Krispy Kreme Doughnuts (NYSE:KKD) reported solid revenue and earnings increases for its second quarter of fiscal 2012. The results were the best the company has had for a second quarter in the last seven years. Krispy Kreme achieved these results despite battling commodity cost increases, and reaffirmed its guidance for the rest of this fiscal year. (To help you take advantage of earnings season, check out Strategies For Quarterly Earnings Season.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes, and insights

Treated to a Good Second Quarter
Krispy Kreme earned $8.8 million or 12 cents per share in the quarter, compared to $2.2 million or 3 cents in the year ago quarter. This quarter's earnings felt the favorable impact of the sale of Krispy Kreme's 30% equity share in Krispy Kreme Mexico. That sale for $7.7 million gave the company a $6.2 million gain on the sale after expenses and $4.7 million after tax, which contributed 6 cents per share to EPS.

Total net sales increased to $98 million in the quarter from $87.9 million in last year's same quarter, an 11.4% increase. Same store sales advanced by 2.5%. The quarter's results were achieved in the face of higher energy costs and the press of rising commodity costs. Operating expenses in the quarter rose to $85.7 million, up from $77.1 million in the year ago quarter. Operating income for the quarter rose to $4.9 million from $4.2 million, and the company reaffirmed guidance which sees fiscal 2012 consolidated operating income in the $22 million to $24 million range.

Packed Coffee and Donut Space
The Krispy Kreme space is inhabited by coffee and donuts competitors, or in some cases largely coffee competitors. Starbucks (Nasdaq:SBUX) is most notable among them, and an old competitor which went public this year, Dunkin' Brands (Nasdaq:DNKN), known for its Dunkin' Donuts and popular coffee. Both Starbucks and Dunkin' Donuts have formidable financial strength and have achieved wide geographic coverage with their stores. Dunkin' Brands has a $3.2 billion market cap, Starbucks a $28 billion market cap, while Krispy Kreme's market cap is $590 million.

The coffee space itself is pretty crowded. While Green Mountain Coffee Roasters (Nasdaq:GMCR) has certainly made a splash with its K-cup single serve brewing system, a smaller store-based company, Caribou Coffee (Nasdaq:CBOU) hasn't thrived in the same way. The company failed to turn a profit from 2003 to 2008, and with its relatively small scale and geographical clumping in the Midwest it can't even begin to think of itself as a mini-Starbucks. A mention should be made of the Canadian-based coffee, donut and sandwich chain, Tim Hortons (NYSE:THI), which dominates the Canadian sector. So with such a competitive sector, Krispy Kreme's impressive performance, despite its relatively small size, shows its brand and execution are both packing a successful financial punch.

The Bottom Line
Although Krispy Kreme is of modest size, so its financial results can perhaps be considered modest, this makes it easy for investors to overlook the company, yet Krispy Kreme's business trajectory is a good one. It has largely recovered from its self-inflicted wounds brought on by a series of management blunders in earlier years. It has a growing expansion plan, with vigorous, ambitious plans ongoing for Japan. Store expansion isn't the only thing. It has the potential to expand its coffee offerings along with that. Management did a terrific job in the quarter steering through results despite surging input costs. Krispy Kreme may be on the way to glazing more profits for investors. (For more, see Earnings Power Drives Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!