Krispy Kreme's (KKD) Earnings Aren't Sweet Enough for Wall Street

Shares of Krispy Kreme (KKD) didn't taste so sweet last week, after the company reported second quarter earnings that beat the consensus estimate on revenue but missed on earnings. The company reported adjusted earnings of $0.14 per share, which came in two cents shorts of analyst estimates. Revenue rose 10% to $112.7 million, topping the consensus estimate of $111.5 million. Same-store sales at the donut chain climbed 10%.

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Although shares plunged 12% immediately after the earnings release, CEO James Morgan remained upbeat, calling the second quarter "an outstanding quarter for us, and results exceeded our expectations, despite unusual items that in the aggregate negatively affected our earnings by about $0.01 per adjusted share." Investors, however, were less optimistic, especially since Morgan merely reaffirmed its full year earnings guidance of $0.59 to $0.63 per share, rather than raising it. Morgan emphasized that the company's current projection represents 30% year-on-year growth, although it was clear that Wall Street had expected more. The main concern about Krispy Kreme appeared to be its higher-than-expected operating expenses due to expansion. For investors unfamiliar with the Krispy Kreme story, overzealous expansion and an accounting scandal nearly destroyed the company several years ago. After slimming down and straightening out its financials, the company made an impressive comeback, tripling its share price over the past twelve months. Its expansion has been well-received, while same-store sales have risen at established locations. A major part of Krispy Kreme's expansion is its efforts to saturate Asian markets like South Korea and Taiwan. On July 23, Krispy Kreme announced a new agreement with its franchisee Lotteria Co. to open 60 new Krispy Kreme outlets in South Korea over the next five years. It is also adding 10 locations to Taiwan, after its primary rival, Dunkin' Brands (DNKN), pulled out of the country earlier this year. Last month, Krispy Kreme also announced that it would buy back $50 million in outstanding shares effective immediately. Krispy Kreme's primary competitors also include coffee giant Starbucks (SBUX) and fast food chain McDonald's (MCD), which both offer popular coffee and dessert menus. Although Krispy Kreme has gained significant market share over the past year, it continues to lag industry leaders. According to IBD's list of 197 industries, Krispy Kreme fell from #14 to #47 within two months as market leaders like McDonald's consolidate their operations. Shares of Krispy Kreme currently trade at 31 times forward earnings with a 5-year PEG ratio of 1.45 -- indicating that the stock is still trading at a premium despite expectations for longer-term growth. The stock does not currently pay a dividend. Other News About KKD Krispy Kreme Sinks 12% on Disappointing Profit Krispy Kreme doesn't taste as sweet anymore. Krispy Kreme Slumps After Profit Misses Estimates The donut maker posts a big bottom line miss. Other Stocks in the News Is This Health Care Stock Underrated? Should you invest in Perrigo? A CloserLook at 4 Online Gaming Companies in China A look at PC gaming in China. Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Sep 5, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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