Krispy Kreme Hits No. 20. Can It Keep Going?
Krispy Kreme Doughnuts has done it: 20 quarters in a row of positive same-store sales growth. If that's not a sign of a successful turnaround, I don't know what is. In an environment where competitors Dunkin' Brands Group and Starbucks are also displaying excellent strength in every metric, look for Krisoy Kreme to keep steamrolling ahead.
Krispy Kreme reported third-quarter results on Dec. 3. Overall revenue leaped 6.7% to $114.2 million. Adjusted operating income popped 25.7% to $11.6 million. Adjusted net income rocketed 34.9% to $11.2 million or $0.16 per share. Company same-store sales ascended 3.7% to $74.9 million. It was the 20th quarter in a row with a positive same-store sales increase.
CEO James H. Morgan credited the success to Krispy Kreme's "long-term strategic plan" that is able to "unlock [the] brand's full potential." He referred to the 20th quarter in a row of same-store sales growth as "a remarkable distinction." He reminded shareholders that this was "despite the tepid consumer spending environment." Still, he insisted Krispy Kreme has "a uniquely bright long-term future."
It doesn't sound like Krispy Kreme is slowing down any time soon. Early on in the call Morgan stated, "We are positioning ourselves for accelerated growth domestically with our new small factory store model and internationally by signing new franchisees, as well as follow-on development agreements with existing partners."
Morgan was quick to point out that the 3.7% increase in same-store sales was against a difficult quarter to beat last year that saw a 7% rise. Coffee and beverage sales did even better, coming in with a 4.2% gain. He stated that the next goals for Krispy Kreme are further increases in same-store sales and profitability.
CFO Douglas R. Muir offered a sneak peek into the fourth quarter. He stated, "As we have moved into the fourth quarter, we continue to see positive comparisons. Comps rose about 1.5% for the 3 weeks ended November 24. We expect to report our 21st consecutive quarter of positive same-store sales when we report our fourth quarter results in March."
For fiscal year 2015, Muir guided for adjusted EPS of between $0.71 and $0.76. It wasn't high enough for investors, and the stock got hammered on Tuesday. The problem with this negative reaction is that it's difficult for a place that sells doughnuts and coffee to give meaningful guidance this far in advance. As such, Muir was being extremely cautious and conservative. Few people seemed to pick up on the fact that Muir stated, "I'll emphasize that this is very preliminary." Translation? He's leaving himself room to potentially raise guidance as visibility improves.
While there is little question that Krispy Kreme is performing well, the environment for its pastries and coffee doesn't seem challenging judging by its competitors' results.
Dunkin' and Starbucks
Dunkin' Brands Group saw its own share of success. While CEO Nigel Travis has described this space as operating in "a fairly difficult environment," Dunkin' Brands has delivered results similar to those of Krispy Kreme. Last quarter, Dunkin' Brands saw overall revenue push 8.6% to $134.3 million. Its company-owned US Dunkin' Donuts same-store sales grew 4.2% as both guest traffic and average ticket sales climbed. Dunkin' Brands Group is working on reporting its 15th quarter in a row of positive same-store sales growth.
Starbucks was even better on same-store sales growth. It saw this metric rise by 8%. Considering how widespread and iconic the Starbucks brand already is, that's quite a jump especially if you really believe this space is having economic challenges. Starbucks' total revenue shot up 13% to $3.8 billion. CEO Howard Schultz called 2013 "a record year by far."
Foolish final thoughts
While it seems like Krispy Kreme, Dunkin' Brands Group, and Starbucks have been humble about industry conditions, the numbers tell a different story. With all three of these companies doing this well during "tepid" or "difficult" times, they may truly be off to the races when times improve. Foolish investors should take a closer look at Krispy Kreme for long term profitable growth.
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The article Krispy Kreme Hits No. 20. Can It Keep Going? originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. 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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