The new management at Krispy Kreme Doughnuts (KKD) has addressed some of the legacy issues around store profitability, high leverage ratios and franchise relations, developing a new store format that allows them to achieve cash-on-cash returns that would enhance new unit growth, says Nick Setyan, Senior Equity Analyst at Wedbush Securities.
“We’ve actually seen on the company side in the U.S. very positive net unit development again, and that’s only going to accelerate going forward. Their same-store sales trends have been outperforming the entire industry for the last three or four quarters. Transactions last quarter were plus-7%, and again, that’s just transactions, excluding any kind of price, and those trends seem to be continuing,” Setyan said.
Setyan says perception of the KKD brand is improving along with transaction trends. He adds that the doughnut company’s international growth has gone uninterrupted for the last six years at above-10%, and Krispy Kreme may see its international momentum continue.
“One of the biggest reasons is that they’ve really figured out how to market in such a way where the customers have a reason to return to Krispy Kreme. The average customer goes in about once a month, and so they’ve figured out a way to really bring Krispy Kreme to top-of-mind of customers,” Setyan said. “The next step will be for the domestic franchisees to start accelerating growth. The net unit closures have continuously declined, and I do believe this year we’ll see net unit additions on the domestic franchisee side.”
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