Rising same-store sales couldn’t help Krispy Kreme Doughnuts Inc., at least in the eyes of investors, as the company’s stock plunged Thursday following a disappointing second-quarter earnings report late Wednesday.
Krispy Kreme’s stock plunged more than 13 percent in morning trading Thursday, after the company lowered its earnings outlook for the year to 76 cents to 80 cents per share, a decrease from 80 cents to 85 cents.
The lowered outlook came despite strong same-store sales in the second quarter ended Aug. 2, particularly at franchised locations, which rose 7.3 percent. Systemwide same-store sales rose 5.5 percent in the quarter.
“Our quarterly results did not meet our expectations, and we are disappointed to be reducing our outlook for the year,” Krispy Kreme president and CEO Tony Thompson said during the company’s earnings call Wednesday. “It never feels good to be taking down expectations. The good news is we’re seeing continued sales growth in our retail business with less promotional incentive activity. The performance of our retail model is what is most important to our long-term success, as it drives both our franchisees and company returns long term.”
Revenue increased 5.7 percent, to $127.3 million, from $120.5 million the previous year. Net income was roughly flat, at $5.9 million, or 9 cents per share, from $5.8 million, or 8 cents per share the previous year.
Both domestic and international franchisees opened locations in the quarter. Domestic operators opened seven locations, while international franchisees opened a net 35 locations. Krispy Kreme said it has new franchise deals in Chicago, as well as Peru, Bolivia and Myanmar. It now has 450 locations in its development pipeline.
Krispy Kreme has 1,045 locations systemwide, an 18-percent increase from 884 locations the same time last year. Executives suggested that Krispy Kreme would continue to expand, particularly in international markets, where the chain has 758 locations.
“We think it is an opportune time for Krispy Kreme to expand in new markets eager to welcome global brands,” Thompson said.
Executives expected to finish the year with 120 to 140 new units.
Krispy Kreme faltered in its consumer packaged goods (CPG) business during the quarter. Disappointing sales in that business had a $1 million impact on company margins, executives said.
“We had a perfect storm within CPG in the quarter,” Thompson said.
In addition, Krispy Kreme recorded an $841,000 loss due to derivatives. While executives stressed that neither the CPG business or the derivatives are related to its principal business of retail shops, the weakness should continue and have enough of an impact to cause the reduced expectations and offset improving sales.
Executives expect to launch a loyalty program at domestic locations by the end of the year.
Company-operated same-store sales rose 2.3 percent, with traffic growth, the 23rd straight quarter of positive same-store sales for company locations.
Executives suggested that franchised units continue to outperform company locations by a wide margin — 500 basis points — due in particular to strength by franchisees in the West.
“Our West Coast franchisees continue to do extremely well,” Thompson said. “Some of them have had double-digit comps in the recent past. That’s impacting the entire pool to a large extent. They’re doing things well across the board.”
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