Krispy Kreme: Doughnuts Are Hot, Stock Is Not

Source: Thinkstock

Source: Thinkstock

Krispy Kreme Doughnuts (NYSE:KKD) definitely makes delicious doughnuts, breakfast goods, and coffee — but its stock has generally been unreliable at best. It soared and collapsed numerous times, and now the stock could be heading for another tumble after reporting a so-so quarter and giving weak guidance.

In its first-quarter, Krispy Kreme reported earnings per share in line with estimates but fanned on revenues. Revenues increased 0.8 percent to $121.6 million from $120.6 million. Excluding the effects of refranchising three stores in Kansas and Missouri and three stores in Dallas in February and July of 2013, respectively, revenues rose 2.1 percent. Direct operating expenses were $95.2 million, representing 78.3 percent of revenues compared to 80.0 percent of revenues last year. General and administrative expenses rose to $7.0 million from $6.1 million in the year-ago period, and as a percentage of revenues increased to 5.8 percent from 5.0 percent. The increase in general and administrative expenses in the first-quarter of fiscal 2015 reflects, among other things, approximately $400,000 of incremental expenses related to the implementation of a new enterprise resource planning system. Operating income rose 6.6 percent to $16.2 million from $15.2 million.

One piece of good news is that with the exception of the first-quarter last year, company Stores profitability in the quarter was the strongest of any quarter in years. Revenues decreased 1.8 percent to $80.4 million from $81.9 million. Exclusive of the effects of refranchising six stores in fiscal 2014, revenues increased 1.3 percent. Same-store sales at company shops declined 1.5 percent against an extremely robust gain of 12.2 percent in the first-quarter last year. The company Stores segment posted operating income of $4.4 million compared to $5.3 million last year.

Domestic Franchise revenues increased 21.9 percent to $3.5 million, reflecting higher royalties, initial franchise fees and ancillary revenues, including rental income on stores leased and subleased to two franchisees in connection with the fiscal 2014 refranchisings. Total sales by domestic franchisees rose 8.3 percent, of which approximately 1.9 percentage points reflects the fiscal 2014 refranchisings, while same store sales at Domestic Franchise shops increased 4.5 percent. Domestic Franchise segment operating income improved to $2.2 million from $1.4 million. International Franchise revenues increased 2.1 percent to $6.6 million, driven by higher royalties. Sales by international franchise stores rose 3.9 percent to $115 million. International Franchise segment generated operating income of $4.3 million compared to $4.5 million. The decline in International Franchise segment operating income reflects continuing deployment of increased resources to support current and anticipated future international growth.