Sweet times ahead for Krispy Kreme

The doughnut maker quietly proves it's not only viable but has room to grow.

By TheStreet Staff Nov 21, 2012 12:56PM

Baker copyright Blend Images, SuperStockthestreet logo

By Jonathan Heller

 

Krispy Kreme (KKD), maker of perhaps the greatest doughnuts known to mankind (in my humble opinion, anyway), put up some great third-quarter numbers.

 

Revenue rose a solid 8.5% to $107.1 million, better than the $104.7 million consensus estimate, and 12 cents per share earnings blew away the 7 cents a share consensus. The 6.8% same-store sales increase for the quarter represented the 16th consecutive quarterly same-store sales increase.

 

This was a great quarter for a company that just a week and a half ago saw its shares drop 8% in one day, as the company's largest shareholder, Mohamed Abdulmohsin Al Kharafi & Sons of Kuwait dumped 800,000-plus shares, or about 11% of its stake during that week. But Tuesday's performance, with shares rising 23.5% on more than 10 times average volume, made that a distant memory. While the company's largest seller may continue selling, there may be ample demand for those shares as investors warm up to Krispy Kreme's story.

 

The story is a classic "rags to riches, back to rags" tale of the little doughnut maker that created a name for itself, developed a cult following, then went public. The stock soared initially, but cracks soon appeared as bad management, over-expansion and poor accounting practices nearly put the company under. Most probably forgot that Krispy Kreme was still publicly traded, as the company took several years to right the ship, closing stores, paying down debt and quietly developing an international franchise business.

 

kkd chart

 

There's still some skepticism out there about this company. That's not surprising given the past mistakes. The new Krispy Kreme, however, is quietly proving that it is not only viable but that there's room for growth. The company added 20 stores during the third quarter and now has 731 stores, 635 of which are franchises.

 

Krispy Kreme raised its 2013 outlook to 44 to 47 cents a share on $34 to $36 million operating earnings. For 2014, the company expects to open five to 10 company-owned stores, 10 to 15 domestic franchises, and 75 international franchises. The balance sheet is still strong. Krispy Kreme ended the quarter with $50 million in cash, and just $26 million in debt.

 

This comeback continues.

 

At the time of publication the author is long KKD.

 

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