Doughnut chain Krispy Kreme (NASDAQ:DNUT) fell short of analysts' expectations in Q3 FY2023, with revenue up 7.9% year on year to $407.4 million. Its full-year revenue guidance of $1.67 billion at the midpoint came in 1.4% below analysts' estimates. Turning to EPS, Krispy Kreme made a GAAP loss of $0.24 per share, down from its loss of $0.08 per share in the same quarter last year.
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Krispy Kreme (DNUT) Q3 FY2023 Highlights:
- Revenue: $407.4 million vs analyst estimates of $413.9 million (1.6% miss)
- EPS: -$0.24 vs analyst estimates of $0.01 (-$0.25 miss)
- The company reconfirmed its revenue guidance for the full year of $1.67 billion at the midpoint
- Free Cash Flow was -$36.54 million, down from $8.15 million in the previous quarter
- Gross Margin (GAAP): 27.2%, up from 25.7% in the same quarter last year
- Store Locations: 13,394 at quarter end, increasing by 1,691 over the last 12 months
Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ:DNUT) is one of the most beloved and well-known fast-food chains in the world.
Traditional Fast FoodTraditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.
Sales GrowthKrispy Kreme is larger than most restaurant chains and benefits from economies of scale, giving it an edge over its smaller competitors.
As you can see below, the company's annualized revenue growth rate of 15.8% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was excellent as it added more dining locations and expanded its reach.
This quarter, Krispy Kreme's revenue grew 7.9% year on year to $407.4 million, missing analysts' expectations. Looking ahead, the analysts covering the company expect sales to grow 9.1% over the next 12 months.
Number of Stores When a chain like Krispy Kreme is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, Krispy Kreme's restaurant count increased by 1,691, or 14.4%, to 13,394 locations in the most recently reported quarter.
Taking a step back, Krispy Kreme has rapidly opened new restaurants over the last eight quarters, averaging 14% annual increases in new locations. This growth is much higher than other restaurant businesses. Analyzing a restaurant's location growth is important because expansion means Krispy Kreme has more opportunities to feed customers and generate sales.
EPSEarnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.
In Q3, Krispy Kreme reported EPS at negative $0.24, down from -$0.08 in the same quarter a year ago. This print unfortunately missed Wall Street's estimates, but we care more about long-range EPS growth rather than short-term movements.
Between FY2019 and FY2023, Krispy Kreme's adjusted diluted EPS dropped 33.7%, translating into 8.4% average annual declines. We tend to steer our readers away from companies with multiple years of falling EPS, especially restaurants, which are arguably some of the hardest businesses to manage because of constantly changing consumer tastes, input costs, and labor dynamics. If there's no earnings growth, it's difficult to build confidence in a company's underlying fundamentals, leaving a low margin of safety around its valuation (making the stock susceptible to large downward swings).
Wall Street expects Krispy Kreme to continue performing poorly over the next 12 months, with analysts projecting year-on-year declines in EPS each quarter.
Key Takeaways from Krispy Kreme's Q3 Results With a market capitalization of $2.26 billion, Krispy Kreme is among smaller companies, but its more than $25.71 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.
We struggled to find many strong positives in these results. Its revenue, gross margin, adjusted EBITDA, and EPS all missed analysts' expectations. These misses were driven by underperformance in its U.S. division, which accounted for 63.9% of sales this quarter. On top of that, its revenue guidance for the full year was underwhelming. On the bright side, it opened more stores than projected, giving it more opportunities to grow its top line in the future. Overall, this was a bad quarter for Krispy Kreme. The company is down 8.3% on the results and currently trades at $12.32 per share.
The author has no position in any of the stocks mentioned in this report.
