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.)

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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.)

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