The Wall Street Journal
Krispy Kreme's doughnuts might win raves, but sales at some of its stores are surprisingly soggy.
The company is one of the great fast-food stories of the past decade, garnering raves for its signature hot-glazed doughnuts and a devoted circle of Wall Street fans.
Krispy Kreme Doughnuts Inc. shares are up eightfold since the Winston-Salem, N.C., company went public in 2000, defying the market's drop since then, and have gained 26 percent this year.
But there are new signs that the company's numbers may not be as sweet as many investors have thought.
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Internal figures reviewed by The Wall Street Journal cover results for roughly 40 Krispy Kreme outlets that opened between September 2002 and April 2003. On average, the stores posted weekly retail sales of about $35,000 during the 13 weeks ended Aug. 4, below what the company says is the norm for its newer outlets, and well below what some investors expect for a retailer whose new stores tend to open particularly big thanks to the company's large following.
Then there is the company's biggest franchisee, Great Circle Family Foods LLC, which has 22 stores in Southern California. People who have examined Great Circle's books say its same-store sales, including wholesale shipments from those stores, fell 10 percent in its latest quarter.
During its fiscal second quarter ended Aug. 4, Krispy Kreme's same-store sales rose by about 10 percent.
While overall revenue at Great Circle rose due to its fast-growing wholesale business, guest counts at its outlets, a key restaurant-industry measure of the number of transactions per store, declined by nearly 20 percent.
Krispy Kreme, which has 313 outlets, generally confirmed the new-store retail-sales report. But the company says the numbers are fragmentary and don't provide a complete picture of a company that has reported stunning growth in recent years, including an average 63 percent quarterly growth in operating earnings during the past 10 quarters.
But they do give ammunition to an argument circulating among Krispy Kreme bears: As the fast-expanding doughnut purveyor adds multiple outlets in the choicest markets, average-store sales are slowing and new stores aren't performing strongly. The company's strategy of offsetting slowing retail sales with wholesale shipments to supermarkets and other outlets, these bears argue, is inherently less profitable -- and may be tricky to execute.
