Krispy Kreme’s unpalatable update

<p>Krispy Kreme’s shares are currently under pressure, following the company’s market update after hours yesterday (2nd June). For the first quarter ended 4th May, Krispy […]</p>

Krispy Kreme’s shares are currently under pressure, following the company’s market update after hours yesterday (2nd June).

For the first quarter ended 4th May, Krispy Kreme took revenue of $121.6m, up from $120.6m reported in the same period the previous year.

By segment, revenue at Company Stores (stores owned by the company) came in at some $80.4m, representing a 1.8% drop over last year – a 1.5% decline on a like-for-like basis.

The decline, the company said, was down to the severe winter weather, which adversely affected sales at its on-premises and wholesale operations.

On the other hand, the company’s domestic franchisees fared a bit better, having seen a 4.5% increase in like-for-like sales. Krispy Kreme’s International Franchise business, however, posted a 2.2% decline (on a constant currency basis).

The company’s net income for the period came in at around $9.7m, marking an increase of around 21% over the prior year.

Krispy Kreme’s outlook hasn’t exactly helped…

Krispy Kreme’s results weren’t great – it missed sales expectations for a start – but they weren’t particularly dire.

The company’s outlook, however, has by no means helped.

For fiscal 2015, the company now forecasts adjusted net income of between $48m and $51m, down from its previous estimates of between $51m and $55m.

The downward revision, according to the company, reflects a number of things – including increased costs relating to the implementation of new technology systems and “unfavourable variance” to its expected first-quarter results.

That’s been enough to garner some negative reaction from investors.

Krispy Kreme’s shares

Back in December, the company’s shares took a knock following a somewhat disappointing third quarter, and while it gained on the back of a relatively decent update in March, Krispy Kreme’s shares haven’t quite recovered.

Shares of the company are down some 14% (at time of writing), bringing the total decent to around a notable 37% since highs last November.

Now, the company has certainly been taking steps towards chasing growth over recent times.

Those steps include the company’s footprint expansion initiatives, as well as broadening its offering beyond doughnuts. And, despite stiff competition, those efforts could well bear fruit in the future.

But, until such time as when the company can convince the market of sustained growth (near term’s unlikely), the persistent downbeat sentiment surrounding Krispy Kreme is unlikely to improve markedly.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.