Krispy Kreme Earnings Rise but Profit Margin Declines

Krispy Kreme Doughnuts Inc. (KKD) on Wednesday posted higher quarterly earnings on new store openings, but its stock fell 4.7 percent with an analyst citing an unexpected drop in profit margin.

The doughnut chain, based in Winston-Salem, N.C., reported a fourth-quarter profit of $16.4 million, or 26 cents per share, matching its own forecast.

A year earlier, Krispy, which operates 394 stores in United States and overseas, posted a profit of $11.3 million, or 19 cents per share, excluding a pretax charge of $9.1 million related to an arbitration.

But J.P. Morgan analyst John Ivankoe wrote in a research note that Krispy Kreme's company-store gross margin declined for the first time in three years and called it a "major surprise."

He said that lower average weekly sales in Krispy's company stores was discouraging as the company has aggressive store expansion plan for fiscal 2005. Ivankoe rates the company's shares "underweight."

Krispy Kreme shares were down $1.72, or 4.6 percent, at $36.44 on the New York Stock Exchange (search). The company's stock was also among the top percentage losers on the NYSE.

The company said it opened a record 35 new stores during the fourth quarter, including its first in Mexico, located in the suburb of Mexico City.

For fiscal 2005, ending February, Krispy Kreme said it continues to expect earnings per share of $1.16 to $1.18 per share.

The company also forecast same-store sales to show a percentage rise in the mid-to-high single digits, while total sales will increase about 25 percent, and it will open about 120 new stores.

Analysts expect a fiscal 2005 profit of $1.18 a share, according to Reuters Research, a unit of Reuters Group Plc.