Krispy Kreme Doughnuts, Inc. (KKD), the Winston-Salem, NC-based doughnut maker, reaffirmed its earnings guidance for fiscal 2015, ending Feb 1, 2015. Further, the company initiated the earnings guidance for fiscal 2016, ending Jan 31, 2016.
Krispy Kreme reaffirmed its guidance for fiscal 2015, based on the year-to-date results. The company expects adjusted net income in the range of $48 to $51 million, which translates to expected earnings per share of 69 to 74 cents. Adjusted income will exclude a charge for settlement of employment contract and provision for deferred income taxes.
The reiteration of Krispy Kreme’s fiscal 2015 guidance reflects that it has been able to turn around the declining customer traffic trends in the last reported quarter. In fact, total revenue in fiscal third-quarter 2015 grew about 8%. Comps at company-owned stores shops rose 3.3%, which was primarily aided by higher traffic. The fact that the company managed to grow comps amid intense competition from other breakfast and coffee-oriented chains is commendable.
For fiscal 2016, management projects adjusted net income in the range of $55 to $59 million, which translates to earnings of 79 to 85 cents per share. The adjusted income for 2016 excludes provision for deferred income taxes.
In our opinion, strong growth prospects remain for the Krispy Kreme brand over the long term, especially in the high-growth international markets. However, we are concerned about its profitability as food costs remain at an all-time high and the coffee-related beverage sector in the quick service industry continues to remain intensely competitive.
Key Picks in the Sector
Krispy Kreme currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Brinker International, Inc. (EAT), Domino's Pizza, Inc. (DPZ) and Papa John's International Inc. (PZZA). All these stocks carry a Zacks Rank #2 (Buy).
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