Is Krispy Kreme Doughnuts (KKD) About to Throw $50 Million in the Fryer?

Page 1 of 2

Krispy Kreme Doughnuts (NYSE:KKD)On Monday, Krispy Kreme Doughnuts (NYSE:KKD) announced its board has approved the repurchase of up to $50 million of the company’s common stock, effective immediately.

For those of you keeping track, remember that Krispy Kreme Doughnuts (NYSE:KKD) already completed a $20 million share repurchase program last fiscal year, and Monday’s press release optimistically states they “view this $50 million additional repurchase authorization as a further indication of Krispy Kreme’s financial strength, our outstanding free cash flow generation, and our positive outlook for the future.”

Out of the pan…
To be sure, while the doughnut-maker’s revenue in the most recent quarter increased 11.2% year over year, to $120.6 million, adjusted net income rose an even more impressive 37%, to $14.1 million during the same period. This was primarily a result of reduced operating expenses and solid 11.4% same-store sales growth. Meanwhile, GAAP net income also rose by a third, to $8 million.

Better yet, thanks to those strong first-quarter results and expected continued strength for the remainder of the year, Krispy Kreme Doughnuts (NYSE:KKD) raised its fiscal 2014 outlook for adjusted net income to between $42 million and $45 million, up from the previous forecast of between $37 million and $40 million. In all, they say, this should help boost its fiscal 2014 earnings per share by between 26% and 34% over fiscal 2013.

In addition, this week’s release also noted that the company retired the remaining $22 million balance of its term loan as part of a refinancing of its existing secured credit facilities, which should save Krispy Kreme Doughnuts (NYSE:KKD) around $1 million in interest over first year following the transaction.

…and into the fire?
But with shares of Krispy Kreme Doughnuts (NYSE:KKD) currently trading at a whopping 59 times last year’s earnings – and that’s including a 4% drop so far in today’s trading — does this buyback really make sense?

After all, while the company’s results have been strong, remember that Krispy Kreme Doughnuts (NYSE:KKD) stock has more than doubled so far in 2013, and stands at more than triple its levels from this time last year. All in all, the stock has handily beat the broader index’s returns since then:

KKD Total Return Price Chart

KKD Total Return Price data by YCharts

And yes, I’ll admit Krispy Kreme Doughnuts (NYSE:KKD)’s forward price-to-earnings ratio is a much more manageable 26.6, but that’s also assuming Krispy Kreme’s plans go off without a hitch.

Company Chairman and CEO James Morgan did chime in, however, to assure investors they “always seek to first deploy cash to grow the business, [but] will complement that usage, as appropriate, with other means of increasing shareholder value.”

Buybacks can create value, but…
To that end, if Krispy Kreme Doughnuts (NYSE:KKD) doesn’t have anything better to do with its money, why not give investors the option of choosing what to do by initiating a dividend?

Of course, that doesn’t mean share buybacks don’t have their place; back in February, I supported iRobot Corporation (NASDAQ:IRBT)‘s  plan to repurchase up to $25 million of its common stock, but that was only because the company had just taken a beating after an ugly fourth-quarter earnings report, and I also believed its shares were fundamentally undervalued relative to its growth prospects.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!