Krispy Kreme a Penny Short, Net Ups - Analyst Blog
March 21 2012 - 4:45AM
Zacks
Krispy Kreme Doughnuts
Inc. (KKD) posted fourth quarter 2012 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
level of 2 cents loss per share. On a reported basis, Krispy Kreme
earned quarterly earnings of $2.01 per share.
Total revenue climbed 11.2% year
over year to $102.0 million in the quarter. Within segments,
company store revenues grew 11.0% year over year to $68.6 million,
Domestic franchise revenue grew 9.3% to $2.4 million and
International franchise revenue escalated 22.2% to $6.3 million,
driven by higher royalty revenues.
Total KK Supply Chain revenues
increased 13.4% to $52.0 million buoyed by a selling price hike in
major product categories. KK Supply Chain raised selling prices to
counter higher input costs, mainly agricultural
commodity.
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%. Operating
income in the quarter increased to $5.3 million from $0.9
million.
In full-fiscal 2012, adjusted
earnings per share were 31 cents as against 11 cents recorded in
the prior-year quarter. Total revenue went up 11.4% to $403.2
million.
Store Update
During the quarter, Krispy Kreme
opened 26 franchise stores and 3 company-owned stores and closed 13
franchised stores. At the end of the quarter, the company had 92
company stores and 602 franchise stores.
Financial
Position
Krispy Kreme ended fourth quarter
2012 with cash and cash equivalents of $44.3 million and
shareholders’ equity of $249.3 million. Long-term debt less current
maturities was $25.4 million versus $32.9 million as of January 30,
2011.
Outlook
For 2013, operating income has been
guided to a range of $29 million to $33 million inclusive of
impairment and lease termination costs. Earnings are
estimated to remain between 21 cents and 24 cents. On an
adjusted basis, management expects 35-41 cents in earnings per
share, which includes only income tax. The big difference in both
guidance resulted from an increase in the estimated tax rate to 45%
from management's earlier estimate of 6-7%. The higher tax rate
arises out of the reversal of valuation allowances on deferred tax
assets in the fourth quarter of fiscal 2012.
In 2013, the company anticipates
opening 5 to 10 company stores, 10 to 15 domestic franchise stores
and more than 75 international franchise stores.
Our Take
We heard a clear optimistic tone
from Krispy Kreme earnings release regarding its expansion plan,
menu planning and an enthusiasm to brew up its beverage line.
Last year, Krispy Kreme introduced Coffee Blends in cups, brew
boxes and fresh retail bags for home brewing. Buoyed by the
strong results in coffee transaction, the company now looks
steadfast to triple coffee sales by the end of fiscal 2015. At the
current level, on-premises coffee sales, account for about 4% of
in-store mix. Here is not the end; Krispy Kreme puts concerted
efforts in menu improvement to drive traffic in order to excel in
its under-penetrated day parts along with crowded morning and
afternoon hours.
The company also remains committed
to expanding its business in both international and domestic
markets. According to management, its target is to have 900 stores
in operation by the end of fiscal 2017.
On the flip side, the company's
effective income tax rate for the years after fiscal 2012 will rise
substantially.
Furthermore, the company stated
that prices of agricultural and other commodities will remain
unstable. Krispy Kreme is resorting to all possible measures like
reduction in consumption of certain key ingredients to weather this
pressure.
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 #3 Rank that translates into a short-term
Hold rating. We are also maintaining our long-term Neutral
recommendation on the stock.
KRISPY KREME (KKD): Free Stock Analysis Report
PAPA JOHNS INTL (PZZA): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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