The markets opened mixed on Thursday, impacted by strong jobless claims data, which signals a strengthening labor market. A number of stocks registered larger moves than others, one of which is Krispy Kreme Doughnuts (NYSE:KKD), which slid by over 15% in pre-market and extended the losses into the first minutes of trading on the back of weak financial results for the second quarter of fiscal 2016 ended August 2.
Even though the company delivered a 5.7% annual increase in revenues to $127.3 million and a 9.7% growth in adjusted net income to $0.15 per share, the results came short of estimates of $0.19 in EPS and revenue of $132 million. Moreover, what also spooked investors was the full-year guidance provided by the company, which included adjusted EPS between $0.76 and $0.80 compared to $0.70 posted for the last fiscal year. The outlook was based on softer than expected performance of Krispy Kreme’s consumer packaged goods category and year-to-date charges of the company’s derivative financial positions. The company also plans to open 10 to 12 new company shops, 20 net new domestic franchise outlets and 95 to 110 net new international franchise locations.
Nevertheless, in terms of hedge fund sentiment, Krispy Kreme Doughnuts (NYSE:KKD) saw an increase in popularity and at first sight it looks like the smart money is bullish on the company. In this way, at the end of June, 25 funds from our database held roughly $118.37 million worth of stock, which accounted for almost 10% of the company.
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With this in mind, it’s important to mention that Krispy Kreme Doughnuts (NYSE:KKD) gained popularity among hedge funds during the second quarter. The aforementioned figures increased from 20 investors holding stakes worth $81.57 million in aggregate at the end of March. Meanwhile, the stock lost 4% between April and June, which shows a huge inflow of capital from hedge funds into Krispy Kreme.
The increase of the aggregate value of hedge funds’ holdings came mainly from the increases registered among the company’s largest shareholders in our database. Among the top seven funds with the largest stakes in Krispy Kreme Doughnuts (NYSE:KKD), five boosted their positions and two funds, Israel Englander’s Millennium Management and Dmitry Balyasny’s Balyasny Asset Management initiated new stakes of 733,400 shares and 458,800 shares respectively. The largest shareholder at the end of June was Amy Minella’s Cardinal Capital, owning 1.03 million shares, followed by Jim Simons’ Renaissance Technologies, which boosted its position by 170% on the quarter to 909,100 shares. In addition, billionaires George Soros’ Soros Fund Management and Ken Griffin‘s Citadel Investment Group increased their positions by 28% and 431% to 642,500 shares and 251,600 shares respectively.
Nevertheless, despite the increase of the top shareholders’ “bullishness” that Krispy Kreme Doughnuts (NYSE:KKD) witnessed during the second quarter, these investors allocated tiny portions of their equity portfolios towards the position. Moreover, compared to some of its larger industry peers, Krispy Kreme also ranked much lower. For example, Starbucks Corporation (NASDAQ:SBUX) ranked as the third most popular restaurant stock, being included in the equity portfolios of 46 funds at the end of June. The most popular was McDonald’s Corp. (NYSE:MCD), in which 81 investors disclosed long positions (read the full list of hedge funds’ most popular restaurant stocks).
In this way, despite the increase of Krispy Kreme Doughnuts (NYSE:KKD)’s popularity among hedge funds, a breakdown of their positions shows that they were cautious regarding the company and we think that it is the best scenario to follow right now regarding the company.
Disclosure: none
