Krispy Kreme Doughnuts, Inc. Scores at the 56th percentile among all 5942 North American equities currently followed by MarketGrader. The industry grade leader is McDonald's Corporation (MCD) with an overall grade of 76.6. The stock has performed poorly in the last six months in relative terms, down 28.73% compared with the Restaurants sub-industry, down 0.02% and the S&P 500 Index, up 6.44%.
Krispy Kreme Doughnuts, Inc. Scores at the 56th percentile among all 5942 North American equities currently followed by MarketGrader. The industry grade leader is McDonald's Corporation (MCD) with an overall grade of 76.6. The stock has performed poorly in the last six months in relative terms, down 28.73% compared with the Restaurants sub-industry, down 0.02% and the S&P 500 Index, up 6.44%.
Krispy Kreme Doughnuts, Inc. Scores at the 56th percentile among all 5942 North American equities currently followed by MarketGrader. The industry grade leader is McDonald's Corporation (MCD) with an overall grade of 76.6. The stock has performed poorly in the last six months in relative terms, down 28.73% compared with the Restaurants sub-industry, down 0.02% and the S&P 500 Index, up 6.44%.
NYSE: KKD - Restaurants Overview Company Scores Poor Fundamental Grades MarketGrader currently has a SELL rating on Krispy Kreme Doughnuts, Inc. (KKD), based on a final overall grade of 45.3 scored by the company's fundamental analysis. Krispy Kreme Doughnuts, Inc. scores at the 56th percentile among all 5942 North American equities currently followed by MarketGrader. Our present rating dates to September 25, 2013, when it was downgraded from a HOLD. Relative to the Restaurants sub-industry, which is comprised of 63 companies, Krispy Kreme Doughnuts, Inc.'s grade of 45.3 ranks 37th. The industry grade leader is McDonald's Corporation (MCD) with an overall grade of 76.6. The stock has performed poorly in the last six months in relative terms, down 28.73% compared with the Restaurants sub-industry, down 0.02% and the S&P 500 Index, up 6.44%. Please go to pages two and three of this report for a complete breakdown of KKD's fundamental analysis. Grade 45.3 Rated 'SELL' since Sep 25th, 2013, when it was downgraded from 'HOLD' Earnings Last Earnings Release 03/13/2014 Last Qtr. Actual vs. Est. $0.12 / $0.13 Next Release 06/05/2014 $0.23 Year Ending 01/31/2014 $0.63 Year Ending 01/31/2015 $0.76 Quick Facts Dividend Yield N/A 52 Wk High $26.51 52 Wk Low $12.52 Short Interest 9% of float Market Cap $1.2B $18.03 04/23/2014 Price, Rating and Sentiment History - 2 Years 1 MarketGrader.com 2010. MarketGrader.com Corp. All Rights Reserved. April 24, 2014 Krispy Kreme Doughnuts, Inc. NYSE: KKD - Restaurants Growth B- Value B Market Growth LT B Market Growth ST D EPS Growth F Growth Potential F Earnings Momentum B- Earnings Surprise B+ Capital Structure A P/E Analysis F Price/Book Ratio A Price/Cash Flow Ratio B Price/Sales Ratio B- Market Value B- 45.3 While Not Entirely Negative, Growth Indicators Show Several Signs of Weakness Krispy Kreme Doughnuts, has been struggling with anemic sales growth for some time and now, based on its latest quarterly report, it has dipped into negative territory. The company had total revenue of $460.33 million in the 12 months ended last quarter, only a modest 27.18% gain from three years earlier, when total revenue in the equivalent 12 month period was $361.96 million. And now sales have started to decline as evidenced by the 4.57% year-over-year decline recently reported by the company. It said in its latest announcement that last quarter's total sales were $112.75 million compared to $118.14 million a year earlier. These results underscore a very worrisome trend marked not only by a recent downturn in Krispy Kreme Doughnuts,'s business but also an inability to show sustainable long term growth that could lead to higher profits. Also based on its latest report, profits grew very strongly last quarter when compared to the year earlier period and when measuring full year results against those of three years ago. Its net income rose 208.79% to $14.76 million in its most recent quarter from $4.78 million (excluding extraordinary items) in the year earlier period, while full year profit for the 12 months ended on January 31, 2014 of $34.26 million was 350.80% higher than full year net of $7.60 million reported three years earlier. The company's margins expanded significantly in the latest quarter, with an average 33.55% increase in EBITDA, operating and net margins compared to the year earlier period; this reversed a margin contraction reported during the previous quarter. Despite missing the consensus earnings estimate by 7.69% in its March 13, 2014 report, the company's stock rose a moderate 1.81% following the announcement. Given the positive reaction to the announcement, investors may expect this negative surprise to be only a blip in the company's positive earnings surprise record, having exceeded analysts' expectations by an average of 12.43% in the last six quarters. Stock's Valuation Already Reflects Past Financial Results and Isn't Without Risk at this Point Shares of Krispy Kreme Doughnuts,, trading at 22.90 times trailing 12- month earnings per share, are very expensive when compared to our "optimum" P/E ratio of 15.00, a 52.65% premium. The MarketGrader- calculated optimum P/E is derived from the company's two year EPS growth rate, looking at quarterly earnings in rolling 12-month periods. By this measure, Krispy Kreme Doughnuts,'s earnings per share have declined at a -54.61% annualized rate during the last two years. If the company manages to translate its recent margin gains into higher Profitability grades, its negative EPS growth rate is likely to improve, giving the stock a boost. The stock's forward P/E of 22.90, based on estimates for the next four quarters, is higher than the S&P 500's forward P/E of 15.20 but lower than its trailing P/E. The lower multiple investors are paying for its future earnings compared to past earnings reflects how high expectations are for future earnings growth, which run ahead of expectations for the market as a whole. Considering the company's poor overall fundamentals this premium over the S&P appears risky and sets up the stock for a significant fall if future earnings disappoint. Investors are currently valuing Krispy Kreme Doughnuts,'s shares at 3.39 times their tangible book value (which excludes intangible assets such as goodwill), a relatively healthy valuation. When the company's intangible assets, which represent a modest 9.09% of stockholders' equity, are added back to the rest of its assets, the stock's price to book ratio drops to 4.83. The company's shares are currently valued at 22.51 times the $0.80 in cash flow per share it generated during the last twelve months, a rich valuation of the company's earnings prospects based on its weak fundamental indicators. Its price to sales ratio of 2.54 is slightly higher than the Restaurants's average of 1.91, both based on trailing 12-month sales. Finally, from a value perspective, we look at how much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. From that perspective Krispy Kreme Doughnuts,'s $1.18 billion market cap seems pretty rich, 26.05 times higher than the net income (plus depreciation) it reported in its latest quarter. Revenue Qtrly. 01/31/2014 $113M Revenue Qtrly. Year Ago $118M Revenue 1 Yr. Chg. (4.57%) Revenue 12 Mo. Tr. Latest $460M Revenue 12 Mo. Tr. 3Y Ago $362M Revenue 12 Mo. Tr. 3Y Chg. 27.18% Net Income Qtrly. 01/31/2014 $15M Net Income Qtrly. Year Ago $4.78M Net Income 1 Yr. Chg. 208.79% Net Income 12 Mo. Tr. Latest $34M Net Income 12 Mo. Tr. 3Y Ago $8M Net Income 12 Mo. Tr. 3Y Chg. 350.8% P/E Ratio 12 Mo. Tr. 01/31/2014 29.08 Optimum P/E Ratio 15.00 Forward P/E Ratio 22.9 S&P 500 Forward P/E Ratio 15.20 Price to (Tangible) Book Ratio 4.83 Price-to-Cash Flow Ratio 22.51 Price/Sales Ratio 2.54 2 MarketGrader.com 2010. MarketGrader.com Corp. All Rights Reserved. April 24, 2014 Krispy Kreme Doughnuts, Inc. NYSE: KKD - Restaurants Profitability C Cash Flow B+ Asset Utilization B+ Capital Utilization D Operating Margins B Relative Margins F Return on Equity D Quality of Revenues D Cash Flow Growth F EBIDTA Margin B- Debt/Cash Flow Ratio A+ Interest Cov. Capacity A Economic Value B Retention Rate A+ 45.3 Company's Weak Profitability Grades Underscore a Difficult Operating Environment Despite having earned $34.26 million during the last 12 months, for a decent net profit margin of 7.44%, Krispy Kreme Doughnuts,'s profitability indicators are very poor. This is based on a very weak return on equity, an important component of our analysis and an operating margin that trailed the industry average, both also based on 12-month trailing results. During the same period the Restaurants industry had an average operating margin of 16.40%, 52.10% better than the company's 10.54% margin. Krispy Kreme Doughnuts,'s poor return on equity of 12.92% based on what the company earned over the last four quarters actually represents an improvement from the return on equity of 8.43% achieved in the 12 months ended a year earlier. This measure is important to MarketGrader in measuring profitability trends over time and the efficiency of company's management. While this improvement is a positive sign for the company's investors, it would be prudent for management to continue to be conservative about the company's leverage as it is now, with total debt currently less than one third of its total equity. Its long term debt accounts for 0.62% of total capital. Krispy Kreme Doughnuts,'s core earnings in the last twelve months grew moderately from the twelve months ended a year earlier. The company's EBITDA for the most recent period was $60.15 million, or 27.43% above the $47.20 million earned from its core operations in the prior period. EBITDA is used by MarketGrader to measure the company's true earnings power since it includes interest expenses, income taxes, depreciation and amortization, all non-operating expenses, which are nevertheless accounted for in other parts of our analysis that look at EPS gains and net income. Company's Management of its Cash Flow Appears Very Sound but Could Improve in a Few Areas Krispy Kreme Doughnuts,'s cash flow declined significantly last quarter to $15.90 million, 25.46% lower than the year earlier quarterly cash flow of $21.33 million. This marks an accelerating decline from twelve month trailing cash flow, which fell to $56.91 million in the period ended last quarter, 4.04% lower than the $59.31 million in the year earlier period, underscoring the ongoing deterioration of the company's business. Even though the company has $2.00 million in total debt, its net debt is virtually zero since it has $55.75 million in cash on hand; and since it generated $12.75 million in earnings before interest, taxes, depreciation and amortization last quarter, it's safe to say its liquidity is remarkable. Therefore the company's debt is not only very manageable with its own cash flow but could be increased if it wanted to pursue strategic growth opportunities. The company also has the ability to enhance shareholder returns through dividends or by repurchasing its own shares, boosting the future value of its earnings. While the total amount of cash and equivalents on its balance sheet is 15.96% lower than 12 months ago when it was $66.33 million, during the same period the company's leverage also fell with total debt now representing 0.75% of total capital compared to 9.46% last year. MarketGrader's Economic Value indicator looks at the company's returns on invested capital after measuring the cost of obtaining it and of keeping investors' capital tied up in its business. In this case, Krispy Kreme Doughnuts, had $266.75 million in invested capital as of its most recently reported quarter, on which it generated a 18.19% return based on 12-month trailing operating income. Its total after tax cost of capital was 11.09% during the same period, most of it associated with its weighted cost of equity, which was 10.85% vs. its 0.24% weighted cost of debt. Deducting these costs from the total return on investment translates into Krispy Kreme Doughnuts,'s economic value added (EVA) of 7.10%. While not outstanding, this represents and acceptable true economic profit after accounting for both operating and capital costs. Krispy Kreme Doughnuts, does not pay a dividend and hasn't done so within at least the last five years. Cash Flow Qtrly. 01/31/2014 $16M Cash Flow Qtrly Year Ago $21M Cash Flow 1 Yr. Chg. (25.46%) Cash Flow 12 Mo. Tr. Latest $57M Cash Flow 12 Mo. Tr. 3Y Ago $21M Cash Flow 12 Mo. Tr. 3Y Chg. 177.51% Free Cash Flow Last Qtr. $11M Economic Value Total Invested Capital $267M Return on Inv. Capital 18.19% Weighted Cost of Equity 10.85% Weighted Cost of Debt 0.24% Total Cost of Capital 11.09% Economic Value Added 7.10% 3 MarketGrader.com 2010. MarketGrader.com Corp. All Rights Reserved. April 24, 2014 Krispy Kreme Doughnuts, Inc. NYSE: KKD - Restaurants 45.3 Profile Krispy Kreme Doughnuts, Inc.operates as an retailer and wholesaler of doughnuts, complementary beverages and treats and packaged sweets. It operates through four business segments: Company Stores, Domestic Franchise, International Franchise and KK Supply Chain. The Company Stores segment is comprised of the doughnut shops operated by the company. These stores sell doughnuts and complementary products through the on-premises and wholesale channels and come in two formats: Factory Stores and Satellite Shops. Factory stores have a doughnut-making production line, and many of them sell products through both on-premises and wholesale channels to more fully utilize production capacity. Satellite shops, which serve only on-premises customers, are smaller than most factory stores, and include the hot shop and fresh shop formats. The Domestic Franchise segment consists of the company's domestic store franchise operations. This segment sell doughnuts and complementary products through the on-premises and wholesale channels in the same way and using the same store formats as in the company's stores segment. The International Franchise segment consists of the company's international store franchise operations. This segment sell doughnuts and complementary products almost exclusively through the on-premises sales channel. The KK Supply Chain segment produces doughnut mixes and manufactures doughnut- making equipment, which all factory stores, both company and franchise, are required to purchase. The company was founded by Vernon Carver Rudolph on July 13, 1937 and is headquartered in Winston-Salem, NC. Key Facts: 370 Knollwood StreetSuite 500 Winston-Salem ,NC 27103-1865 Phone: www.krispykreme.com Biggest Company in Sub-Industry McDonald's Corporation (MCD) Grade 76.6 Market Cap:$98.04 billion Smallest Company in Sub-Industry Ginger Beef Corporation Grade 20.9 Market Cap:$1.73 million MarketGrader Dilution Analysis Impact of Change in Shares on EPS - Q1 2014 Dilution Summary *EPS Latest $0.21 *EPS Year Ago $0.07 EPS Change 1 Yr. 204% C. Shares - Latest(M) 71 C. Shares - Yr Ago(M) 70 C. Shares - 1Yr Chg. 2% EPS if Yr. Ago Shares $0.21 EPS Chg. if Yr. Ago 209% EPS Loss from Dilution $0.00 *Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company. Income Statement Last Qtr (01/2014) 12 Mo. Trailing Revenue $113M $460M Op. Income $10M $49M Net Income $15M $34M *EPS $0.21 0 *Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company. Balance Sheet Latest Total Assets $339M Total Debt $2.00M Stockholders Eq. $265M All numbers in millions except EPS Ratios Price/Earnings (12 mo. trailing) 29.08 Price/Tangible Book 4.83 Price/Cash Flow 22.51 Price/Sales 2.54 Debt/Cash Flow 3.52 Return on Equity 12.92% Gross Margin (12 mo. trailing) 15.46% Operating Margin (12 mo. trailing) 10.54% Net Profit Margin (12 mo. trailing) 7.44% Total Assets $339M Intangible Assets $24M Long Term Debt $1.66M Total Debt $2.00M Book Value $265M Enterprise Value ($54M) Gross Margin last Qtr. 15.47% EBITDA Margin last Qtr. 11.31% Operating Margin last Qtr. 8.63% Operating Margin Sub-Industry Avg. 16.40% Operating Margin 12 mo. trailing 10.54% Net Profit Margin Last Qtr. 13.09% 4 MarketGrader.com 2010. MarketGrader.com Corp. All Rights Reserved. April 24, 2014 Krispy Kreme Doughnuts, Inc. NYSE: KKD - Restaurants 45.3 Top Down Analysis # Ticker Grade Sentiment Name Price Next EPS 1 TTWO 87.68 N Take-Two Interactive Software, Inc. $20.89 05/13/2014 2 RGR 87.33 N Sturm, Ruger & Company, Inc. $63.01 04/29/2014 3 KORS 81.90 P Michael Kors Holdings Ltd $91.44 05/28/2014 4 FOSL 81.64 N Fossil Group, Inc. $108.28 05/13/2014 5 LVS 81.55 P Las Vegas Sands Corp. $77.95 05/06/2014 6 TIVO 78.21 N TiVo Inc. $12.00 05/28/2014 7 NLS 78.20 N Nautilus, Inc. $8.22 05/05/2014 8 XRS 77.57 P TAL Education Group $23.33 07/22/2014 9 CLCT 77.45 N Collectors Universe, Inc. $22.89 05/12/2014 10 PCLN 76.95 P The Priceline Group, Inc. $1,219.95 05/12/2014 363 KKD 45.30 N Krispy Kreme Doughnuts, Inc. $18.03 06/05/2014 # Ticker Grade Sentiment Name Price Next EPS 1 MCD 76.58 P McDonald's Corporation $99.13 07/21/2014 2 PNRA 74.48 N Panera Bread Company $169.63 04/29/2014 3 TXRH 64.58 N Texas Roadhouse, Inc. $24.53 04/28/2014 4 RUTH 64.42 N Ruth's Hospitality Group, Inc. $12.65 05/02/2014 5 CMG 64.29 N Chipotle Mexican Grill, Inc. $504.05 07/17/2014 6 THI 63.36 N Tim Hortons Inc. $54.93 05/07/2014 7 PZZA 63.30 P Papa John's International, Inc. $47.36 05/06/2014 8 NATH 62.54 N Nathan's Famous, Inc. $49.46 06/11/2014 9 BLMN 62.32 N Bloomin' Brands, Inc. $21.87 04/29/2014 10 MTY.CA 62.27 N MTY Food Group Inc. $31.31 07/03/2014 37 KKD 45.30 N Krispy Kreme Doughnuts, Inc. $18.03 06/05/2014 Consumer Discretionary Stocks in Sector: 730 Buys: 169 (23.15%) Holds: 129 (17.67%) Sells: 432 (59.18%) No. of stocks at: 52-Wk. High: 8 52-Wk. Low: 14 Above 50 & 200-day MA: 225 Below 50 & 200-day MA: 296 Restaurants Stocks in Sub-Industry: 63 Buys: 15 (23.81%) Holds: 12 (19.05%) Sells: 36 (57.14%) No. of stocks at: 52-Wk. High: 0 52-Wk. Low: 1 Above 50 & 200-day MA: 9 Below 50 & 200-day MA: 27 1. Price Trend. C 2. Price Momentum. D 3. Earnings Guidance. A- 4. Short Interest. B- 5.5 Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. MarketGrader does not make markets in any of the securities mentioned in this report. MarketGrader does not have any investment banking relationships. MarketGrader and its employees may have long/short positions or holdings in the securities or other related investments of companies mentioned herein. Officers or Directors of MarketGrader.com Corp. are not employees of covered companies. MarketGrader or any of its employees do not own shares equal to one percent or more of the company in this report. 5 MarketGrader.com 2010. MarketGrader.com Corp. All Rights Reserved.