Krispy Boosts Shareholder Value (KKD) (TXRH)

Zacks

Winston-Salem, North Carolina-based Krispy Kreme Doughnuts Inc(KKD) is set to boost investors’ wealth by initiating a share buyback program.

The board of directors of Krispy Kreme, an international chain of doughnut stores, has approved a new share repurchase program worth approximately $20 million. The company seeks to exercise the program in the open market or in negotiated transactions, depending on share price and other macro factors.

As of March 28, 2012, the company had shares outstanding of about 68 million. At the end of fourth quarter 2012, the company had cash and cash equivalents of $44.3 million and long-term debt less current maturities of $25.4 million.

We appreciate Krispy Kreme’s effort to enhance shareholders’ value. We believe that the new share repurchase authorization affirms the company’s positive outlook and reflects solid growth potential going forward.

Following the company’s announcement, significant movement in the company’s share price was witnessed. The new authorization has increased investor confidence in the company. The share price of Krispy Kreme climbed 2.1% from the previous day price, to close at $7.46 on Wednesday.

Over the last 7 days, there has been no movement in the analysts’ estimate. However, we believe that the news of the share buyback program might encourage the analysts to pull their estimates upward. The current Zacks Consensus Estimate for first-quarter 2012 is 10 cents per share. For full year 2012 and 2013, the Zacks Consensus Estimates are 27 cents and 34 cents, respectively.

In the recently concluded fourth quarter of 2011, Krispy Kreme reported adjusted earnings of 6 cents per share, lagging the Zacks Consensus Estimate by a penny. Quarterly earnings came in the positive territory from the year-ago loss of 2 cents per share. Total revenue climbed 11.2% year over year to $102.0 million in the quarter.

For 2013, operating income has been guided to a range of $29 million to $33 million, inclusive of impairment and lease termination costs. Free cash flow is estimated in the range of $71 million to $21 million.

Earnings are estimated to remain between 21 cents and 24 cents per share. On an adjusted basis, management expects earnings in the range of 35-41 cents per share, which includes only income tax. The huge difference in both guidance resulted from an increase in the estimated tax rate to 45% from management's earlier estimate of 6-7%. The higher tax rate arises out of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012.

Krispy Kreme remains focused on its expansion plan, menu innovation and an enthusiasm to brew up its beverage line. Additionally, the company also remains committed to expanding its business in both international and domestic markets.

Krispy Kreme currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Texas Roadhouse Inc (TXRH) currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating

KRISPY KREME (KKD): Free Stock Analysis Report

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