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Krispy Kreme COO Steps Down

Zacks Equity Research

Winston-Salem, North Carolina-based Krispy Kreme Doughnuts, Inc. (KKD) recently announced that its President and Chief Operating Officer (COO) Kenneth A. May has stepped down from his position citing personal reasons.

Mr. May joined the company toward the end of November 2011 and we were encouraged with his appointment given his experience of more than 25 years in the field of retail, brand enhancement and supply chain. We expected Krispy to prosper under his leadership. 

However, his resignation in such a short span of time comes as a shock for us. The investors were also disappointed; and consequently, the stock price fell 18 cents from the previous day price and closed at $6.84 on Tuesday.

James H. Morgan, the Chairman and Chief Executive officer (CEO) of Krispy Kreme has been reinstalled as the company’s President, the post he had held since 2008 and had to vacate when May joined.

In the recently concluded fourth quarter of 2012, the company reported adjusted earnings of 6 cents per share, lagging the Zacks Consensus Estimate by a penny. Quarterly earnings came in the positive territory from the year-ago loss of 2 cents per share.

Total revenue climbed 11.2% year over year to $102.0 million in the quarter. Same-store sales at company stores rose 8.3%, reflecting the thirteenth consecutive quarter of comps growth. Domestic franchise same-store sales grew 7.9%, but International franchise same-store sales fell 8.8%.

For 2013, the company expects earnings to remain between 21 cents and 24 cents per share.  On an adjusted basis, management expects earnings in the range of 35-41 cents, which includes only income tax. Operating income is estimated to be in  the range of $29 million to $33 million, inclusive of impairment and lease termination costs. 

Krispy Kreme, which competes with the likes of Red Robin Gourmet Burgers Inc. (RRGB) and Papa John's International Inc. (PZZA), currently retains a Zacks #4 Rank that translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.

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