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Krispy Kreme Doughnuts Is Not a Good Investment at Current Levels

August 25, 2014 | About:

Fiscal 2015 has begun badly for Krispy Kreme Doughnuts (NYSE:KKD). After the organization released its earnings, its shares dove, sending the stock close to its 52-week low. The doughnut chain brought down its earnings direction for the full year, referring to the delayed consequences of an unusually chilly winter climate early  in the year and engineering investments.

Considering that Krispy Kreme is now facing competition from rivals like Starbucks (SBUX) and Dunkin' Brands (DNKN), a diminished direction doesn't look good for the organization. Despite posting a slight increase in revenue and a 20% hop in net income, Krispy Kreme investors aren't persuaded about the organization's long haul performance.

Going for a turnaround

In the same way as other different companies, severe winter storms seriously influenced Krispy Kreme's store movement.

To leave its slump, Krispy Kreme is trying another showcasing strategy. Also, it has transformed its showcasing office. Krispy Kreme is attempting to upgrade its worldwide presence by making its check in the computerized, social and media channels. One of the strategies Krispy Kreme has tried is making its products accessible in a mixed bag of venues outside its shops. As such, it is cooperating with Keurig Green Mountain to sell prepared to-drink packaged espresso, sacked espresso and stowed ground espresso.

Krispy Kreme is also focusing on creating its infrastructure. In the previous quarter, it opened 27 stores and plans to stretch its systemwide store number by 10% this year. Administration is in constant touch with its worldwide franchisee partners to verify that Krispy Kreme provides the necessary support to help them develop. What's more, the organization is also busy extending its domestic base.

Execution challenges

There were three principle reasons why Krispy Kreme lessened its direction for the full year, with one of them being the harsh winter climate. Next, its ERP execution costs are coming in higher than anticipated, which is a sign of awful execution. At long last, Krispy Kreme spent more than expected to top off senior administration posts. Thus, Krispy Kreme is struggling on the execution front.

Nonetheless, the new administration group is making a decent attempt to enhance the present situation. It is resolved to convey quality to shareholders, which is the reason the organization purchased shares worth $25 million in the first quarter. Krispy Kreme still has $55 million left on its share repurchase approval so investors can expect more buybacks going ahead.

Also, the organization is certain that its new CEO, Tony Thompson, will have the capacity to convey. As indicated by cordial CEO James H. Morgan, the new CEO "is more fit and better prepared to take Krispy Kreme to the following level." However, given the measure of rivalry that Krispy Kreme faces, it would be wise to lie low if a freshly printed CEO can convey the goods.

The opposition is improving

Both Starbucks and Dunkin' Brands also confronted the test of a severe climate, yet they turned out with robust results in their late quarters. Dunkin', for instance, posted a 6% bounce in revenue versus the former year period, with same-store sales in the U.S. increasing 1.2% year-over-year. Moreover, Dunkin' is stretching at a more aggressive rate as contrasted with Krispy Kreme.

It also propelled another rewards program in January, which now has around 750,000 members. With such moves, Dunkin' could post a fair performance in difficult conditions.

Starbucks, then again, did well because of its geographic diversification. Its sales increased 9% in the second quarter to $3.9 billion due to a 6% bounce in same-store sales. Starbucks' performance was determined by a strong sales hop of 24% in the Asia-Pacific district, with the organization reporting the seventeenth consecutive quarter of same-store sale development of 5% or higher. Henceforth, Starbucks' huge size and worldwide presence empowered it to avert the effect of the climate in the U.s.


Krispy Kreme looks like a risky investment at this moment. The stock is expensive, and the organization doesn't pay a dividend, either. In comparison, Dunkin' has a P/E proportion of 34; furthermore, it has a dividend yield of 2.10%. Additionally, Krispy Kreme's peers are improving as far as the business is concerned, so it doesn't bode well for shell out a premium for the stock.

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