An Unlikely Victim Of Oil’s Collapse: Krispy Kreme

Krispy Kreme Doughnuts
Cheap oil is causing pain for donut purveyor Krispy Kreme (Photographer: Luke Sharrett/Bloomberg)

Despite humble beginnings in North Carolina, Krispy Kreme has bet big on international expansion in recent years, with nearly three quarters of its 1,100 donut shops now located abroad.

Yet, with plunging oil prices wreaking havoc around the world, there are some places where it probably wishes it hadn’t set up shop.

As of the beginning of 2015, Krispy Kreme had a presence in a number of big oil-exporting countries, including Saudi Arabia (105 locations), Mexico (136), the United Arab Emirates (19), Kuwait (14) and Russia (12).

These countries are reeling from cheap oil, now that an outsized revenue stream of theirs has dried up. In places like Russia, the currency has become substantially devalued and inflation has set in, pushing up the price of goods.

“You’ve got, obviously, franchisees in areas more impacted by the fall-off in oil prices,” said chief financial officer Price Cooper on a call with analysts and investors on Tuesday.

Even so, Krispy Kreme isn’t taking its foot off the gas when it comes to opening new international locations. The company plans to open some 120 to 140 new donut shops abroad in the current fiscal year. In Russia, alone, it wants to open another three dozen locations by 2019.

During its most recent quarter, same-store sales at franchise locations outside the U.S. declined 7.1%, and Krispy Kreme thinks its in for more of the same. “In general, we expect that the international side will continue to run negative same-store sales,” said Cooper.

In addition to cheap oil, the strong dollar has been a menace for Krispy Kreme. Once translated into U.S. dollars, the company’s revenue from its international franchisees fell 3.4% to $7.4 million during its latest quarter.

Looking overseas for growth is a relatively new strategy for the company. Krispy Kreme first opened its doors in 1937 but didn’t go international until 2001, a year after its initial public offering.

Despite its massive presence overseas, Krispy Kreme still makes most of its money in the U.S., from the stores it owns and from the donuts it sells at grocery stores and convenience stores. In its latest quarter, Krispy Kreme’s revenue totaled $130.4 million.

On Tuesday, Krispy Kreme offered a disappointing outlook for the current fiscal year, projecting adjusted earnings of 87 cents to 91 cents per share. Analysts had been looking for 93 cents per share.

Shares of Krispy Kreme, which have plunged 29% in the last 12 months, fell another 5% on Wednesday.