By Spencer Jakab
It was dollars to doughnuts that a new chief executive would
accentuate the positive.
Tony Thompson, who assumed the top role at Krispy Kreme
Doughnuts Inc. in June, did just that when the company unveiled
disappointing fiscal second-quarter results back in September. Some
of Mr. Thompson's initiatives, such as a focus on beverages and
loyalty cards, taking a page out of the playbooks of Dunkin Brands
Group Inc. and Starbucks Corp., could give a fillip to revenue.
Ditto for a partnership selling branded coffee pods with Keurig
Green Mountain Inc.
But there remain plenty of reasons to be cautious about
quarterly numbers--particularly given the volatility of the stock
in the session following earnings releases. Over the past five
years, the median move in the stock has been 9%, positive or
negative, including five occasions when it fell by at least
15%.
The numbers might be more flattering this time around. Krispy
Kreme on Tuesday is expected to report earnings of 12 cents a share
for the fiscal third quarter ended in early November compared with
9 cents in the like period a year earlier, according to analysts
polled by FactSet.
Those reported numbers are a good deal lower than the adjusted
figures Krispy Kreme emphasizes, which include the benefit of
deferred tax assets. On a reported basis, Krispy Kreme trades at
43.1 times the current fiscal year's projected earnings compared
with 29.7 times for Dunkin and 26.1 times for Starbucks.
At the end of the second quarter, Krispy Kreme had 884 stores
globally, 12% more than a year earlier with the bulk of the
expansion in international franchise operations. But, beneath that
impressive glaze, there has been a worrying slowdown in customer
traffic. International franchises saw a 2.8% drop in same-store
sales in the past six months versus the equivalent period a year
earlier.
And rising dependence on international franchisees from
countries such as Mexico, South Korea and Saudi Arabia--which have
seen their currencies depreciate meaningfully relative to the
dollar recently--raises the likelihood that fiscal fourth-quarter
earnings guidance might get clipped.
Having dropped in the session after fiscal second-quarter
results were released, the stock has rallied by 19% in the past
three months. There is a risk of crashing from that sugar high.
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