Krispy Kreme's Q1 earnings are up 89%. Building upon a sound basis of strong sales and brand loyalty, Krispy Kreme has had an extremely good year, growing fast in both store numbers and profits. The premium quality doughnut maker has managed to position itself in what looks like a sustainable niche in the comfort food sector. And with profit margins improving as well, the company looks set for another good year.

Addictive, dissolve-in-your-mouth, stick-to-your-hips delights that must be eaten hot for best effect, Krispy Kreme doughnuts have developed a strong following among the American public. The specialist baker saw Q1 earnings shoot up 89% to $5.7 million, compared to $3 million a year ago. They had more than quadrupled since the company first sold shares to the public for US$10.60 each, adjusted for a split, in April 2000.  Sales got a boost as the 63-year-old company added stores and expanded into markets such as Denver, where first-week sales of US$369,000 broke the doughnut maker's previous mark for a new store.

The North Carolina based doughnut maker has raised its earnings estimate for the rest of the year from 69 cents per share to 77 cents. The previous prediction for fiscal 2003 has also been increased, from 86 cents per share to $1.00 per share. Operating margins widened as the doughnut maker was able to use existing distribution centers to serve new stores.

Krispy Kreme gets about half its sales of over 1.3 billion doughnuts sold in its own stores, as well as supermarkets and convenience stores. Despite selling through supermarkets, the chain differentiates its more profitable outlets from supermarket offerings by offering the doughnuts freshly baked and still warm. The company has also made a feature out of the doughnut making process itself, with in-store glass panels that allow customers to watch the doughnuts being cooked as they queue.

The company is planning to launch its own range of coffees soon, and while these are unlikely to gain the devout following Krispy Kreme has managed to achieve with its doughnut range, they are a sensible brand extension for the company to pursue.

The results are a bright spot in what is otherwise a fairly gloomy market. The company is building upon a sound basis of strong sales and brand loyalty, but is also demonstrating its ability to go beyond pushing turnover. As a result, the doughnut maker looks ready to take a bigger bite of the American market.

(c) 2001 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.