Why Krispy Kreme Doughnuts Shares Dropped Today

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 doughnut chain Krispy Kreme Doughnuts sank 13% today after its quarterly results and guidance disappointed Wall Street.

So what: The stock had pulled back sharply since November on signs of sluggish demand, and today's Q1 results -- net income rose 21% but revenue only increased 1% -- coupled with downbeat guidance only reinforce that trend. And while management blamed the 1.5% same-store sales decline on severe winter weather, Mr. Market is interpreting it as a sign that Krispy Kreme's competitive position and, in turn, its long-term turnaround hopes are rapidly deteriorating.

Now what: Management now expects full-year EPS of $0.69-$0.74, down from its prior view of $0.73-$0.79 and also below the consensus of $0.78. "The change reflects, among other things, our first quarter performance, higher than anticipated investment in a new enterprise resource planning system and higher costs than we had planned associated with executive management succession," said Chairman James Morgan. "Taking all these factors into account, we felt it was prudent to revise our expectations for the balance of the year." Given Krispy Kreme's worrisome operating trend and highly volatile shares, it also seems prudent for Fools to remain on the sidelines. 

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The article Why Krispy Kreme Doughnuts Shares Dropped Today originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. 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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