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Extra
Diets shrink Krispy Kreme's profit, plans
Low-carb craze dulls appetites for the doughnut chain's sugar bombs -- and for its stock. Company announces first-ever loss and plans for sugar-free doughnut, among other things..
By Reuters
Krispy Kreme Doughnuts on Tuesday reported its first quarterly net loss since going public four years ago and cut the number of planned new stores as the low-carb diet craze curbs appetites for doughnuts.
The company, which earlier this month slashed its profit forecast for the year, triggering a huge sell-off in its stock, said it now will open 100 new stores this year, about 17% fewer than planned previously.
Krispy Kreme (KKD, news, msgs) shares rose about 0.8% in midday trading, and one analyst said investors were happy the company is being more disciplined on its growth plans.
For its first quarter ended May 2, the Winston-Salem, N.C.-based doughnut chain posted a net loss of $24.4 million, or 38 cents per share, after recording charges for shutting down its Montana Mills Bread Co. chain and restructuring other operations.
The loss reversed a profit of $13.1 million, or 22 cents per share, a year earlier.
During a conference call to discuss the results, Krispy Kreme executives blamed the rapid proliferation of low-carbohydrate packaged foods aimed at consumers following popular diets such as the Atkins and South Beach for weakening sales, particularly in supermarkets.
"You can't walk down a grocery aisle today without -- on every level, on every shelf, every five feet -- seeing 'low-carb' on a package,'' said Krispy Kreme Chief Operating Officer John Tate. "People are going to try new things in lieu of what they are used to buying.''
'Competing for those eyeballs'
To compete more effectively with innovative products, Krispy Kreme will introduce several new incarnations of its signature doughnuts later this year, including a sugar-free doughnut, doughnut holes, and mini doughnut rings.
The company is also in the process of launching a new line of frozen drinks and will soon begin selling its own brand of coffee beans in supermarkets.
"To the extent that we can go out there with newness then we will compete effectively for those eyeballs,'' Tate said.
Krispy Kreme shares, which have lost more than a third of their value since the profit warning on May 7, were up slightly Tuesday on the New York Stock Exchange.
One analyst said investors were encouraged that Krispy Kreme management is positioning the company for growth in an environment where its brand is no longer seen as a hot new commodity.
"The are beginning to understand that they are at a critical juncture in their growth evolution," said U.S. Trust analyst Herb Achey. "Some of the swagger is gone from how they portray their growth plans. They want to execute now.'"
Excluding one-time items, Krispy Kreme reported a profit from continuing operations of $14.3 million, or 23 cents per share, up slightly from last year and in line with analysts' lowered expectations, according to Reuters Estimates.
Krispy Kreme estimated fiscal 2005 earnings from continuing operations of between $1.04 and $1.06 per share. Analysts, on average, are expecting $1 per share, according to Reuters Estimates.
The forecast is consistent with the profit warning earlier this month, when the company shaved 10% off its previous range of $1.16 to $1.18 per share.
Krispy Kreme said it now estimates full-year systemwide sales will increase 20% to 25% , and that systemwide comparable-store sales will rise by a low- to mid-single digit percentage.
The stock hit an all-time high of $49.74 in August.
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