Growing demand in the retail space has made competition intense. People are splurging as the holiday season is setting in. Demand for beverages and breakfast is on a rise. Thus, retailers are trying to make the most of it.
Krispy Kreme Doughnuts (KKD, Financial) is a doughnut and beverage retailer that plans to focus on its beverage segment in order to boost its sales. Its third-quarter numbers were not up to the mark as it failed to please the analysts, sending its shares down.
An overview of the quarter
The revenue of the company surged 7.6% to $122.9 million over last year. This was slightly lower than the analysts' estimate of $124 million. The top line was driven by an increase in same-store sales of 3.7%, helped by higher store traffic at the existing stores. Also, store count of the company rose 4.6% during the quarter.
However, store traffic in the international stores was weak. Traffic in the market dropped 2.8% during the quarter. In addition, unfavorable currency movements further affected revenue from the region.
One of the key reasons for Krispy Kreme's increase in sales was limited time offers and promotions made by the company. In order to attract customers, the retailer ramped up its promotional efforts. For instance, it offered Ghostbusters-themed doughnuts on the anniversary of the movie. On "Talk Like A Pirate Day" the retailer gave free doughnuts to people who were dressed like a buccaneer. These promotions, which were for a limited period only, resulted in higher sales at the stores.
The gross margin of the company contracted 139 basis points to 17.67%, over the prior year. Also, earnings were lower than the analysts’ expectations. However, the bottom line increased to $0.12 per share from $0.16 per share in the previous year.
Host of efforts undertaken
Krispy Kreme Doughnuts plans to focus on its coffee segment as demand for beverages has been on the rise. In fact, there is scope for expansion in this category. Hence, it plans to increase in-store coffee and espresso options. Also, it is remodeling some of its stores in order to make it look like a coffee shop. It has added couches to such stores and has added cappuccino colors to its interiors.
Further, it plans to promote packaged ground coffee and K-Cup products since K-Cups are still one of the growing categories. In addition, it is eyeing to expand its footprint in the international market by opening new stores.
Moreover, it has installed cellphone charging stations at its stores, which allows customers to charge their phones for free. This makes them shop more at the doughnut stores. This is in addition to introducing bottled iced coffee, which will be sold at Wal-Mart stores. This will make its products available at the grocery stores too.
Conclusion
It is quite clear that Krispy Kreme Doughnuts has a number of strategies lined up to attract customers this holiday season. The launch of a loyalty program called "My Krispy Kreme Treats" will be another advantage for the company. This is probably the reason why the company became positive about its prospects and affirmed its outlook for the year. Therefore, owning this company should bring in profits.
