Krispy Kreme Doughnuts (KKD) might bake some seriously delicious and addicting doughnuts, but the company’s shares are anything but appetizing at the moment. After reporting weaker-than-expected revenue for the first quarter, KKD stock fell hard Tuesday and now has the bears salivating.
Following Monday’s close, Krispy Kreme announced adjusted earnings per share of 23 cents, which was in line with what analysts were looking for. The top line of $121.6 million, however, missed estimates of $126.68 million. Overall sales improved 1% year-over-year, but same-store sales — sales at stores that have been open for at least one year — fell 1.5% after rising more than 12% in the year-ago period. KKD blamed this weak number on the nasty winter weather in the Southeast.
On top of the weak first-quarter same-store sales, Krispy Kreme also lowered its earnings guidance for the entire fiscal year 2014 from a previous range of 73-79 cents to 69-74 cents, falling below analyst estimates.
Traders and investors didn’t like the tone of the conference call and decided to sell KKD stock to the tune of 15% on a monster spike in volume. The stock’s average daily volume is around 1 million to 1.4 million shares, but on Tuesday, Krispy Kreme stock traded almost 7 million shares, making the selloff that much more significant.
Of course, KKD stock is no stranger to volatility; those of us who have followed Krispy Kreme are well-accustomed to this. In 2003, KKD at one point traded well in the high $40s, only to be reduced to near the $1 mark during the 2009 lows.
Krispy Kreme also is unusually jumpy around its earnings announcements.
KKD Stock Charts
In 2013, KKD stock rallied close to 180% from January into November, but in early December it got hit hard after its earnings announcement, and it was the beginning of the end for the stock. Sure, the 2013 ascent was too steep to be sustainable, but the December 2013 selloff looked to be more than just a mean-reversion move.
On the daily chart, note how the December 2013 down-gap led Krispy Kreme to fall all the way into February before a better bounce occurred. KKD stock then rallied, only to find resistance at the 200-day simple moving average (red). With Tuesday’s selling, the stock also fell out of a bear flag formation (black parallels) and with this new downside momentum looks ripe to break through lateral support near the $16 area sooner rather than later.
The stock might have better medium-term support around the $13 area. Thus, anyone looking to buy into KKD stock for the time being is better off staying away until the stock shows some sort of stabilization. More active types, however, can consider playing the short side in Krispy Kreme, keeping in mind that often the sharpest rallies occur in downtrends.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.