Stock in the Spotlight: Krispy Kreme Doughnuts, Inc. (NYSE:KKD)

Krispy Kreme Doughnuts, Inc. (NYSE:KKD) reported earnings for the three months ended April 2016 on May 31, 2016. The company earned $0.25 per share on revenue of $136.48M. Analysts had been modeling earning per share of $0.24 with $137.08M in revenue.

Krispy Kreme Doughnuts, Inc. (NYSE:KKD) reported financial results for the first quarter of fiscal 2017, ended May 1, 2016.

First Quarter Fiscal 2017 Highlights Compared to the Year-Ago Period:

  • Revenues increased 3.0% to $136.5 million from $132.5 million.
  • Domestic systemwide same store sales rose 0.7%, including a 0.7% decrease at Company Stores and 1.6% increase at domestic franchise stores; constant currency international franchise same store sales declined 7.3%.
  • Systemwide store count rose 13.0% from the first quarter of last year to 1,133 shops worldwide.
  • Operating income was $15.9 million compared to $17.3 million, including $0.5 million in impairment and lease termination costs and $1.6 million in employee termination benefits and Merger related costs in the current year period.
  • Net income was $9.4 million ($0.14 per share) compared to $10.7 million ($0.16 per share) in the first quarter last year.
  • Adjusted earnings per share rose to $0.25 per share from $0.24 in the first quarter last year.
  • Cash provided by operating activities was $19.5 million compared to $17.1 million in the first quarter last year.
  • The Company repurchased 2.4 million shares of its common stock for a total cost of $39.6 million under the authorization approved by the Board of Directors and pursuant to a pre-arranged stock trading plan in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934 and the Company’s policies regarding stock transactions. The settlement of such purchases was $34.2 million during the quarter.

Results for the Quarter Ended May 1, 2016

Consolidated Results

In addition to the results included in the highlights above, direct operating expenses for the first quarter of fiscal 2017 increased to $108.0 million from $103.8 million in the comparable period last year and, as a percentage of total revenues, increased to 79.1% from 78.3%. Direct operating expenses include $1.1 million related to employee termination benefits.

General and administrative expenses were $7.5 million in the first quarter compared to $7.6 million in the same period a year ago. General and administrative expenses in the first quarter of fiscal 2017 include $0.1 million in employee termination benefits and $0.5 million in Merger related costs.

Impairment charges and lease termination costs of $0.5 million in the first quarter of the current year principally relate to the refranchising of certain shop locations which was completed during the second quarter of fiscal 2017.

Segment Results

Revenues at Company Stores increased 3.6% to $94.0 million in the quarter, driven by a 4.7% increase in on-premises sales, which included a 1.8% increase in store operating weeks and 0.7% decrease in same store sales. Sales within the consumer packaged goods category, which represents just under half of the Company Stores segment revenues, increased 2.3% compared to the prior year. Company Stores segment operating income decreased from $7.4 million to $6.0 million in the quarter as a result of the Company Stores contribution margin decreasing from 18.5% to 17.1% and $0.4 million in employee termination benefits. The decrease in contribution margin was primarily due to higher shop labor partially offset by lower commodity costs.

Domestic Franchise revenues increased 11.5% to $4.1 million primarily reflecting higher royalties. Total sales by domestic franchisees rose 6.7%, and same store sales at domestic franchise shops increased 1.6%. The Domestic Franchise segment generated operating income of $2.5 million compared to $2.1 million in the same period last year, and included $0.2 million in employee termination benefits.

Krispy Kreme Doughnuts, Inc. earnings per share showed an increasing trend of 11% for the current fiscal year. The company’s expected EPS growth rate for next fiscal year is 105%.Analysts project EPS growth over the next 5 years at 20%. It has EPS annual growth over the past 5 fiscal years of 34.8% when sales grew 7.5. It reported 3% sales growth, and -7.4% EPS decline in the last quarter.

The stock is trading at $20.99, up 62.71% from 52-week low of $12.9. The stock trades down -3.49% from its peak of $21.75 and % below the consensus price target of $21.1. Its volume clocked up at 0.58 million shares which is lower than the average volume of 1.46 million shares. Its market capitalization currently stands at $1.28B.

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