Stock Preacher

Krispy Kreme Doughnuts Inc. (NYSE: KKD)

Krispy Kreme Doughnuts Inc. (KKD) is a retailer and wholesaler of doughnuts and packaged sweets. The Company’s principal business is owning and franchising Krispy Kreme doughnut stores, at which more than 20 varieties of doughnuts, including its Original Glazed doughnut, are made, sold and distributed together with complementary products, and where an array of coffees and other beverages are offered. As of February 1, 2009, there were 523 Krispy Kreme stores operated system wide in 36 U.S. states and in the District of Columbia, Australia, Bahrain, Canada, Indonesia, Japan, Kuwait, Lebanon, Mexico, the Philippines, Puerto Rico, Qatar, Saudi Arabia, South Korea, the United Arab Emirates and the United Kingdom. Of the 523 total stores, there were 281 factory stores and 242 satellites.

The Company operates through three business segments: Company Stores, Franchise and KK Supply Chain. The company offers its products through on-premises sales, which comprise sales to customers visiting its factory and satellite stores, including sales made through drive-through windows along with discounted sales to community organizations; and off-premises sales, which comprise sales to various retail customers, such as convenience stores, grocery stores/mass merchants, and other food service and institutional accounts.

KKD was founded in 1937 and is headquartered in Winston-Salem, North Carolina.

Source: http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=INT&symbol=KKD ,

http://www.krispykreme.com/ , https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?symbol=KKD

Financial Summary

KKD experienced a decline in revenues and incurred net losses in each of the last three fiscal years. The revenue decline reflects fewer Company stores in operation resulting principally from the closure of lower performing locations, a decline in domestic royalty revenues and lower sales of mixes and other ingredients resulting from lower sales by the Company’s domestic franchisees. Lower revenues have adversely affected operating margins because of the fixed or semi-fixed nature of many of the Company’s direct operating expenses.

In addition, price increases in the Company Stores segment were not sufficient to fully offset steep rises in agricultural commodity costs in fiscal 2009, although recent economic conditions have led to significant reductions in the market prices of these commodities, which has had a positive effect on the Company’s results of operations in fiscal 2010, and which the Company believes will positively affect results for the remainder of the fiscal year. Sales volumes and changes in the cost of major ingredients and fuel can have a material effect on the Company’s results of operations and cash flows. In addition, royalty revenues and most of KK Supply Chain revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

As of August 2, 2009, there were 548 Krispy Kreme stores operated system wide in the United States, Australia, Bahrain, Canada, Indonesia, Japan, Kuwait, Lebanon, Malaysia, Mexico, the Philippines, Puerto Rico, Qatar, Saudi Arabia, South Korea, the United Arab Emirates and the United Kingdom. Of the 548 total stores, 270 were factory stores and 278 were satellite stores.

Factory stores (stores which contain a doughnut-making production line) often support multiple sales channels to more fully utilize production capacity and reach various consumer segments. These sales channels are comprised of on-premises sales (sales to customers visiting factory and satellite stores) and off-premises sales (sales to convenience stores, grocery stores/mass merchants and other food service and institutional accounts). Satellite stores, all of which serve only the on-premises distribution channel and which are supplied with doughnuts from a nearby factory store, consist primarily of the hot shop, fresh shop and kiosk formats. Hot shops contain doughnut heating equipment that allows customers to have a hot doughnut experience throughout the day. Fresh shops and free-standing kiosks do not contain doughnut heating equipment.

The Company generates revenues from four distinct sources: sales to on-premises and off-premises customers through stores operated by the Company, referred to as Company Stores; franchise fees and royalties from domestic franchise stores, referred to as Domestic Franchise; franchise fees and royalties from international franchise stores, referred to as International Franchise; and a vertically integrated supply chain, referred to as KK Supply Chain.

In the first quarter of fiscal 2010, the Company began disaggregating the results of operations of its franchise business into domestic and international components in its internal financial reporting. The Company has made the corresponding changes to its segment reporting, and now reports the revenues and expenses associated with its domestic and international franchise operations as separate segments, consistent with the provisions of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The Company’s segment disclosures continue to be consistent with the way in which management views and evaluates the business. Amounts previously reported for the franchise segment for the three and six months ended August 3, 2008, have been restated to conform to the new disaggregated segment presentation.

Franchisees opened 44 stores and closed 15 stores in the first six months of fiscal 2010, including 20 and six stores, respectively, in the second quarter of fiscal 2010. Royalty revenues and most of KK Supply Chain revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows. On July 9, 2009, Great Circle Family Foods, the Company’s franchisee in Southern California, completed its plan of reorganization and emerged from bankruptcy, and currently operates a total of 11 Krispy Kreme factory stores and satellites.

System wide sales for the second quarter of fiscal 2010 decreased approximately 11.7% compared to the second quarter of fiscal 2009. Exclusive of the effects of changes in foreign currency exchange rates, system wide sales decreased approximately 8.0%. The system wide sales decrease reflects a 13.5% decrease in franchise store sales and an 8.0% decrease in Company store sales. Adjusted to exclude the effects of changes in foreign currency exchange rates, franchise sales decreased approximately 8.0%. System wide average weekly sales per store are lower than Company average weekly sales per store principally because satellite stores, which generally have lower average weekly sales than factory stores, have to date been operated almost exclusively by franchisees. In addition, the increasing percentage of total stores which are satellite stores has the effect of reducing the overall system wide average weekly sales per store.

Total revenues decreased 12.2% to $82.7 million for the three months ended August 2, 2009 from $94.2 million for the three months ended August 3, 2008. The decrease was comprised of an 8.0% decrease in Company Stores revenues to $59.9 million, a 19.9% decrease in Domestic Franchise revenues to $1.8 million, a 13.1% decrease in International Franchise revenues to $3.8 million, and a 23.4% decrease in KK Supply Chain revenues to $17.3 million.

Company Stores revenues decreased 8.0% to $59.9 million in the second quarter of fiscal 2010 from $65.1 million in the second quarter of fiscal 2009. The decrease reflects an 8.9% decline in store operating weeks, partially offset by a 1.2% increase in average weekly sales per store. The decrease in store operating weeks reflects the refranchising or closure of 19 Company stores since the beginning of the second quarter of fiscal 2009. The Company continuously reviews the performance of its stores and may decide to refranchise or close additional locations.

International royalty revenues fell to $3.5 million in the second quarter of fiscal 2010 from $3.8 million in the second quarter of fiscal 2009. Sales by international franchise stores, as reported by the franchisees, were approximately $63 million in the second quarter of fiscal 2010 and $74 million in the second quarter of fiscal 2009. Changes in the rates of exchange between the U.S. dollar and the foreign currencies in which the Company’s international franchisees do business reduced sales by international franchisees measured in U.S. dollars by approximately $7 million in the second quarter of fiscal 2010 compared to the second quarter of last year, which adversely affected international royalty revenues by approximately $440,000. The Company did not recognize as revenue approximately $160,000 and $550,000 of uncollected international royalties which accrued during the second quarter of fiscal 2010 and 2009, respectively, because the Company did not believe collection of these royalties was reasonably assured

Net cash provided by operating activities was $10.1 million and $9.5 million in the first six months fiscal 2010 and 2009, respectively. The increase in fiscal 2010 resulted primarily from improved financial results in ongoing operations, partially offset by an increase in payments to landlords related to leases on closed stores, which increased from approximately $960,000 in the first six months of fiscal 2009 to approximately $2.8 million in the first six months of fiscal 2010; the increase in fiscal 2010 resulted principally from terminations of two leases having rental rates substantially above current market levels.

Source: http://investor.krispykreme.com/ , reuters.com, scottrade.com

Analyst Consensus

Chart not available.

On December 11, 2008, KKD reported third quarter 2009 losses of -0.08 per share. The next earnings announcement is expected on December 07, 2009.

Over the last week KKD outperformed the Dow Jones Industrial Average index. Overall the relative performance against the index has been mixed.

Source: Financial Times.com

No consensus estimates available.

Source: http://www.reuters.com/finance/stocks/estimates?symbol=KKD

Investment Highlights

Last Thursday, shares of KKD continued a strong two day surge, gaining another 17% and touching a new 52-week high of 4.75 per share,  up from the 52-week low of 1.01 hit in February. The Company became publicly traded in 2000, and hit an all-time high of $49 per share in 2003. Heavy debt load taken on to rapidly expand later came back to bite the Company, which then pulled back to a new strategy of fewer stores in carefully selected strategic locations, and launched a new small retail concept shop, opening its third such location in North Carolina in July. In September, the Company reported it had neared the breakeven mark, posting a 3 cent loss for its second quarter ended August 2. Sam- store sales for the second quarter rose just under 6% year-over-year. The Company opened a new doughnut factory and kremery in South Carolina in September, and is rolling out a new spider web doughnut for Halloween.

KKD announced earlier this year that the U.S. Securities and Exchange Commission had approved an agreement to resolve the Commission’s investigation of the Company that began in 2004. Under the terms of the agreement, the Company agreed to a commission order Instituting Cease and Desist Proceedings, Making Findings, and Imposing a Cease and Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934. In particular, the Company consented to a cease and desist order against future violations of provisions of the Exchange Act and related rules concerning filing of accurate annual, quarterly and current reports with the Commission, the maintenance of accurate books, records, and accounts in reasonable detail regarding such records, and the maintenance of a sufficient system of internal accounting controls. The Company did not admit to or deny any findings in the order and the order does not include any monetary payments or other sanctions.

Just last month, KKD opened a new Doughnut Factory and Kremery the city of Lexington S.C. Lexington will not only give locals a new place to experience the Company’s legendary, one-of-a-kind treats, but will also employ approximately 26 people.

KKD this summer announced that its franchisee, Almana Yiyecek Ve Icecek San. Ve. Tic, Ltd, has opened the first Krispy Kreme doughnut shop in Turkey. The new shop is located in the city of Istanbul on the popular Bagdat Avenue known for its stylish cafes, restaurants and clothing stores.  This is the first of 25 Krispy Kreme shops the franchisee plans to open over the next five years.  The shop will offer 16 varieties of KKD doughnuts that will be made fresh daily, including the signature hot Original Glazed doughnut.

KKD announced just prior to the opening of the NFL season that it has entered into a sponsorship agreement with the NFL Carolina Panthers, which includes the Company’s signature products being available during all home games for the next three seasons. Beginning this season, Panthers fans can enjoy the one-of-a-kind taste of a KKD Original Glazed doughnut while cheering on the home team at the Bank of America Stadium. A variety of KKD products will be available in multiple locations throughout the stadium, including in a special Club Level KKD doughnut shop which will also offer the Company’s new Kool Kreme soft serve in traditional cones and doughnut sundaes.

Source: Scottrade.com, Reuters.com, http://investor.krispykreme.com/

Technical Analysis

Source: www.stockcharts.com

Moving Average Price Compare

KKD is trading above its 50-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

MACD

The MACD for KKD currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

Bollinger Bands

KKD is trading above its upper Bollinger Band. Relative to recent price action, the stock is currently overextended and due for either a pause or retracement.

Comparative Analysis

Source: Reuter.com, Nasdaq.com

Insider Trading Activity

Net Share Purchase Activity

Report Disclaimer

DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority.  We are neither licensed nor qualified to provide investment advice.

The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice.  The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities.  We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them.

Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company.  An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report.  Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research.

Any individual who chooses to invest in any securities should do so with caution.  Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934.  Subscribers are cautioned not to place undue reliance upon these forward looking statements.  These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated.  Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC.  You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled.  However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions.  We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so.  Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

Popularity: unranked [?]