Wall Street Slams Krispy Kreme on Soft Guidance

Andrew Klips |

Following the same path it took with its second quarter earnings release, shares of Krispy Kreme Doughnuts, Inc. (KKD) are plunging in Tuesday trading after disclosing third-quarter results after Monday’s closing bell and serving-up a softer-than-expected guidance for the next fiscal year. Still, though, sales were vastly improved compared to last year’s quarter and profits beat analyst predictions, but traders honed in on the guidance.

Q3 Earnings Beat Expectations

For the quarter ended November 3, the Winston-Salem, NC-based company reported a 6.7% rise in revenue to $114.2 million from $107.1 million in the third quarter of fiscal 2013. New income totaled $6.8 million, or $0.09 per share, versus $5.0 million, or $0.07 per share, in last year’s quarter. On an adjusted basis, which excludes one-time items, net income climbed 33.8 percent to $11.2 million, or $0.16 per share, from $8.3 million, or $0.12 per share, in the year prior quarter.

Wall Street was expecting adjusted earnings of $0.15 per share on revenue of 114.9 million.

Same-store sales at company-owned stores improved by 3.7 percent, which marked five straight years of consecutive quarterly growth. Through Monday’s close, shares of KKD were up about 900 percent across that span.

Same-store sales at domestic franchise-owned stores rose 10.7 percent. Comparable sales at international franchise stores increased 9.8 percent, excluding the impact of currency exchange rates.  Adjusted for changing rates, those same-store sales fell 3.1 percent, in part because of market cannibalization. 

Profits and sales have been steadily climbing as Krispy Kreme broadens its international footprint and adds more beverages to its store’s menu board, which has driven additional traffic. At the end of the quarter, there were about 810 Krispy Kreme locations worldwide (about 250 of them in the U.S.) canvassing 23 countries.

"Our relentless focus on executing our long-term strategic plan is enabling us to strengthen our Company, gradually unlock our brand's full potential and create value for our shareholders,” said James Morgan, chairman, president and chief executive at Krispy Kreme, in a statement.

Guidance Disappoints

The company raised the lower end of their adjusted earnings guidance for fiscal 2014, now expecting $0.60-$063 per share, compared to prior guidance of $0.59–$0.63 per share. 

For 2015, the Krispy Kreme sees adjusted profits in the range of $0.71–$0.76 cents per share, which was short of the $0.77 per share the markets were expecting.

This isn’t the first time that KKD shares have swung violently as investors digest earnings from the doughnut maker. After Q1 results, shares skyrocketed. As mentioned, Q2 results tanked the stock 15 percent, as earnings missed, although the stock recovered the losses in about six weeks.  This latest report was not as bad as the market is making it out to be, investors were apparently just expecting more as the company has appreciated by about 170 percent in the last year.

Just after lunch, shares of KKD are down about 20 percent at $19.72.

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Companies

Symbol Name Price Change % Volume
KKD Krispy Kreme Doughnuts Inc. n/a n/a n/a 0
JMPLF Johnson Matthey Plc (United Kingdom) 39.64 0.00 0.00 0

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