Doughnut chain Krispy Kreme (NASDAQ:DNUT) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 6.8% year on year to $379.9 million. On the other hand, the company’s full-year revenue guidance of $1.67 billion at the midpoint came in 1.2% below analysts’ estimates. Its non-GAAP loss of $0.01 per share was below analysts’ consensus estimates.
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Krispy Kreme (DNUT) Q3 CY2024 Highlights:
- Revenue: $379.9 million vs analyst estimates of $380.3 million (in line)
- Adjusted EPS: -$0.01 vs analyst estimates of $0.01 (-$0.02 miss)
- EBITDA: $34.7 million vs analyst estimates of $41.02 million (15.4% miss)
- The company reconfirmed its revenue guidance for the full year of $1.67 billion at the midpoint
- Management lowered its full-year Adjusted EPS guidance to $0.20 at the midpoint, a 23.1% decrease
- EBITDA guidance for the full year is $207.5 million at the midpoint, below analyst estimates of $217.8 million
- Gross Margin (GAAP): 24.2%, down from 27.2% in the same quarter last year
- Operating Margin: -4.2%, down from -0.5% in the same quarter last year
- EBITDA Margin: 9.1%, down from 10.7% in the same quarter last year
- Free Cash Flow was -$22.88 million compared to -$36.54 million in the same quarter last year
- Locations: 15,811 at quarter end, up from 13,394 in the same quarter last year
- Market Capitalization: $2.11 billion
“Krispy Kreme delivered a seventeenth consecutive quarter of year-over-year organic sales growth driven by increased Delivered Fresh Daily and digital sales,” said Josh Charlesworth, CEO.
Company Overview
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 Food
Traditional 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 Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years.
Krispy Kreme is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it’s working from a smaller revenue base.
As you can see below, Krispy Kreme’s sales grew at a solid 12.7% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and expanded its reach.
This quarter, Krispy Kreme reported a rather uninspiring 6.8% year-on-year revenue decline to $379.9 million of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to decline 2.8% over the next 12 months, a deceleration versus the last five years. This projection doesn't excite us and indicates the market thinks its offerings will face some demand challenges.
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Number of Restaurants
Krispy Kreme sported 15,811 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip and averaged 16.7% annual growth, among the fastest in the restaurant sector. This gives it a chance to become a large, scaled business over time.
When a chain opens 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.
Key Takeaways from Krispy Kreme’s Q3 Results
We struggled to find many strong positives in these results as its EBITDA and EPS missed Wall Street’s estimates. Krispy Kreme also lowered its full-year EPS guidance. Overall, this was a weaker quarter. The stock traded down 13.4% to $10.76 immediately after reporting.
Krispy Kreme may have had a tough quarter, but does that actually create an opportunity to invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
