Krispy Kreme Inc (NASDAQ:DNUT) is a North Carolina-based doughnut company and coffeehouse that became a household name nationwide at the turn of the millennium. While its growth is impressive, it’s still not a market leader. In fact, it’s a small fish compared to coffee giant Starbucks Corporation (NASDAQ:SBUX).
But from an investor standpoint, could it be the better buy now? Starbucks vs Krispy Kreme stock, which is best?
Each company has a wide footprint of retail stores, along with a presence on grocery store shelves. Neither is a necessity – you don’t need coffee and donuts – but they satisfy popular cravings for a delicious energy burst.
In fact, they both grew popular through a branding strategy that focused on cosy experiences. Anyone who ever waited in line at Krispy Kreme for a glazed donut or pulled up in Starbucks for its Wi-Fi connection feels comfort in the experience.
> Check out which is the best stock between Starbucks vs Dunkin Donuts.
It’s time to take a bite out of both these brands and business models to determine which is the better investment between Krispy Kreme vs Starbucks stock.
Is Krispy Kreme Stock A Buy?
Krispy Kreme’s June 2021 IPO priced the popular donut chain at $17.00 per share, but it lost steam in the following months to fall below its listing price. The company expanded throughout the globe on the back of its mouthwatering glazed donuts, which it sells by the dozen to maximize profits.
It has over 9,500 hubs (including over 1500 doughnut shops) that brought in a total of $11.6 million in the second quarter. The bull case for Krispy Kreme focuses on its partnerships and expansion across the U.S. and internationally.
However, its $71.6 million operating cash flow pales in comparison to its $1.63 billion in debt, and some investors are still scorned from the company’s previous public listing. That ended with an accounting scandal that caused the SEC to issue a cease and desist against the company in 2009.
It returned to a private company in 2016 before being relisted again in 2021. Of course, donuts aren’t part of a daily routine the way coffee is, which means Starbucks may have the edge.
Should You Buy Starbucks Stock?
Starbucks had a record fourth quarter with $8.1 billion in revenues, which includes 17 percent comparable store sales increase for the fiscal year. The Seattle, Washington-based company is a household name around the globe, and it has over 33,000 stores, including over 15,000 in the U.S. and over 5,000 in China.
Despite a record quarter, the stock is in a slump heading into the holiday season. This could make it a great discount buying opportunity, but there’s also potential trouble ahead.
The coffee giant is also doubling down on investments with its partners that could impact near-term profitability. And in the long-run Starbucks is facing a slowdown of growth while competitors are rising up, like Krispy Kreme, Dunkin, and Dutch Bros Inc (NYSE:BROS).
However, its stable dividend has investors sticking to Pike Place. Here’s how it compares to Krispy Kreme.
Krispy Kreme vs Starbucks Dividend
Krispy Kreme started out the gate strong with a $0.035 cash dividend in its first quarter on the market. This gives it a $0.14 annual dividend yield which equates to roughly 1.1 percent. It’s too early to tell how stable the $2 billion donut chain’s dividend is, nor how it will compare to the S&P 500 over a 10-year period.
Starbucks most recently paid a $0.49 quarterly dividend, and it raised its dividends almost annually over the past decade. That translates to the coffee giant paying a $1.96 annual yield, or approximately 1.85 percent dividend.
That makes Starbucks the better choice for dividend investors, as it has a higher, more consistent dividend and outperformed the S&P 500 index over the past 10 years. Will that outperformance continue?
Starbucks Financial Outlook
According to its fiscal year 2022 guidance, Starbucks is expecting to open approximately 2,000 new stores and increase comparable store sales in the high single digits.
It has new partnerships with Nestle and Caribbean Coffee Traders Limited to help expand in the Southeast Asia, Latin America, and Oceana markets. The company is also increasing employee wages as the Chinese market stalls.
CEO Kevin Johnson noted in the company’s earnings press release that the pandemic heavily impacted 80 percent of its Chinese stores. Some remain fully closed, while others are pushing to meet protocols for mobile ordering or sanitary regulations.
These added expenses and lower revenues could continue to take a toll as health concerns threaten another global spread.
Krispy Kreme Is No Market Leader
Unlike Starbucks, Krispy Kreme isn’t the market leader, and even with expanded e-commerce, it’s not as widely available geographically.
From a balance sheet perspective, the company is holding a lot of debt at $1.63 billion. This debt continues to grow as management adapts to changing market needs, such as curbside pickup and mobile ordering vs in-store.
It did grow margins in its Insomnia Cookies subsidiary, but it’s a relatively small slice of the company’s overall revenue pie. And despite having a catchy stock ticker symbol, it’s unlikely to get the attention of memestonk investors.
Krispy Kreme Stock vs Starbucks: The Bottom Line
Krispy Kreme is an iconic American donut brand while Starbucks is the preeminent coffeehouse chain. As pumpkin spice season comes and goes, each company is adapting to changing consumer buying behavior and consumption habits.
Both breakfast chains pay a healthy dividend, but Krispy Kreme’s is slightly smaller with a more turbulent financial history for its unhealthier food. Starbucks has a history of outperformance and a global brand that appeals to daily coffee habits which makes it the winner, but there’s no telling what could happen if a meme stock horde gets hungry.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.