Krispy Kreme Low Fiscal Earnings a Caution to Investors


Krispy Kreme doughnuts (KKD) recently reported below expected first quarter fiscal earnings that’s certain to leave investors a tad salty over the numbers of this sweet, comfort food company. The famed doughnut maker that went public in 2000 has experienced its share of fiscal ups and down. It started out with a bang in 2000 and by 2003 the brand had landed a cover on Fortune magazine, dubbing it America’s Hottest Brand.”

In 2004 it suffered its first quarterly loss. As if things couldn’t get worse, later that year the Securities and Exchange Commission conducted an inquiry into the company regarding accounting irregularities which lead to the shut-down of stores and circulating rumors of bankruptcy filings. Krispy Kreme soon became recognized by some as a fueled-out fast food failure. In February 2009 Krispy Kreme stock finally plummeted to a trading price $1.08 a share. It eventually bounced back and in February 2013 the trading price was a healthy $13.25 a share which was a 60 percent upward trend from the year prior.

By February and March of this year economists predicted a favorable upward trend for the doughnut maker, but yesterdays turn of events flies in the face of those predictions.

Economist Jeff Macke quipped that one might only need to check the trends of Krispy Kreame stock as opposed to the Institute of Supply Management for an accurate economic growth indicator. Macke noted that Krispy Kreme stocks fell in December 2013 and that this should have served as an indicator of a tight economy. He quipped that the public may want to turn their ears away from the economists and simply take a trip down to the doughnut store.

Fast forward to June 2. Krispy Kremes fiscal earnings are lower than projected, prompting caution for investors. Based out of Winston-Salem, North Carolina, Krispy Kreme reported a fiscal first-quarter net income of $9.7 million, up 20.7 percent from $8 million last year. The first quarter revenue of 121.6 was up 0.8 percent from last year. However, this fiscal report was off the mark of analysts expectations by $5.08 million.

The investment website Seeking Alpha reported that wholesale as well as on-site sales, were adversely affected due to severe winter weather throughout the company store base in the southeast. This produced a 1.5 percent decline in same-store sales as opposed to same-store sales a year prior which prospered at 12.2 percent. These numbers reflect Jeff Macke’s sentiments regarding utilizing Krispy Kreme losses as an economic indicator.

This new blow to Krispy Kreme happens to fall on the heels of the recent transitioning of the Krispy Kreme CEO seat. Former CEO Jim Morgan relinquished his seat as Krispy Kreme CEO and welcomed former Papa John Chief Operating Officer Anthony Thompson aboard to step into his shoes, effective two days ago on June 1. Morgan remains on board with Krispy Kreme as a full-time executive chairman.

The dismal first quarter fiscal report may serve as a sobering welcome for Thompson, beckoning him to live up to the new Krispy Kreme challenge and forge ahead to a more prosperous second quarter. With Krispe Kreme’s low fiscal earnings looming over the new throne, the cautious eyes of the investors will remain fixed on this latest changing of the guards.

Commentary by Janet Walters Levite

Yahoo Finance