Winston-Salem, North Carolina-based Krispy Kreme Doughnuts Inc (KKD) reported strong first quarter 2012 results driven by double-digit growth in the top line and strong margin expansion. During the quarter, the company recorded its highest quarterly earnings since the fourth quarter of 2004.
The doughnut chain posted first quarter 2012 earnings of 13 cents per share, beating the Zacks Consensus Estimate of 9 cents and the prior-year quarter earnings of 6 cents.
Total revenue climbed 13.6% year over year to $92.1 million and was slightly above the Zacks Consensus Estimate of $92.0 million. The company witnessed revenue growth across all its segments. Within segments, Company stores revenues jumped 11.1% year over year to $69.5 million, Domestic franchise revenues spiked 7.7% to $2.2 million, International franchise revenues escalated 18.4% to $5.6 million and KK Supply Chain revenues (excluding sales to Company stores) were up 19.9% to $27.1 million.
Same-store sales at Company stores rose 5.8%, reflecting the tenth consecutive quarter of comps growth. Domestic franchise same-store sales grew 4.6%, while International franchise same-store sales plunged 4.3%.
Direct operating expense, as a percentage of total revenue, dipped 60 basis points to 83.2% and general and administrative expenses dropped 80 basis points to 5.2%. As a result, operating income shot up 61% to $9.8 million. Interest expense reduced to $0.5 million from $1.9 million posted in the prior-year quarter due to lower debt.
Store Update
During the quarter, Krispy Kreme opened 20 franchise stores and 1 company-owned store and closed 15 franchised stores. Thus, as of October 31, 2010, the company had 86 company stores and 566 franchise stores.
Financial Position
Krispy Kreme ended first quarter 2012 with cash and cash equivalents of $24.7 million and shareholders’ equity of $86.4 million. As of May 1, 2011, long-term debt less current maturities was $32.3 million versus $32.9 million as of January 30, 2010.
Outlook
The company reaffirmed its fiscal 2012 outlook for operating income in the range of $22 million to $24 million, and expects to achieve the high end of the guidance based on strong first quarter earnings.
The company expects same-store sales at domestic stores to grow in 2012, but expects the same at international stores to remain challenged. Additionally, Krispy Kreme anticipates cost inflation to continue in 2012.
For fiscal 2012, Krispy Kreme plans to open 30 international franchise stores, 5 to 10 company stores, and 5 to 15 domestic franchise stores.
Our Take
The company’s share price closed 24% higher on Monday as Krispy Kreme reported its best quarterly earnings in seven years and also remained optimistic on achieving the higher end of its operating outlook. The company has started 2012 on an optimistic note and we expect the same trend to continue for the remaining part of year. The estimates are expected to go up significantly in the coming days. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 27 cents and 38 cents, respectively.
One of Krispy Kreme’s primary competitors, Red Robin Gourmet Burgers Inc.(RRGB) reported first quarter 2011 adjusted earnings of 58 cents per share, comprehensively beating the Zacks Consensus Estimate of 24 cents and the year-ago quarter earnings of 15 cents on higher revenues arising from higher traffic count.
KRISPY KREME (KKD): Free Stock Analysis Report
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