Krispy Kreme Doughnuts (NYSE: KKD), the Winston-Salem, NC based doughnut company, has been serving up their take on the classic pastry since 1937. Sold in gas stations and mini marts in the U.S., Canada, and elsewhere, Krispy Kreme has also recently started to gain more of a foothold in chains like Wal Mart and Target.
THE ACTION
KKD ($19.09) was up $0.44 in Monday’s session, with the stock trading in a 52-week range of $12.32-$26.63. The stock is virtually flat (down 1%) in 2014, and has not traded above $20 thus far this year. Krispy Kreme is scheduled to report earnings after the close Wednesday. Historically the stock moves significantly on earnings announcements, with an average move of 13.4% over the past 8 quarters. The stock has gone down following three of the past four earnings reports, and and 4 of the past 8.
The past two earnings calls have left investors uneasy, with the stock falling 20% and 15%, largely on concerns of profit margins. Reasons to be bullish on the stock include international franchise growth (509 of 748 total locations are outside the U.S.), with the company planning to double overseas locations in the next three years.
THE TRADE
I would not play KKD to the short side, only long or flat. When placing trades for earnings catalysts, I try to trade as close to the event as possible, so I would look to put on any KKD trade sometime before the close Wednesday. Since KKD offers no weekly options, I would look to March expiration and buy a call spread offering three or four to one on my money.
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