme Doughnuts, Inc. (KKD) are heading into the Labor Day weekend on a bad note after posting weaker-than-expected second-quarter profits, sending shares to one-month lows and giving large gains in 2013 a haircut.

For the quarter, the Winston-Salem, North Carolina-based doughnut chain posted revenues of $112.7 million, up by 10.4 percent from $012.1 million in last year’s quarter.  Net income totaled $4.72 million, or 7 cents per share, compared to $4.93 million, or 7 cents per share, in the year prior quarter.  Excluding costs associated with refinancing debt and other one-time items, earnings were $9.63 million, or 14 cents per share, versus $8.22 million, or 12 cents per share, last year.

Wall Street was expecting profits of 16 cents per share on sales of $111.9 million.  Analysts typically don’t include one-time items in their expectations.

The company said that earnings were impacted 3 cents per share from “unusual items in the aggregate” and losses on derivative positions.

Driven largely by a nearly 7-percent increased in store traffic, corporate-owned same-store sales improved by 10 percent, marking the 19th straight quarter of increases.  Domestic franchise same-store sales rose 11.5 percent.

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Revenue from company-owned stores increased 9.2 percent to $75.7 million.  Included in the results for corporate stores was an $880,000 gain from refranchising three stores in the Dallas market.  Higher royalties helped lift domestic franchise revenue by 15.2 percent to $2.8 million.

Krispy Kreme supply chain revenue increased 11 percent to $57.3 million as the company sold more of its doughnut mix at higher prices.

Operating income rose from $9.2 million last year to $10.6 million, including about $1.1 million in gains on agricultural derivatives.  Last year’s quarter was negatively impacted by $410,000 from derivatives.

"During the second quarter, we took advantage of a robust credit market and our steadily improving results to refinance our credit facilities and retire our $22 million term loan balance.  We ended the quarter with over $60 million in cash and basically no debt, and reduced our interest expense going forward,” said James Morgan, chairman, president and CEO at Krispy Kreme.

The company also reaffirmed its fiscal 2014 outlook of adjusted net income between $42 million and $45 million, equating to a range of 59 cents to 63 cents per share.  In fiscal 2013, profits were 47 cents per share.

The numbers were actually pretty solid in the report, but given its massive run in the past year, the markets did not want to hear of profits not matching expectations, even with the increasing sales and no matter the reason.  Shares dropped at the opening bell and have done little to recover, printing down about 14 percent at $20.00 as the day winds towards a close.  On the bright side, shares are still up about 115 percent so far in 2013.

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