Cult Stocks: Krispy Kreme's Sweet Comeback

Prior to 2010's breakeven results, the company was in the red for five years. But now, with two consecutive positive quarters under its belt, Krispy Kreme may be making a comeback. Last quarter, revenue fell 1.4%, but that included the effects of refranchising some stores -- and were it not for that, revenue would have been up 0.4%. More importantly, net income rose 147%, and the company earned $4.5 million, or $0.07 per share. Same-store sales showed progress, rising 3.4%. The company also raised its guidance for fiscal 2011 operating income to a range of $11-$15 million from $10-$13 million.

We'll get a glimpse today of whether the progress has continued, as the company is due to report Q2 earnings today after market close. Consensus estimates are calling for a breakeven quarter on revenue of $84 million. But with just three analysts currently covering the stock, there's certainly room for a surprise, either way.

Today's Krispy Kreme is a leaner version of what it was back in the 2000s. The company closed 240 U.S. stores between 2004 and 2009, and has a greater presence internationally. As of January, the company had 224 U.S. and 358 international locations. Of the total 582 stores, 499 are franchised. This company will probably not become the next Dunkin' Donuts, but with a solid brand name and a history that dates back to 1937, there's no reason it can't thrive, especially if management doesn't repeat the mistakes of the recent past.

Finally, Krispy Kreme has done a good job of cleaning up its balance sheet over the years. As of last quarter, cash stood at $20.1 million and debt at $43.2 million, $42.5 million of it long term. From an asset perspective, the company owns the land and buildings for 42 locations, the building in 23 locations, plus two facilities in Winston Salem, North Carolina, with a total of 250,000 square feet. The total package has a current market cap of $278 million and an enterprise value of $301 million. This might ultimately make a nice acquisition candidate for someone looking to further build their brand portfolio. You never know.

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