Krispy Kreme Doughnuts - KKD - close: 18.79 change: -0.04

Stop Loss: 19.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 608 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Earlier this year everyone was speculating that the multi-year lows in gasoline prices would be bullish for consumer spending, especially at restaurants. Thus far that premise hasn't really panned out. Gasoline prices remain $1.00 lower than they were a year ago but restaurant stocks as a whole are not seeing a significant increase in sales. Investor sentiment on shares of KKD seems to have gone stale with shares down -15% from their 2015 highs.

KKD is in the services sector. They're part of the restaurant industry. According to the company, "Krispy Kreme is a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, including its signature Original Glazed® doughnut. Headquartered in Winston-Salem, N.C., the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937. Today, there are over 980 Krispy Kreme shops in more than 20 countries around the world."

Their 2015 Q3 earnings back in December were in-line with estimates while revenues came in below analysts' expectations. Yet KKD offered a bullish guidance for the rest of their fiscal year. Shares sold off anyway in spite of the improved guidance.

Their most recent earnings report was March 11th when KKD announced its 2015 Q4 results. Earnings were up a significant +36% to $0.17 a share. That was one cent above Wall Street estimates. Revenues rose +11.3% to $125.4 million. Unfortunately that missed expectations for $128 million. Domestic same-store sales were up +3.6% while international same-store sales were down -2.6% most likely due to the strong U.S. dollar.

KKD management expects their 2016 fiscal year results to be in the $0.79-0.85 range. That is already accounting for low gasoline prices, which is still expected to boost sales throughout the remainder of the year. The bad news is that Wall Street was looking for earnings of $0.85 per share. The combination of the revenue miss (second quarter in a row) and the lowered guidance helped send KKD's stock lower.

Bulls could argue that KKD is growing and sales will improve as they expand. In fiscal year 2016 KKD does plan to open several new stores including 10 to 15 new company-owned stores, 10 to 20 new domestic franchise stores, and 95 to 110 net new international franchise locations. Unfortunately, if the stock's chart is any indication, investors aren't buying it.

Currently the stock has fallen toward significant support in the $18.00-18.50 zone, which is underpinned by the simple 200-dma. This area is also support on the point & figure chart, which is currently bearish and forecasting at $16.00 target. If KKD breaks down under $18.00 it could signal a drop toward its 2014 lows near $15.00.

Tonight we are suggesting a trigger to open bearish positions at $17.90. I want to point out that April 23rd and 24th could be volatile for KKD. Much larger rivals Dunkin Donuts (DNKN) and Starbucks (SBUX) both report earnings on April 23rd. Their quarterly results could have an influence on shares of KKD.

Trigger @ $17.90

- Suggested Positions -

Short KKD stock @ $17.90

- (or for more adventurous traders, try this option) -

Buy the AUG $18 PUT (KKD150821P18) current ask $1.20
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart: