Krispy Kreme (NASDAQ:DNUT) Beats Q2 Sales Targets, Forecasts Strong Full-Year Sales

Doughnut chain Krispy Kreme (NASDAQ:DNUT) reported its second-quarter fiscal 2024 results exceeding Wall Street analysts’ expectationswith revenue up 7.3% year over year to $438.8 million. The company’s full-year revenue forecast of $1.67 trillion at the midpoint also beat analysts’ estimates by 93,323%. It reported non-GAAP earnings of $0.05 per share, down from $0.07 per share in the same quarter last year.

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“Krispy Kreme had another strong quarter as our fresh doughnuts became easier to buy and more widely available,” said Josh Charlesworth, CEO.

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 known for their speed and convenience, offering menus filled with familiar, affordable dishes. Their on-the-go reputation makes them popular destinations for individuals and families in need of a quick meal. However, this category of restaurants battles the perception that their dishes are unhealthy and made with substandard ingredients, a battle that is especially relevant today given consumers’ growing focus on health and wellness.

Sales growth

Krispy Kreme is larger than most restaurant chains and benefits from economies of scale, giving it an advantage over smaller competitors.

As you can see below, the company’s annualized revenue growth rate of 13.9% over the past five years has been impressive as it has added more restaurant locations and expanded its reach.

Krispy Kreme posted solid year-over-year revenue growth of 7.3% during the quarter, and its $438.8 million in revenue beat Wall Street estimates by 1.1%. Wall Street expects sales to grow 6.1% over the next 12 months, slowing from this quarter.

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Money is king

If you’ve been following StockStory for a while, you know that we’re big on free cash flow. Why, you ask? We believe that, ultimately, cash is king and you can’t use accounting profits to pay the bills.

While Krispy Kreme’s free cash flow broke even this quarter, the bigger picture isn’t as clear. Over the past two years, Krispy Kreme’s capital-intensive business model and massive investments in new physical locations have stretched its resources thin. Its free cash flow margin was one of the worst in the restaurant industry, averaging negative 2.8%.

Taking a step back, Krispy Kreme’s margin has fallen by 7.6 percentage points over this period. If this trend continues, it could indicate that the company is becoming a more capital-intensive business.

Krispy Kreme broke even in the second quarter in terms of free cash flow. The company’s profitability declined, coming in 1.6 percentage points lower than the same quarter last year, but it remains above its two-year average. We wouldn’t put too much stock in this quarter’s decline, as investment needs can be seasonal, leading to short-term fluctuations. Long-term trends are more important.

Key Takeaways from Krispy Kreme’s Second Quarter Results

We were impressed by Krispy Kreme’s optimistic full-year revenue guidance, which beat analysts’ expectations. We were also pleased that its revenue beat Wall Street estimates. On the downside, its EPS fell short of expectations, and its full-year earnings guidance fell short of expectations. Overall, it was a mixed quarter for Krispy Kreme. The stock rose 2.4% to $9.45 immediately after the earnings release.

So, should you invest in Krispy Kreme right now? To make that decision, it’s important to consider its valuation, its business merits, and what happened in the last quarter. We cover this topic in our full, actionable research report, which you can read here for free.