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Krispy Kreme's post-earnings surge wanes

Thousands eat their doughnuts outside the Krispy Kreme during the Krispy Kreme Challenge Saturday Feb. 5, 2011, at the Krispy Kreme on North Person St. in Raleigh, N.C. About 7,500 people were scheduled to take place in the annual run. The rules are simple and stomach-churning: run for two miles, eat a dozen Krispy Kreme doughnuts and then run back along the same two miles. (AP Photo/The News & Observer, Ethan Hyman) MANDATORY CREDIT
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Thousands eat their doughnuts outside the Krispy Kreme during the Krispy Kreme Challenge Saturday Feb. 5, 2011, at the Krispy Kreme on North Person St. in Raleigh, N.C. About 7,500 people were scheduled to take place in the annual run. The rules are simple and stomach-churning: run for two miles, eat a dozen Krispy Kreme doughnuts and then run back along the same two miles.

The initially euphoric reaction in off-hours trading to Krispy Kreme's (KKD) latest earnings report abated once the regular session got underway, though volume was considerably heavier than normal in the doughnut seller.

After climbing more than 10% following Wednesday's close, and remaining strong ahead of Thursday's open, the stock recently settled back to a gain of 1.4%, at $20.16. For a time, it was even negative for the day amid what has become a broad stock selloff. In later afternoon trade, 4.5 million shares of Krispy Kreme had changed hands, roughly quadruple the average amount for a full day. Part of that action, as well as the now-gone advance, may be from short sellers covering a portion of their position, which measured about 9.9% of Krispy Kreme's float at the end of February.

Just after Krispy Kreme reported, it looked as if a trend of significant post-earnings moves would continue. Though the five-year bull market has levitated many a stock, and the restaurants have shown an incredible ability to surge even amid muted traffic and cautious consumer spending, the jump in Krispy Kreme seemed perhaps outsized.

Although it raised its fiscal 2015 forecast to a profit of 73 cents to 79 cents, from 71 cents to 76 cents previously, the company acknowledged the improvement will get an assist from stock buybacks that are reducing the share count (Krispy Kreme's repurchase ability was increased by $30 million to a total of $80 million). That's long been a quick way for companies to prop up earnings per share without actually having to create more net income. However, in fairness to Krispy Kreme, it said it would probably earn $32.4 million to $34.8 million in 2015, up from the prior band of $31.3 million to $33.6 million. In any event, a guidance bump-up without the buyback factor may have led to a more sustained elevation.

Long, cold winter

The potential to split hairs aside, the outlook and Krispy Kreme's ongoing expansion talk was enough to overcome the fact that fourth-quarter adjusted earnings of 12 cents a share and revenue of $112.7 million fell short of analysts' estimates. Same-store sales, however, were slightly better than expected at 1.6% growth, despite being reduced by the same winter weather many shops have said hurt their results in recent months.

Regardless of near-term stock swings, Krispy Kreme does have room to be optimistic. It's still a fairly small chain, totaling 828 locations at year end, and it's growing, with a goal of 1,300 stores in the U.S. and abroad by the start of 2017. Traffic is aiding in driving the same-store sales, and getting more customers in the door is a real challenge at many sectors of the restaurant arena. That's a tremendous plus for Krispy Kreme. And, more broadly, since it's seeing visitation flourish, that stands as some evidence that, despite the now-constant talk of obesity paired with the victory laps of better-for-you fast casual fare, there's still room for sweet doughy treats in the world.

Doughnuts notwithstanding, the coffee component is a critical part of Krispy Kreme's future. It signed a recent deal with Green Mountain (GMCR) surrounding single-serve Keurig brewers, and it will be distributing branded iced coffee at Wal-Mart (WMT) stores. This matters because Americans clearly can't get enough java. Consider the proliferation of Starbucks (SBUX), McDonald's (MCD) huge investments over the years in coffee, coffee's close association with Dunkin' Brands (DNKN) and Smucker's (SJM) multiple coffee acquisitions. As most of Krispy Kreme's stores are outside the United States, it's doing itself a favor if it can grab a bigger slice of the domestic coffee market share on store shelves and in kitchens.

And, of course, lift earnings at the same time.

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