Krispy Kreme Doughnuts (KKD, Financial), which competes with Dunkin' Donuts (DNKN, Financial) and McDonald's (MCD, Financial) posted a strong 22% growth in its net profit in the second-quarter 2015. The company effectively executed various promotional offerings on items such as its brownie batter, banana pudding and carrot cake doughnuts that fueled its results for the quarter. Also, the incremental marketing tools made significant contribution to its topline growth for the quarter. Krispy Kreme Doughnuts is performing several other priorities that should drive its growth in the second half of the year. However its earnings fell short of the average analyst for the quarter.
Strong performance
The Winston Salem, North Carolina-based company reported revenue of $120.5 million, an increase of significant 7% as compared to $112.7 million in the same quarter last year. Its revenue also surpassed the $117.5 million in revenue estimated by the average analysts. Also, its net profit came in at $5.75 or earnings of $0.07 per share as against net profit of $4.7 million or earnings of $0.07 per share in the year earlier quarter. Its adjusted earnings for the quarter were at $0.13 per share, falling short of $0.14 estimated by the analysts for the quarter.
Looking forward, the company has reiterated its full-year guidance for the bottom line. It now expects its net income to range between $48 million or earnings of $0.69 per share to $51 million or earnings of $0.74 per share. The analysts have been modeling earnings of $0.73 per share on the revenue of $488.3 million for the full year.
The company is experiencing solid growth momentum in its comps in both company’s owned store and at franchise shops. It is seeing additional traffic across its stores that should enhance its performance in the second half of the year. It has opened 56 new stores this year so far. It has a total of 884 company and franchise shops worldwide. Also, Krispy Kreme remains solid to construct new company shops that could possibly withhold its ongoing strong franchise growth. Its same-store sales rose approximately 3% in the reported quarter.
Aggressive investments
Further, it is investing aggressively in its comps in domestic as well as in the international markets. Its company shop remodeling program is going pretty well and expected to drive its growth remarkably in the future. In addition, the company continues to demonstrate healthy growth rate in its international franchises. Krispy Kreme plans to expand its franchise business across the world. It is signing on various new agreements around the world with potential partners that should certainly improve its results and drive long-term growth for the company.
For example, it has during the second-quarter acquired a Birmingham, Alabama franchisee. This acquisition will definitely enhance its growth in the traditional Krispy Crème market and offers potential growth prospects for the company in the long run. Also, the company managed to re-own the franchise right in more than 13 countries. It made total of $400 million acquisition in the reported quarter.
Moreover, its doughnut category offers incredible growth opportunity for the company. It remains focused on executing several growth initiatives to tap this wonderful opportunity. It is effectively enlarging its beverage platform, while productively leveraging its iconic craveable brand. Also, the company expects its coffee and other specialty drinks to create handsome growth opportunity for the company in the future. These categories are playing major role in its total sales mix. Meanwhile, the company is trying out its testing for its frozen lattes across its company owned stores. Krispy has additionally testing its packaged ground coffee in Sam’s Club.
Furthermore, it has launched ready to drink iced coffees in approximately 1,000 Walmart Stores. Moves such as these should certainly enhance its results and yield handsome returns to investors in the long run. In fact, the company rolled over many other initiatives during the second-quarter. Krispy started offering its Krispy Crème K-cup at countless grocery stores, mass merchants and other outlets. These offerings were also rolled over across its Krispy Crème shops and online at its keurig.com.
Apart from these, the company should also benefit from the freestanding small factory shops. It has so far inaugurated 11 new small freestanding shops that include the recent openings in Jacksonville, Florida. It has now two freestanding small factory shops in Jacksonville. Further. Krispy Crème is planning to open around 10 to 15 new freestanding small factory shops in the second-half of the year. These freestanding factory shops indeed will drive its growth going forward.
Conclusion
Krispy Crème looks like a great pick. The company is making tremendous progress with its sales in its own stores and with franchises worldwide. Its domestic franchise posted 17.8% growth while its international franchise grew at an astounding 24.5% during the quarter. It is also executing various strategic initiatives that will propel its sales in the short as well as in the long-run. The analysts have estimated CAGR of 25.00%, quite higher than average industry CAGR of 14.59% for the next five years, indicating strong growth potential for the company.
