Krispy Kreme shares rise on sweet 2Q results

[August 24, 2012]  NEW YORK (AP) -- Shares of Krispy Kreme Doughnuts Inc. rose Thursday, a day after the company announced sweeter-than-expected second-quarter net income and slightly boosted its full-year profit prediction.

THE SPARK: For the quarter ended July 29, the Winston-Salem, N.C.-based doughnut maker said it earned $4.9 million, or 7 cents per share, down from $8.8 million, or 12 cents per share, in the same quarter last year.

Krispy Kreme said that last year's quarter included a gain of 6 cents per share on the sale of its stake in a Mexican company, while the recent quarter's results were hurt by a substantially higher tax rate. Excluding one-time items, the company said it posted an adjusted profit of 12 cents per share for the recent quarter.

Revenue rose 4.3 percent to $102.1 million from $98 million.

Analysts, on average, expected a profit of 6 cents per share on $104.6 million in revenue, according to a FactSet poll.

The company said it still expects to post a full-year adjusted profit of between 36 cents and 42 cents per share, up from its previous range of 35 cents to 41 cents per share. Analysts expect 32 cents per share.

THE BIG PICTURE: Krispy Kreme said its company store revenue rose 5.1 percent to $69.3 million and included a 5.4 percent increase in revenue at stores open at least a year. The metric is a key measure of a retailer's health, because it excludes sales at stores that opened or closed during the year.

Domestic franchise revenue increased 3.4 percent to $2.4 million, boosted by higher royalties. Total sales at domestic franchises rose 7.3 percent, while revenue at domestic franchises open at least a year increased 6.7 percent.

International franchise revenue increased 8 percent to $5.8 million, also on higher royalty revenue. Total sales by international franchise stores rose 7.1 percent, boosted by the openings of new stores.

THE ANALYSIS: Janney Capital Markets analyst Mark Kallnowski backed his "Neutral" rating for the company, but noted that its 5.4 percent increase in revenue at company-owned stores was much higher than the 1 percent growth he expected. He attributed the better-than-expected growth to promotions related to the company's 75th birthday and National Doughnut Day.

B Riley analyst Conrad Lyon said that while the better-than-expected sales gave Krispy Kreme a boost, the main drivers of the better-than-expected earnings were the company's cost-management improvements.

"In general, we view the result as further confirmation that the overall business is building a stronger foundation while new revenue driving catalysts are cultivated (e.g., coffee sales and domestic franchise growth)," Lyon, who rated the company a "Buy," wrote in a note to investors.

THE SHARES: Up 45 cents, or 6.5 percent, to $7.40 in morning trading, after peaking at $7.44 earlier in the day. Over the past 52 weeks, the company's shares share traded between $5.78 and $9.47.

[Associated Press]

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