Krispy Kreme puts some icing on its stock

Its latest earnings report sent the shares to an 8-year high, but the valuation now appears to be pretty rich.

By Jonathan Berr Jun 3, 2013 10:10AM
Less than a decade after being snared in an accounting scandal, Krispy Kreme (KKD) has come roaring back, thanks to earnings CEO James Morgan described as "exceptional." Shares of the doughnut retailer surged more than 21% on Friday -- to the highest level in more than eight years, after the purveyor of high-caloric treats posted better-than-expected quarterly results. The company also ratcheted up its outlook for the current fiscal year by as much as 11%.

Krispy Kreme baked up net income of $8 million, or 11 cents per share, versus $6 million, or 8 cents per share, a year earlier. Revenue climbed 11.2% to $120.6 million. Excluding one-time items, that profit was 20 cents per share, surpassing the 17 cents per share analysts had expected. Revenue also was higher than the $116 million analysts had forecast.


Among the more impressive figures were same-store sales, which surged 11.4% at company-owned stores as coffee drinks and offerings such as frozen pink lemonade lured consumers. Krispy Kreme has posted 18 consecutive increases in this key retail metric of sales at stores open at least a year.


Doughnuts are boxed at the Krispy Kreme store on April 15, 2004 in New York City (© Chris Hondros/Getty Images)Shares of Krispy Kreme have powered up by more than 87% this year, outperforming larger rivals such as Starbucks (SBUX) and Dunkin' Brands (DNKN), which is also the parent of Baskin-Robbins. Both have both gained more than 18%.

However, Krispy Kreme has also said it will be tough for it to keep up its growth rate because of difficult comparisons with previous quarters. There's also a matter of size. Compared to its rivals, Krispy Kreme is tiny with just 700 locations, compared with Dunkin's 17,000 and Starbucks' nearly 18,000.

Krispy Kreme and its rivals are also facing growing public awareness of the nation’s obesity epidemic. It's hard to make the case that doughnuts are anything but an occasional treat. Dunkin' and Starbucks also have healthier options such as breakfast sandwiches that Krispy Kreme doesn't offer. There are other issues as well.


With a price-to-earnings ratio topping 59, Krispy Kreme shares are way too expensive to recommend. Investors will do better buying Starbucks, which has a relatively more reasonable valuation of 32. Investors, though, shouldn't take their eye off Krispy Kreme. The company has its fanatical fans and may be worth adding if the share price pulls back. 

As CEO Morgan noted during the earnings conference call, the company has a "myriad of opportunities for growth in products, day parts and store count that we have not yet begun to seize." Moreover, Krispy Kreme could also make a tasty acquisition for one of its larger rivals.

Have any questions about this or any other "Killer Companies" episode, or suggestions for companies to cover? Submit them in the comments section below.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

Jun 3, 2013 11:39AM

The yeast raising process that KK uses for doughnuts is quite superior and frying at the right temperature ensures very little oil absorbtion. They are yummy and i love the KK originals fresh and hot. Although, i limit myself to not more than 1 at a time with tea. Eat it like a treat and they are fine, you cant eat these like a meal.

KK doughnuts are much superior to Dunkin, which taste more like cake rather than doughnut.

Jun 3, 2013 11:20AM

FatCat Not everyone is fat!!

I like their donuts but don't understand why they wont put out a long john / maple bar.


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