Krispy Kreme (KKD) Stock Looks Tasty After Q1 Beat

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Krispy Kreme (KKD) stock jumped in early trading Thursday, gaining as much as 16% as investors cheer the doughnut-maker’s fiscal first-quarter earnings beat.

Krispy Kreme KKD Stock earningsThough KKD stock has been having a rough go of it in 2015 — shares were down roughly 12% through yesterday’s close — the strong quarterly showing raises a rather intriguing question: Is Krispy Kreme stock misunderstood by the market? Has it, in fact, been ignored by Wall Street altogether?

After looking at a few numbers, I’m forced to conclude that the answer to both questions is “Indubitably, yes.”

KKD Earnings: In a Word, Scrumptious

Krispy Kreme’s adjusted earnings per share clocked in at 24 cents per share in the quarter, beating consensus EPS estimates by 2 cents. While revenues of $132.5 million came in below consensus calls for $137 million, the fact that margins improved so substantially was more than enough to lift KKD stock.

Shares of the Winson-Salem, North Carolina-based KKD now trade at 20 times forward earnings, below Dunkin’ Brands (DNKN) forward P/E of 23 and a healthy discount to the Starbucks (SBUX) forward P/E of 28.

Systemwide domestic same-store sales rose 5.2%, including a 4.3% hike in company-owned same-store sales. That’s an incredible improvement from the year-ago quarter, when Krispy Kreme’s comps in company-owned stores fall 2.4% year-over-year.

But what exactly drove this comparable store revenue growth — and what caused margins to spike? KKD President and CEO Tony Thompson broke it down in the earnings release:

“Guests continued to respond favorably to our limited-time offerings. This, combined with our more strategic use of promotional incentives, drove the higher profitability.”

That’s what I like to hear. A doughnut chain just starting to figure out limited-time promotions is quite literally a recipe for higher foot traffic — and therefore same-store sales growth.

KKD Growth Plans

Improving same-store sales is the primary driver of expansion in the restaurant industry; after all, no one wants to aggressively expand when sales are declining at each location. Encouraged by its turnaround, KKD plans to open new domestic locations in Arkansas, Montana, Illinois and Kentucky this year. Internationally, it aims to expand into at least six new countries in 2015, and has already signed agreements with Cambodia, Guatemala, and South Africa.

Expansion plans and the KKD earnings beat weren’t the only thing driving the stock higher: Thompson also said that management intended to return money to KKD shareholders through share repurchases.

Delectable.

Importantly, Krispy Kreme is also investing between $35 million and $45 million in technology this fiscal year. Some of its current technological initiatives include a mobile-based loyalty rewards program and a feature called the Hot Light, which notifies you the second the glorious “Krispy Kreme Original Glazed Now” light comes on at the customer’s favorite store.

With solid same-store sales growth, improving margins, expansion efforts, share buybacks and investments in new technologies, it’s no wonder investors are gobbling up KKD stock today.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/krispy-kreme-kkd-stock-earnings-beat/.

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