Glazed doughnut maker Krispy Kreme (KKD) is due to report fiscal fourth quarter results after the closing bell Tuesday. Despite missing Wall Street's earnings estimates in three out of six quarters, the company's stock -- up some 2% year to date -- has become easier to digest, thanks to its recent correction.
Since reaching a 52-week low of $12.90 on Feb. 11, Krispy Kreme stock has surged more than 21%, outperforming not only the S&P 500 (SPX) during that span, but also the SPDR S&P Retail ETF (XRT) - Get SPDR S&P Retail ETF Report . From a risk-versus-reward perspective, this suggests not only has the stock made a clear bottom, but sentiment on its business prospects has also improved. Investors are eager for confirmation Tuesday.
For the quarter that ended in January, the Winston-Salem, N.C.-based company is expected to earn 21 cents per share on revenue of $133.02 million, translating to year-over-year growth of 23.5% and 6.1%, respectively. For the full year, earnings are projected to climb 13% year-over-year to 79 cents per share, while revenue of $520.18 million would mark a year-over-year rise of 6%.
The fact that company is projected to grow quarterly earnings at more than three times the rate of revenue is impressive, especially amid rising competition from larger rivals Starbucks (SBUX) - Get Starbucks Corporation Report and Dunkin Brands (DNKN) - Get Dunkin' Brands Group, Inc. Report .
To counter these competitive threats, Krispy Kreme continues to increase its system-wide store count by reaching 1,084 company-owned and franchised locations, up some 10% year-over-year. Plus, not only has the company recently launched its long-awaited loyalty program, Krispy Kreme also unveiled its mobile payment app. And given the success Starbucks has had with both its loyalty program and mobile payments application, this puts Krispy Kreme on somewhat of a level playing field.
These improvements, combined with the company's plan to increase its store count by 130 locations, suggests Krispy Kreme is aggressively searching for growth. To the extent it can execute on its goals to increase its same-store sales by the mid-single digits, the company's stock, which has a consensus buy rating and an average price target of $21.75 (implying a 45% premium) can become a solid bargain in the restaurant space.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.