Krispy Kreme (KKD) makes the world's greatest doughnuts in my opinion, but the chain has somehow managed to disappoint investors yet again. The stock is down some 5% so far today even though its latest earnings weren't really all that bad.
After the bell yesterday, Krispy Kreme reported $0.22 of earnings per share for its fiscal fourth quarter, beating analysts' consensus estimates by a penny.
But the chain's $130.4 million of quarterly revenues fell short of $133.02 million consensus that analysts had predicted, and what really sent the stock down is the guidance that management issued for the new year. Krispy Kreme forecast fiscal 2017 earnings per share in the $0.87-to-$0.91 range, which was below the $0.93 consensus that analysts had been calling for.
Still, I believe investors who are bidding KKD lower today are overlooking the fact that the chain -- which nearly went under several years ago -- is back in growth mode.
For instance, KKD reported opening 115 new overseas franchised stores in the last fiscal year, with plans to add some 120 to 140 more such locations over the coming fiscal year. That includes opening locations in six to eight new countries. Krispy Kreme also aims to add 20 franchised locations and 10 company-owned stores domestically in fiscal 2017.
Other tasty nuggets from yesterday's earnings report:
Sweet Sales Growth for U.S. Franchises
KKD's domestic franchised stores outpaced company-owned ones in same-store sales growth during the fiscal year just concluded. The franchises baked up 4.8% of such gains -- double the 2.4% increases seen at company-owned shops.
This might provide a catalyst for Krispy Kreme to get out of the company-store business altogether and focus on franchising, as the firm does internationally. That'd be good news, as franchising typically offers higher margins, lower costs and smaller capital requirements.
Such a move might also allow the company to monetize its real estate assets, which include the buildings that 71 Krispy Kreme locations use, as well as the land that 39 stores sit on.
No Holes in the Balance Sheet
KKD's balance sheet remains solid. The firm ended the year with $51 million in cash and just $11.5 million in debt.
An Appetizing Buyback Program
Krispy Kreme continues to repurchase shares, buying 2.8 million in the past fiscal year.
The chain also increased its authorization for further repurchases, meaning it can now buy an additional $144.3 million of shares.
The Bottom Line
KKD will likely see rollercoaster trading today, but that's nothing new for this stock following its earnings releases.
Investors should bear in mind that Krispy Kreme is asset rich, has an incredible brand name, is growing like a weed and is still trading for just 16x the low end of management's new earnings guidance. Add it all up and I'm happy to hang on for the ride!