This Is Why Shares of Krispy Kreme Are Getting Slammed Today

Krispy Kreme Doughnuts, 9 June 2006. The AGE Picture by MARINA OLIPHANT
Krispy Kreme Doughnuts.
The AGE Fairfax Media via Getty Images

Shares of Krispy Kreme (KKD) dipped 5% Wednesday after the doughnut vendor reported weak fourth-quarter profits and issued a disappointing forecast.

The North Carolina-based company reported earnings of 22 cents per share on revenue of $130.4 million for three months ending Jan. 31 on Tuesday. That fell short of analyst predictions of 21 cents per share on revenue of $133 million, according to Thompson Reuters.

Although system-wide profit margins rose from 5.2% the same period a year earlier to 6.3%, they were weighed down by heavy promotional activities and free doughnut events such as Talk Like a Pirate Day, within company-owned stores. The fast food sector as a whole has been upping competition with aggressive discount offerings.

Krispy Kreme also noted that franchisees are continuing to outperform company shops, and the company is likely to have a “more exclusive” focus on franchising. Whether or not that means the company will cut down on investments to company-owned stores is still up in the air.

As part of its marketing strategy, Krispy Kreme said it would continue to pull away from giving out everyday discounts, and instead raise the pricing for several of its doughnuts and certain “premium,” limited-time items that only appear during special events and holidays such as Halloween and St. Patrick’s day.

Revenue from the doughnut chain’s international franchises fell 3.4% year over year to $7.4 million, largely due to a more expensive dollar.

Krispy Kreme also noted that the company’s fast growing international franchises would show low sales in the future.

“In general, we expect that the international side will continue to run negative same-store sales,” CFO Price Cooper said during the earnings call.

For fiscal year 2017, Krispy Kreme projected earnings of 87 cents to 91 cents per share—below the projection of 93 cents per shares given by analysts, according to Thomson Reuters.

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