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Krispy Kreme Doughnuts, Inc. (KKD - Snapshot Report) posted soft fiscal third quarter 2014 results; managing to meet the Zacks Consensus Estimate for earnings but missing the same for revenue. Moreover, the company issued a soft guidance for fiscal 2015.

Adjusted earnings of 16 cents per share in the third quarter of fiscal 2014 increased 33.0% year over year driven by lower interest expense and higher margins. The results were in line with the Zacks Consensus Estimate.

Revenues

Krispy Kreme quarterly revenues were $114.2 million, up 6.7% year over year. The top line, however, marginally missed the Zacks Consensus Estimate of $115.0 million.

Comps at Company stores segment were up 3.7%, much lower than 10.0% in the second quarter due to weak consumer spending environment.

Comps at Domestic Franchise segment increased 10.7% year over year. However, comps declined 3.1% year over year at international franchise stores segment due to market cannibalization.

Operational Highlights

Direct operating expense ratio was 82.4%, down from 84.2% in the year-ago quarter. However, general and administrative expense ratio was up 30 basis points year over year due to higher costs associated with the Enterprise Resource Planning ("ERP") system.

Operating income was up 25% to $11.5 million while margins improved 150 basis (bps) points year over year.

Financial Condition

As of Nov 3, 2013, cash and cash equivalents were $66.7 million, up from $60.3 million as of Aug 4, 2013. Long-term debt, less current maturities was approximately 1.6 million, up from $1.1 million as of Aug 4, 2013. Net cash provided by operating activities during the quarter was $13.5 million, down from $15.0 million in the year-ago quarter.

Stores Outlook

For fiscal fourth quarter, the company expects to report positive comps at the Company Store segment.

For fiscal 2015, the company plans to open 10 to 15 company stores, better than 7 expected for fiscal 2014. It targets 20 to 25 domestic franchise store openings, up from 10 to 15 expected for fiscal 2014, and about 85 international franchise store openings in fiscal 2015, approximately flat year over year.

Tightens FY14 Guidance, Provides FY15 View

The company expects fiscal fourth quarter 2013 earnings in the range of 11 cents to 14 cents. For fiscal 2014, the company increased the lower end of the earnings guidance. Currently, it expects fiscal 2014 earnings in the range of 60 cents to 63 cents versus its prior range of 59 cents to 63 cents. The current guidance reflects a year over year increase of 28.0% to 34.0%. Currently, the Zacks Consensus Estimate of 63 cents is at the higher end of the guidance provided by the company.

The company also provided guidance for fiscal 2015. It expects earnings in the range of 71 cents to 76 cents on low single-digit organic same-store sales growth. Currently, the guidance marginally falls short of the Zacks Consensus Estimate of 77 cents per share.

Zacks Rank

Krispy Kreme Doughnuts currently has a Zacks Rank #2 (Buy). Other stocks worth considering in the same industry include Buffalo Wild Wings Inc. (BWLD - Analyst Report), Burger King Worldwide, Inc. (BKW - Analyst Report) and Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report). All these stocks carry the same Zacks Rank as Krispy Kreme Doughnuts.

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