Krispy Kreme Doughnuts (KKD, Financial) recently posted strong results for the second quarter. The company saw a decent improvement in revenue and earnings, but the results fell short of the consensus estimates. This led the stock to fall by 4.8% as investors went on the back foot. However, management is focusing on improving its doughnut sales under its long-term strategic plan. Also, the new additions to its product offerings can be a growth driver for it in the future. Let us take a look at Krispy Kreme Doughnuts and find out what strategies it is undertaking to regain its lost market share.
Results and beyond
In the recently reported second quarter, Krispy Kreme Doughnuts’ revenue increased by 6.9% to $120.5 million from $112.7 million as compared to the same quarter a year ago. This also out spaced analysts’ estimates of $117.5 million on the top line. The net income of the company also increased to $5.8 million from $4.7 million as compared to the net income posted in the same quarter last year. Krispy Kreme failed to meet analysts’ estimates on earnings for $0.16 per share revenue of $118.13.
Krispy Kreme Doughnuts is in a good shape which is evident in the revenue and the earnings that its posted in the recently reported quarter. It shows the company’s marketing, operating and culinary teams work, which drove doughnut sales. The operational excellence also led the company to see good contribution from its franchises in the local as well as international markets. Being in line with this, the management is exploring many aspects to improve its profitability going forward.
It is seeing many growth opportunities and in this course it is building new company shops which will support its current franchisees' growth. In addition, it is also signing new franchise agreements globally with well-capitalized partners that are attracted to its solid ROIs and our strong brand.
Krispy Kreme is seeing growing momentum in its domestic unit development. It has already seen growth in its systemwide unit count by 3.4% in the quarter and 6.8% year-to-date. The company is expecting further benefits arising from this. Moreover, Krispy Kreme’s remodelling program remains on track and also it is seeing good investment in their shops from its domestic and international franchisees.
Innovative moves
Krispy Kreme is also making innovative moves to strengthen its long-term prospects. Under this long-term strategy, Krispy Kreme is focusing on accelerating the doughnut sales and guest traffic. Besides this, it has its eyes on uplifting the beverage platform at the Krispy Kreme camp. The company had introduced Krispy Kreme ready-to-drink coffee earlier this year.
In August, it also launched Krispy Kreme K-Cup packs which demonstrate its recent progress in bringing Krispy Kreme-branded beverages to market recognition. In order to attract more customers, Krispy Kreme is investing aggressively in its initiative to strengthen its beverage platform.
Moving forward, Krispy Kreme is focusing on three key initiatives under its long-term opportunity including bagged, ready-to-drink and K-Cup. In addition, it is also working on expanding its wholesale channel by assorting items with longer shelf life. Also, to further support this, Krispy Kreme will continue bringing in new products all throughout the year.
Krispy Kreme Doughnuts is also working on improving the deployment technology to improve its business. It is working hard to catch up in this area. This initiative will help Krispy Kreme to run the business more effectively. This will also help it to understand the customer’s needs more closely.
Conclusion
Now shifting the spotlight toward valuation, Krispy Kreme looks reasonable with a trailing P/E of 33.47. Its earnings are also expected to show good growth with a forward P/E of 20.05. Also, in the long term, the company’s earnings are expected to grow with a CAGR of 25.00%. So, the valuation levels make the stock impressive and a good option for investors to park their funds.
