Krispy Kreme Reports Earnings Per Share of $0.03 for the Third Quarter of Fiscal 2011
WINSTON-SALEM, N.C., Dec. 1, 2010 - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the “Company”) today reported financial results for the third quarter of fiscal 2011, ended October 31, 2010.
Third Quarter Fiscal 2011 Highlights Compared to the Year-Ago Period:
— Revenues increased 7.9% to $90.2 million from $83.6 million
— Excluding the effects of refranchising Company stores, revenues rose
9.6%
— Company same store sales rose 5.0%, the eighth consecutive quarterly
increase
— Operating income rose to $4.1 million from $633,000
— Operating income for last year’s third quarter reflected charges for the
settlement of litigation and related legal costs totaling approximately
$2.0 million ($0.03 per share)
— Net income was $2.4 million ($0.03 per share diluted) compared to a net
loss of $2.4 million ($0.04 per share) in the third quarter last year
The Company ended the third quarter with a total of 649 Krispy Kreme stores systemwide, a net increase of 16 shops during the quarter. As of October 31, 2010, there were 85 Company stores and 564 franchise locations.
“We delivered a strong performance in the third quarter, characterized by revenue growth, a significant increase in consolidated operating income, and a positive bottom line for the fourth consecutive quarter. Higher sales by Company and franchise shops drove profit improvements in the KK Supply Chain segment, and our International Franchise business continued to exceed our expectations. Company Stores continued its impressive track record of positive same store sales, although there is much more work to be done to restore our largest business segment to consistent profitability. We are devoting considerable attention toward this critical objective and over time, expect that the sales growth we are experiencing will more positively impact overall results,” said Jim Morgan, the Company’s President and Chief Executive Officer.
Outlook
“In our second quarter earnings release on September 2, 2010, we communicated our expectation for fiscal 2011 operating income, exclusive of impairment charges and lease termination costs, of between $13 million and $17 million. Based on our third quarter results, which exceeded our expectations, and other current information, our current fiscal 2011 outlook for consolidated operating income, exclusive of impairment charges and lease termination costs, is between $17 million and $20 million,” Morgan continued.
“Looking forward to fiscal 2012, we anticipate opening 5 to 10 Company stores, between 5 and 15 domestic franchise stores, and more than 30 international franchise stores. We expect continued organic same store sales growth in our domestic stores, but believe international franchise same store sales will continue to be pressured by the substantial growth in international markets in recent years. The most significant uncertainty for fiscal 2012 is commodity costs, which are expected to rise significantly compared to the current year. Accordingly, we are working to reduce the consumption of certain key ingredients, and are evaluating the timing and scope of price increases needed to offset higher input costs. Although our planning and budgeting process for fiscal 2012 is ongoing, based on these general themes, we currently estimate that fiscal 2012 operating income, exclusive of impairment and lease termination costs, will be in the range of $22 million to $24 million. This range represents an increase of from 29% to 41% from the low end of our revised fiscal year 2011 guidance, and an increase of from 10% to 20% from the top end of the fiscal 2011 range. It is important to note that this outlook is very preliminary, and we expect to establish more formal guidance in conjunction with the release of our fourth quarter results in April,” Morgan concluded.
Third Quarter Fiscal 2011 Results
Consolidated Results
For the third quarter ended October 31, 2010, revenues increased 7.9% to $90.2 million from $83.6 million. Year-over-year revenue increases were generated in all four business segments.
Direct operating expenses increased to $79.2 million from $74.6 million, but as a percentage of total revenues, decreased to 87.7% from 89.2 %. General and administrative expenses decreased to $4.8 million from $6.1 million in the same period last year and, as a percentage of total revenues, decreased to 5.3% from 7.3%. Impairment charges and lease termination costs were $399,000 compared to $109,000 in the year-ago period.
Operating income increased to $4.1 million from $633,000. Last year’s results reflect charges of approximately $2.0 million related to the settlement of litigation.
Interest expense decreased to $1.6 million from $2.3 million, principally reflecting the Company’s reduced level of indebtedness.
Net income was $2.4 million ($0.03 per share diluted) compared to a net loss of $2.4 million ($0.04 per share), in the third quarter last year.
Segment Results
Company Stores revenues increased 2.6% to $61.6 million from $60.0 million. Higher same store sales and off-premises sales to grocers and mass merchants were offset by the effects of stores closed or refranchised, along with lower off-premises sales to convenience stores. Excluding the effects of refranchising, Company Stores revenues increased 5.9%. Same store sales at Company stores rose 5.0%, the eighth consecutive quarterly increase. The Company Stores segment posted an operating loss of $1.4 million in both periods. Results for the third quarter of last year include a charge of $750,000 for the settlement of litigation.
Domestic Franchise revenues increased 4.9% to $2.0 million from $1.9 million, reflecting a 10.0% rise in sales by domestic franchisees. Excluding the effects of refranchising, sales by domestic franchisees rose 5.9%. Same store sales rose 5.7% at domestic franchise stores. Legal costs associated with the termination of the franchise agreements of a domestic franchisee caused the decline in Domestic Franchise operating income to $499,000 compared to $811,000 last year.
International Franchise revenues increased 22.5% to $4.4 million from $3.6 million, reflecting increased royalties from higher sales by international franchise stores. A decline in international franchise same store sales was offset by new store openings. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 12.3%, reflecting, among other things, waning honeymoon effects from the over 300 stores opened internationally in the past three years, as well as anticipated cannibalization as markets develop. The International Franchise segment generated operating income of $3.0 million compared to $2.1 million last year. International franchisees continued to expand, with a net increase of 12 locations in the third quarter.
Total KK Supply Chain revenues (including sales to Company stores) increased 14.5% to $45.0 million from $39.3 million, driven by selling price increases in major product categories and generally higher unit volumes. External KK Supply Chain revenues rose 23.2% to $22.2 million from $18.1 million in the third quarter last year. KK Supply Chain generated operating income of $7.3 million compared to $5.5 million in the third quarter last year reflecting, among other things, higher revenues as well as lower freight and other distribution costs.
Conference Call
Management will host a conference call to review third quarter results as well as management’s outlook for future periods this afternoon at 4:30 p.m. (ET). A live webcast of the conference call will be available at the Company’s website at http://www.KrispyKreme.com. The call also can be accessed live by dialing (877) 291-1289 or, for international callers, by dialing (631) 865-4991. A replay will be available after the call and can be accessed by dialing (800) 642-1687 and entering the passcode 26498335. International callers may access the replay by dialing (706) 645-9291 and entering passcode 26498335. The audio replay will be available through December 8, 2010. A transcript of the conference call also will be available at the Company’s website.
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
----
October November
31, 1,
2010 2009
---- ----
(In thousands, except per share amounts)
Revenues $90,228 $83,600
Operating expenses:
Direct operating expenses
(exclusive of depreciation
and
amortization shown below) 79,152 74,576
General and administrative
expenses 4,784 6,128
Depreciation and
amortization expense 1,818 2,154
Impairment charges and lease
termination costs 399 109
--- ---
Operating income 4,075 633
Interest income 42 10
Interest expense (1,585) (2,295)
Equity in income (losses) of
equity method franchisees 190 (393)
Other non-operating income
and (expense), net 85 144
--- ---
Income (loss) before income
taxes 2,807 (1,901)
Provision for income taxes 417 487
--- ---
Net income (loss) $2,390 $(2,388)
====== =======
Earnings (loss) per common
share:
Basic $0.03 $(0.04)
===== ======
Diluted $0.03 $(0.04)
===== ======
Weighted average shares
outstanding:
Basic 68,407 67,612
Diluted 70,023 67,612
Nine Months Ended
---
October November
31, 1,
2010 2009
---- ----
(In thousands, except per share amounts)
Revenues $270,277 $259,750
Operating expenses:
Direct operating expenses
(exclusive of depreciation
and
amortization shown below) 233,382 223,069
General and administrative
expenses 15,509 17,259
Depreciation and
amortization expense 5,619 6,146
Impairment charges and lease
termination costs 1,482 3,922
----- -----
Operating income 14,285 9,354
Interest income 164 38
Interest expense (5,023) (8,424)
Equity in income (losses) of
equity method franchisees 371 (506)
Other non-operating income
and (expense), net 247 (356)
--- ----
Income (loss) before income
taxes 10,044 106
Provision for income taxes 979 783
--- ---
Net income (loss) $9,065 $(677)
====== =====
Earnings (loss) per common
share:
Basic $0.13 $(0.01)
===== ======
Diluted $0.13 $(0.01)
===== ======
Weighted average shares
outstanding:
Basic 68,232 67,354
Diluted 69,527 67,354
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
January
October 31, 31,
2010 2010
---- ----
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $21,756 $20,215
Receivables 21,329 17,839
Receivables from equity method
franchisees 576 524
Inventories 15,137 14,321
Other current assets 3,675 6,324
----- -----
Total current assets 62,473 59,223
Property and equipment 70,748 72,527
Investments in equity method
franchisees 1,401 781
Goodwill and other intangible
assets 23,816 23,816
Other assets 10,211 8,929
------ -----
Total assets $168,649 $165,276
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt $612 $762
Accounts payable 8,287 6,708
Accrued liabilities 28,404 30,203
------ ------
Total current liabilities 37,303 37,673
Long-term debt, less current
maturities 34,773 42,685
Other long-term obligations 20,477 22,151
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - -
Common stock, no par value 369,018 366,237
Accumulated other comprehensive
loss (42) (180)
Accumulated deficit (292,880) (303,290)
- -
Total shareholders' equity 76,096 62,767
------ ------
Total liabilities and
shareholders' equity $168,649 $165,276
======== ========
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
---
October November
31, 1,
2010 2009
---- ----
(In thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $9,065 $(677)
Adjustments to reconcile net income
(loss) to
net cash provided by operating
activities:
Depreciation and amortization 5,619 6,146
Deferred income taxes (90) (380)
Impairment charges 790 916
Accrued rent expense (165) (569)
Loss on disposal of property and
equipment 473 599
Impairment of investment in equity
method franchisee - 500
Unrealized loss on interest rate
derivatives - 537
Share-based compensation 3,197 3,448
Provision for doubtful accounts (300) 40
Amortization of deferred financing costs 560 636
Equity in (income) losses of equity
method franchisees (371) 506
Other (316) (137)
Change in assets and liabilities:
Receivables (3,036) 1,072
Inventories (816) 1,063
Other current and non-current assets (1,948) (88)
Accounts payable and accrued liabilities 351 2,105
Other long-term obligations (179) 180
---- ---
Net cash provided by operating
activities 12,834 15,897
------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,457) (6,160)
Proceeds from disposals of property and
equipment 2,688 156
Other investing activities 6 209
--- ---
Net cash used for investing activities (2,763) (5,795)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of long-term debt (8,114) (25,894)
Deferred financing costs - (954)
Proceeds from exercise of warrants 5 -
Repurchase of common shares (421) (249)
---- ----
Net cash used for financing activities (8,530) (27,097)
------
Net increase (decrease) in cash and cash
equivalents 1,541 (16,995)
Cash and cash equivalents at beginning
of period 20,215 35,538
------ ------
Cash and cash equivalents at end of
period $21,756 $18,543
======= =======
KRISPY KREME DOUGHNUTS, INC.
SEGMENT INFORMATION
Three Months Ended
----
October November
31, 1,
2010 2009
---- ----
(In thousands)
Revenues:
Company Stores $61,565 $60,020
Domestic Franchise 2,040 1,945
International Franchise 4,389 3,583
KK Supply Chain:
Total revenues 45,001 39,314
Less - intersegment sales
elimination (22,767) (21,262)
External KK Supply Chain revenues 22,234 18,052
------ ------
Total revenues $90,228 $83,600
======= =======
Operating income (loss):
Company Stores $(1,449) $(1,380)
Domestic Franchise 499 811
International Franchise 3,018 2,117
KK Supply Chain 7,342 5,549
----- -----
Total segment operating income 9,410 7,097
Unallocated general and
administrative expenses (4,936) (6,355)
Impairment charges and lease
termination costs (399) (109)
---- ----
Consolidated operating income $4,075 $633
====== ====
Depreciation and amortization
expense:
Company Stores $1,410 $1,694
Domestic Franchise 56 14
International Franchise 2 -
KK Supply Chain 198 219
Corporate administration 152 227
--- ---
Total depreciation and
amortization expense $1,818 $2,154
====== ======
Nine Months Ended
---
October November
31, 1,
2010 2009
---- ----
(In thousands)
Revenues:
Company Stores $184,069 $185,730
Domestic Franchise 6,314 5,798
International Franchise 13,158 11,267
KK Supply Chain:
Total revenues 135,798 121,926
Less - intersegment sales
elimination (69,062) (64,971)
External KK Supply Chain revenues 66,736 56,955
------ ------
Total revenues $270,277 $259,750
======== ========
Operating income (loss):
Company Stores $(3,214) $2,951
Domestic Franchise 2,694 2,425
International Franchise 9,004 6,495
KK Supply Chain 23,361 19,375
------ ------
Total segment operating income 31,845 31,246
Unallocated general and
administrative expenses (16,078) (17,970)
Impairment charges and lease
termination costs (1,482) (3,922)
------ ------
Consolidated operating income $14,285 $9,354
======= ======
Depreciation and amortization
expense:
Company Stores $4,264 $4,709
Domestic Franchise 166 57
International Franchise 5 -
KK Supply Chain 615 669
Corporate administration 569 711
--- ---
Total depreciation and
amortization expense $5,619 $6,146
====== ======
KRISPY KREME DOUGHNUTS, INC.
STORE COUNT
NUMBER OF STORES
--
DOMESTIC INTERNATIONAL TOTAL
- ------ -----
Number of Stores at October
31, 2010
Company:
Factory 69 - 69
Satellite 16 - 16
--- --- ---
Total Company 85 - 85
--- --- ---
Franchise:
Factory 101 106 207
Satellite 42 315 357
--- --- ---
Total franchise 143 421 564
--- --- ---
Total systemwide 228 421 649
=== === ===
NUMBER OF STORES
--
COMPANY FRANCHISE TOTAL
-- -----
Quarter ended October 31,
2010
August 1, 2010 84 549 633
Opened 1 19 20
Closed - (4) (4)
--- --- ---
October 31, 2010 85 564 649
=== === ===
Quarter ended November 1,
2009
August 2, 2009 89 459 548
Opened 2 22 24
Closed (4) (5) (9)
Transfer (3) 3 -
--- --- ---
November 1, 2009 84 479 563
=== === ===
KRISPY KREME DOUGHNUTS, INC.
SELECTED OPERATING STATISTICS
Three Months Ended
----
October November
31, 1,
2010 2009
---- ----
Year over year percentage change in
systemwide sales (1) 14.4% (4.5)%
Year over year percentage change in
systemwide sales, in constant dollars (2) 12.7 (4.5)
Change in same store sales (3):
Company stores 5.0% 5.1%
Domestic franchise stores 5.7 1.0
International franchise stores (8.6) (15.6)
International franchise stores, in constant
dollars (2) (12.3) (16.8)
Change in same store customer count -
Company stores 2.5% N/A
Company stores off-premises sales (4):
Grocers/mass merchants:
Change in average weekly number of doors 2.0% (10.4)%
Change in average weekly sales per door 4.1 14.2
Convenience stores:
Change in average weekly number of doors (1.5)% (12.0)%
Change in average weekly sales per door (1.4) (1.9)
Nine Months Ended
---
October November
31, 1,
2010 2009
---- ----
Year over year percentage change in
systemwide sales (1) 10.9% (8.1)%
Year over year percentage change in
systemwide sales, in constant dollars (2) 8.7 (5.2)
Change in same store sales (3):
Company stores 4.6% 4.2%
Domestic franchise stores 4.4 1.4
International franchise stores (9.2) (28.8)
International franchise stores, in constant
dollars (2) (14.8) (21.9)
Change in same store customer count -
Company stores 3.1% N/A
Company stores off-premises sales (4):
Grocers/mass merchants:
Change in average weekly number of doors (0.9)% (10.7)%
Change in average weekly sales per door 7.5 10.0
Convenience stores:
Change in average weekly number of doors (4.8)% (11.1)%
Change in average weekly sales per door (1.4) (4.5)
(1) Systemwide sales, a non-GAAP financial measure, include the
sales by both Company and franchise stores but excludes sales among
Company and franchise stores. The Company believes systemwide sales
data are useful in assessing the overall performance of the Krispy
Kreme brand and, ultimately, the performance of the Company.
(2) Computed on a pro forma basis assuming the average rate of
exchange between the U.S. dollar and each of the foreign currencies
in which the Company's international franchisees conduct business
had been the same in the comparable prior year period.
(3) The change in "same store sales" represents the aggregate on-
premises sales (including fundraising sales) during the current year
period for all stores which had been open for more than 56
consecutive weeks during the current year period (but only to the
extent such sales occurred in the 57th or later week of each store's
operation) divided by the aggregate on-premises sales of such
stores for the comparable weeks in the preceding year period. Once
a store has been open for at least 57 consecutive weeks, its sales
are included in the computation of same stores sales for all
subsequent periods. In the event a store is closed temporarily (for
example, for remodeling) and has no sales during one or more weeks,
such store's sales for the comparable weeks during the earlier or
subsequent period are excluded from the same store sales
computation. The change in "same store customer count" is similarly
computed, but is based upon the number of retail transactions
reported in the Company's point-of-sale system.
(4) For Company off-premises sales, "average weekly number of doors"
represents the average number of customer locations to which product
deliveries are made during a week by Company Stores, and "average
weekly sales per door" represents the average weekly sales to each
such location by Company Stores.
KRISPY KREME DOUGHNUTS, INC.
REVENUE RECONCILIATION
A reconciliation of total revenues as reported to adjusted total
revenues exclusive of the effects of refranchising follows:
Three Months Ended
----
October November
31, 1,
2010 2009
---- ----
(In thousands)
Total revenues as reported $90,228 $83,600
Sales by refranchised stores - (1,904)
Royalties from refranchised stores (78) (7)
KK Supply Chain sales to refranchised
stores (657) -
---- ---
Adjusted total revenues exclusive of the
effects of refranchising $89,493 $81,689
======= =======
Nine Months Ended
---
October November
31, 1,
2010 2009
---- ----
(In thousands)
Total revenues as reported $270,277 $259,750
Sales by refranchised stores - (6,483)
Royalties from refranchised stores (239) (7)
KK Supply Chain sales to refranchised
stores (2,007) -
------ ---
Adjusted total revenues exclusive of the
effects of refranchising $268,031 $253,260
======== ========
The Company believes that adjusted total revenues exclusive of the effects of refranchising, a non-GAAP measure, is a useful measure because it enables comparisons of the Company’s revenues that are unaffected by the Company’s decisions to sell operating Krispy Kreme stores to franchisees instead of continuing to operate the stores as Company locations. In addition, this comparison is one of the performance metrics adopted by the compensation committee of the Company’s board of directors to determine the amount of incentive compensation potentially payable to the Company’s executive officers for fiscal 2011.
SOURCE Krispy Kreme Doughnuts, Inc.
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Krispy Kreme Doughnuts, Inc.
CONTACT: Media: Brian K. Little, +1-336-726-8825, .(JavaScript must be enabled to view this email address); or Investor Relations: Anita K. Booe, +1-336-703-6902, .(JavaScript must be enabled to view this email address)
Web Site: http://www.KrispyKreme.com
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