Krispy Kreme raises outlook on strong 1Q

Krispy Kreme Doughnuts Inc. has raised its yearly outlook after reporting a strong first quarter, including a same-store sales increase of 11.4 percent at company-owned units.

The jump was mainly due to an increase in traffic, with some of the additional sales attributable to price increases, said president, chairman and chief executive James H. Morgan during an earnings call with analysts. Doughnut sales during the quarter were “doggone strong,” he said.

“We have now raised the bar on our earnings performance, and we believe we have embarked on a long-term pay-up, which will be one of ongoing and sustainable growth for many years to come,” he said.

During the quarter ended May 5, the company reported net income of $8 million, or 11 cents per share, an increase from $6 million, or 8 cents per share, in the prior-year quarter.

Revenue for the quarter increased 11.2 percent to $120.6 million from $108.5 million during the year-earlier quarter.

Domestic franchise same-store sales increased 11.3 percent during the quarter, while international franchise stores saw their same-store sales drop 7.3 percent due, in part, to a large number of unit openings in recent years. The quarter marked Krispy Kreme’s 18th consecutive quarter of same-store sales increases at company-owned locations.

As a result of the strong first-quarter earnings, Krispy Kreme revised its yearly outlook, predicting that adjusted earnings per share for the year would be between 59 cents and 63 cents — up from a previous prediction of 53 cents to 57 cents. The company aims to have more than 400 domestic units by 2017, Morgan said.

Going forward, Morgan said the company will continue to push its beverage program as a means of spurring sales growth. The company seeks to increase the percentage of Krispy Kreme transactions that include a beverage purchase, he added.

Beverage sales are about 16 percent higher compared with last year, Morgan said. “A portion of that reflects the fact that the lattes and some of the higher-priced coffee derivative drinks were picking up pace,” he said.

Still, Morgan said, there is room for improvement. “We know that the beverage sales are up,” he said, “but on a proportionate basis, probably not up as much as we would've liked to have had them.”

Mark Kalinowski, lead restaurant analyst at Janney Capital Markets, wrote that Krispy Kreme has opportunity in the beverage segment.

“We also believe opportunities exist to enhance customer frequency (for example, through expansion over the long run of the sales mix generated by beverages),” he wrote.

The company also plans to increase future sales by promoting “new doughnut-use occasions throughout the day and night” and to “own the doughnut category by maximizing dozens and innovating with limited-time offers, as well as adding new flavors and shapes,” Morgan said.

Will Slabaugh, a research analyst at financial-services firm Stephens, wrote in a report that the company outperformed the restaurant space during the quarter. “We continue to see a very large domestic growth opportunity for [Krispy Kreme] as sales growth remains strong and unit economics improve,” he wrote.

As of May 5, Winston-Salem, N.C.-based Krispy Kreme had 773 locations, 95 of which are company owned.

Contact Erin Dostal at [email protected].
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