Restaurant Stocks: Earnings to Watch

Krispy Kreme

Krispy Kreme (KKD) reported fiscal third quarter earnings on Dec. 1.

Revenue: $90.2 million, compared with year-earlier sales of $83.6 million.

Net Income: $2.4 million, compared with a year-earlier loss of $2.4 million.

Net Earnings Per Share: 3 cents, compared with year-earlier loss of 4 cents per share.

Analysis: Analysts from CL King initiated coverage of Krispy Kreme in July with a strong buy rating and $5 price target.

The donut shop operator posted far better-than-expected quarterly results and raised its 2011 outlook. Analysts' consensus call had been for earnings of $100,000, or zero cents per share, on revenue of $87.8 million.

"Higher sales by company and franchise shops drove profit improvements in the KK Supply Chain segment, and our International Franchise business continued to exceed our expectations," said CEO Jim Morgan.

Krispy Kreme said comps rose 5% in the recent quarter, the eighth consecutive quarterly increase. It added a net increase of 16 stores in the quarter. As of Oct. 31 there were 85 company-owned Krispy Kreme stores and 564 franchised locations.

Krispy Kreme upped its outlook for fiscal 2011. It now expects operating income (EBIT), exclusive of impairment and lease termination costs, to be in a range of $17 million to $20 million. That's up from its prior outlook for full-year EBIT in a range of $13 million to $17 million. Analysts expect the restaurant operator to book EBIT of $16 million in fiscal 2011.

In 2012 Krispy Kreme expects to open 5 to 10 company stores, 5 to 15 domestic franchise stores, and more than 30 international franchise stores.

"We expect continued organic same store sales growth in our domestic stores, but believe international franchise same store sales will continue to be pressured by the substantial growth in international markets in recent years," Morgan said.

The CEO conceded that uncertainty surrounding commodity costs are likely to grow, posing some uncertainty when forecasting future operating results. "Accordingly, we are working to reduce the consumption of certain key ingredients, and are evaluating the timing and scope of price increases needed to offset higher input costs."

Krispy Kreme forecast 2012 EBIT to be in a range of $22 million to $24 million, an increase of 29% to 41% from the low end of its revised fiscal year 2011 guidance, and an increase of 10% to 20% from the top end of the fiscal 2011 range.

"It is important to note that this outlook is very preliminary, and we expect to establish more formal guidance in conjunction with the release of our fourth quarter results in April," Morgan added.

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