What Happened?
Shares of doughnut chain Krispy Kreme (NASDAQ: DNUT) jumped 8.7% in the afternoon session after the company reported third-quarter financial results that showed early signs of progress in its turnaround plan, beating profit expectations even as revenue slightly missed forecasts.
The company posted an adjusted profit of one cent per share, which was significantly better than the loss analysts had anticipated. Although quarterly sales of $375.3 million fell just short of estimates, investors seemed to focus on the company's improved profitability. Management pointed to several strategic moves for the better-than-expected bottom line, including closing underperforming U.S. locations and ending its partnership with McDonald's to reduce costs. These actions helped drive a 17% increase in adjusted EBITDA and generated positive free cash flow, signaling that the company's new strategy was beginning to yield positive results.
The shares closed the day at $4.17, up 6.8% from previous close.
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What Is The Market Telling Us
Krispy Kreme’s shares are extremely volatile and have had 43 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 16 days ago when the stock gained 13.8% on the news that a surge in interest from retail investors, often labeled 'meme stock' activity, was fueled by positive analyst commentary and high short interest. This move was largely driven by retail traders who targeted the stock, a common feature for shares with significant short interest. Data showed that short interest in Krispy Kreme's available shares stood at 15.1%. Adding to the momentum, Morgan Stanley analysts singled out the donut chain as the top-performing stock in the restaurant category during the third quarter. News of the company's international expansion efforts, including opening its first store in Madrid, also contributed to the positive sentiment. This combination of factors created a powerful rally for the stock.
Krispy Kreme is down 57.2% since the beginning of the year, and at $4.16 per share, it is trading 64.9% below its 52-week high of $11.86 from November 2024. Investors who bought $1,000 worth of Krispy Kreme’s shares at the IPO in June 2021 would now be looking at an investment worth $198.10.
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