Why Krispy Kreme Shares Got Dumped

Why Krispy Kreme Shares Got Dumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Krispy Kreme Doughnuts were looking stale today, falling by as much 15% after a disappointing second-quarter earnings report.

So what: The doughnut-and-coffee chain saw strong sales growth, but earnings came up short. As shares had already been bid up so much this year, the market saw this as a warning sign. Adjusted per-share profits bumped up from $0.12 to $0.14, missing estimates of $0.16. Revenue was up 10% to $112.7 million, ahead of expectations of $111.9 million, while same-store sales grew by an impressive clip, at 10%. Krispy Kreme left its full-year EPS guidance unchanged at $0.59-$0.63, though that was below projections at $0.64. The company also said comparable sales slowed in August, after the reporting period ended.

Now what: This was not a terrible quarter by any means, and same-store sales growth of 10% would make most retailers jealous. However, Krispy Kreme's share price has tripled in the past year as its turnaround strategy has taken hold after over-expanding several years ago. Still, with earnings projected to come in below estimates this year, and analysts expecting only modest growth next year, the share price seems like it has gotten a little overheated. I wouldn't be surprised to see this slide continue.

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The article Why Krispy Kreme Shares Got Dumped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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