Krispy Kreme Reports Financial Results for the First Quarter of
Krispy Kreme Reports Financial Results for the First Quarter of Fiscal 2013
Reaffirms Fiscal 2013 Guidance
WINSTON-SALEM, N.C., May 21, 2012 - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the “Company”) today reported financial results for the first quarter of fiscal 2013, ended April 29, 2012.
First Quarter Fiscal 2013 Highlights Compared to the Year-Ago Period:
— Revenues increased 3.7% to $108.5 million from $104.6 million
— Company same store sales rose 2.1%, the fourteenth consecutive quarterly
increase
— Operating income increased to $10.8 million from $9.8 million
— Adjusted net income, which reflects income tax expense only to the
extent payable in cash, was $10.3 million ($0.14 per share) compared to
adjusted net income of $9.2 million ($0.13 per share) in the first
quarter last year; adjusted net income and diluted earnings per share
(“EPS”) are non-GAAP measures (see the reconciliation of GAAP to
adjusted earnings in the table accompanying this release)
— Net income was $6.0 million ($0.08 per share) compared to $9.2 million
($0.13 per share); net income and EPS for the first quarter of fiscal
2013 reflect a book tax rate of 43% compared to a rate of 3% in the
first quarter last year due to the required reversal of valuation
allowances on deferred tax assets in the fourth quarter of fiscal 2012;
accordingly, net income and EPS for the first quarter of fiscal 2013 are
not comparable to those for the first quarter of fiscal 2012
— Cash provided by operating activities increased to $10.4 million from
$5.1 million
— The Company repurchased 255,000 of its common shares at an average price
of $7.27 per share
Chief Executive Officer James H. Morgan commented: “We got off to a good start in fiscal 2013 as operating income rose 11% on a 4% increase in revenues. All four of our business segments reported improved operating results compared to last year. Based on these results and other factors, we expect our business model to generate healthy cash flows and financial returns for investors, and we remain confident in our previous outlook for the full year.”
Fiscal 2013 Full Year Outlook
Management expects fiscal 2013 operating income of between $29 and $33 million, compared to $25.6 million in fiscal 2012, and fiscal 2013 EPS of between $0.21 and $0.24, reflecting an estimated tax rate of 45%. The higher tax rate compared to fiscal 2012 is a result of the required reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012, as described in the Company’s March 20, 2012 earnings release and in the Company’s annual report on Form 10-K filed on March 30, 2012. Because the Company has substantial net operating loss carryovers, the amount of taxes payable in cash is expected to remain insignificant for the foreseeable future.
Management estimates fiscal 2013 adjusted EPS of between $0.35 and $0.41, which includes income tax expense only to the extent expected to be currently payable, compared to $0.31 in fiscal 2012. Fiscal 2012 adjusted EPS also excludes a gain of $0.06 per share from the sale of the Company’s interest in KK Mexico. Adjusted EPS is a non-GAAP measure (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).
First Quarter Fiscal 2013 Results
Consolidated Results
For the first quarter ended April 29, 2012, revenues increased 3.7% to $108..5 million from $104.6 million in the same period last year.
Direct operating expenses increased to $88.7 million from $87.0 million in the same period last year, but as a percentage of total revenues, fell to 81.7% from 83.2%. General and administrative expenses increased to $6.5 million from $5.6 million in the year-ago period, and as a percentage of total revenues, increased to 6.0% from 5.4%.
Operating income increased to $10.8 million from $9.8 million.
Net income was $6.0 million ($0.08 per share) compared to $9.2 million ($0.13 per share), in the first quarter last year.
Net income and EPS for the first quarter of fiscal 2013 reflect a book tax rate of 43% compared to a rate of 3% in the first quarter last year due to the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012. Accordingly, net income and EPS for the first quarter of fiscal 2013 are not comparable to those for the first quarter of fiscal 2012.
Excluding the deferred income tax effects from both years’ results, adjusted net income, which reflects income taxes only to the extent currently payable in cash, was $10.3 million ($0.14 per share) compared to $9.2 million ($0.13 per share) in the first quarter last year. Cash provided by operating activities rose to $10.4 million, and continues to reflect the fact that cash taxes payable remain very small despite the higher reported tax rate in the first quarter. Adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).
Segment Results
Company Stores revenues increased 5.6% to $73.3 million from $69.5 million. Same store sales at Company stores rose 2.1%, the fourteenth consecutive quarterly increase. Higher customer traffic and fiscal 2012 retail price increases contributed 1.1% and 2.6%, respectively, to the improvement, partially offset by coffee and doughnut promotional pricing which reduced the average guest check. The Company lapped last year’s retail pricing in early March. The Company Stores segment posted operating income of $2.9 million, up 35.6% from the first quarter last year.
Domestic Franchise revenues increased 11.1% to $2.6 million from $2.4 million, reflecting a 7.9% rise in sales by domestic franchisees. Same store sales rose 5.8% at domestic franchise stores. Domestic Franchisee segment operating income improved to $1.6 million from $1.1 million in the first quarter last year.
International Franchise revenues increased 6.9% to $6.0 million from $5.6 million, driven by higher royalty revenues. Sales by international franchise stores rose 14.6%. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 7.4%, reflecting, among other things, honeymoon effects from the substantial number of international store openings in recent years, as well as cannibalization as markets develop. The International Franchise segment generated operating income of $4.5 million compared to $4.2 million reported in the first quarter last year. Last year’s results included almost $800,000 of credits related to the Company’s equity interest in KK Mexico, which the Company sold in the second quarter of last year.
KK Supply Chain revenues (including sales to Company stores) were essentially flat at $53.8 million. External KK Supply Chain revenues fell slightly to $26.5 million from $27.1 million in the year-ago period. KK Supply Chain generated operating income of $8.5 million in the first quarter, compared to $8.3 million in the first quarter last year.
Share Repurchases
The Company repurchased 255,000 of its common shares during the first quarter for total consideration of $1.9 million. The average price paid was $7.27 per share. Currently, the Company’s stock repurchase program is being executed pursuant to a Rule 10b5-1 plan executed between the Company and a brokerage firm. Under the 10b5-1 plan, the brokerage is executing purchases of the Company’s common shares pursuant to standing instructions issued by the Company, and such repurchase activity is not interrupted during blackout periods imposed under the Company’s securities trading policy.
Conference Call
The Company will host a conference call to review financial results for the first quarter as well as management’s outlook for the balance of the year this morning at 8:00 a.m. (ET).
A live webcast of the conference call will be available at http://www.krispykreme.com. The conference call also can be accessed over the phone by dialing (800) 510-9691 or, for international callers, by dialing (617) 614-3453. An archived replay of the call will be available shortly after its conclusion by dialing (888) 286-8010, or (617) 801-6888 for international callers; the passcode is 64579253. The audio replay will be available through May 28, 2012. A transcript of the conference call also will be available on the Company website.
About Krispy Kreme
Krispy Kreme is a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, including its signature Original Glazed(®) doughnut. Headquartered in Winston-Salem, NC, the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937. Today, Krispy Kreme shops can be found in over 690 locations in 21 countries around the world. Connect with Krispy Kreme at krispykreme.com and on Facebook, Foursquare, Twitter and YouTube.
Defined Terms
“Honeymoon effect” means the common pattern for many start-up restaurants in which a flurry of activity due to start-up publicity and natural curiosity is followed by a decline during which a steady repeat customer base develops. “Cannibalization” means the tendency for new stores to become successful, in part or in whole, by “shifting” sales from existing stores in the same market.
Information contained in this press release, other than historical information, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, assumptions and expectations of our future economic performance, considering the information currently available to management. These statements are not statements of historical fact.. Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “strive” or similar words, or the negative of these words, identify forward-looking statements. Factors that could contribute to these differences include, but are not limited to: the quality of Company and franchise store operations; our ability, and our dependence on the ability of our franchisees, to execute on our and their business plans; our relationships with our franchisees; our ability to implement our international growth strategy; our ability to implement our new domestic small shop operating model; political, economic, currency and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients, and the price of motor fuel; our relationships with wholesale customers; our ability to protect our trademarks and trade secrets; changes in customer preferences and perceptions; risks associated with competition; risks related to the food service industry, including food safety and protection of personal information; compliance with government regulations relating to food products and franchising; and increased costs or other effects of new government regulations relating to healthcare benefits. These and other risks and uncertainties, which are described in more detail in the Company’s most recent Annual Report on Form 10-K and other reports and statements filed with the United States Securities and Exchange Commission, are difficult to predict, involve uncertainties that may materially affect actual results and may be beyond the Company’s control, and could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
——
April 29, May 1,
2012 2011
—— ——
(In thousands, except per
share amounts)
Revenues $108,496 $104,600
Operating expenses:
Direct
operating
expenses
(exclusive
of
depreciation
expense
shown below 88,691 86,983
General and
administrative
expenses 6,458 5,644
Depreciation
expense 2,482 1,938
Impairment
charges and
lease
termination
costs 31 244
Operating income 10,834 9,791
Interest income 27 45
Interest expense (398) (477)
Equity in losses of equity method
franchisees (50) (9)
Other non-operating income and
(expense), net 78 86
—- —-
Income before income taxes 10,491 9,436
Provision for income taxes 4,465 265
——- —-
Net income $6,026 $9,171
====== ======
Earnings per common share:
Basic $0.09 $0.13
=====
Diluted $0.08 $0.13
=======
Weighted average shares outstanding:
Basic 69,562 68,754
Diluted 71,888 71,169
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED BALANCE SHEET
April 29, January 29,
2012 2012
—— ——
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $51,524 $44,319
Receivables 21,665 21,616
Receivables from equity method franchisees 876 655
Inventories 15,909 16,497
Deferred income taxes 10,540 10,540
Other current assets 3,135 3,613
——- ——-
Total current
assets 103,649 97,240
Property and equipment 74,515 75,466
Investments in equity method franchisees - -
Goodwill and other intangible assets 23,776 23,776
Deferred income taxes 117,644 129,053
Other assets 9,937 9,413
——- ——-
Total assets $329,521 $334,948
==========
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $2,195 $2,224
Accounts payable 11,170 10,494
Accrued liabilities 23,990 28,800
——— ———
Total current
liabilities 37,355 41,518
Long-term debt, less current maturities 24,812 25,369
Other long-term obligations 19,843 18,935
Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value - -
Common stock, no par value 369,897 377,539
Accumulated other comprehensive loss (335) (336)
Accumulated deficit (122,051) (128,077)
- -
Total
shareholders’
equity 247,511 249,126
Total liabilities and
shareholders’ equity $329,521 $334,948
======== ========
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
——
April 29, May 1,
2012 2011
—— ——
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,026 $9,171
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation
expense 2,482 1,938
Deferred
income taxes 4,234 45
Accrued rent
expense 114 184
Loss on
disposal of
property and
equipment 229 145
Share-based
compensation 1,377 893
Provision for
doubtful
accounts 48 (295)
Amortization
of deferred
financing
costs 103 102
Equity in
losses of
equity
method
franchisees 50 9
Other (67) (56)
Change in assets and liabilities:
Receivables (261) (3,052)
Inventories 588 (455)
Other current
and non-
current
assets 540 483
Accounts
payable and
accrued
liabilities (5,131) (3,013)
Other long-
term
obligations 32 (1,033)
Net cash
provided
by
operating
activities 10,364 5,066
——— ——-
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,317) (1,843)
Proceeds from disposals of property and
equipment 41 -
Escrow deposit recovery - 200
Other investing activities (36) (9)
—- —-
Net cash
used for
investing
activities (1,312) (1,652)
——— ———
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (545) (626)
Deferred financing costs (11) -
Proceeds from exercise of warrants 9 -
Repurchase of common shares (1,300) (57)
——— —-
Net cash
used for
financing
activities (1,847) (683)
——— ——
Net increase in cash and cash equivalents 7,205 2,731
Cash and cash equivalents at beginning of
period 44,319 21,970
——— ———
Cash and cash equivalents at end of
period $51,524 $24,701
======= =======
KRISPY KREME DOUGHNUTS, INC.
SEGMENT INFORMATION
Three Months Ended
——
April 29, May 1,
2012 2011
—— ——
(In thousands)
Revenues:
Company Stores:
On-premises
sales $35,476 $32,861
Wholesale sales 37,865 36,614
——— ———
Company
Stores
revenues 73,341 69,475
Domestic Franchise 2,633 2,369
International
Franchise 6,027 5,636
KK Supply Chain:
Total revenues 53,785 53,883
Less -
intersegment
sales
elimination (27,290) (26,763)
External KK
Supply Chain
revenues 26,495 27,120
——— ———
Total revenues $108,496 $104,600
======== ========
Operating income:
Company Stores $2,948 $2,174
Domestic Franchise 1,569 1,147
International
Franchise 4,494 4,171
KK Supply Chain 8,477 8,342
Total segment
operating
income 17,488 15,834
Unallocated general
and administrative
expenses (6,623) (5,799)
Impairment charges
and lease
termination costs (31) (244)
Consolidated
operating
income $10,834 $9,791
======= ======
Depreciation expense:
Company Stores $2,097 $1,537
Domestic Franchise 55 55
International
Franchise 3 2
KK Supply Chain 162 189
Corporate
administration 165 155
Total
depreciation
expense $2,482 $1,938
====== ======
KRISPY KREME DOUGHNUTS, INC.
STORE COUNT
NUMBER OF STORES
—
DOMESTIC INTERNATIONAL TOTAL
- ——— ——-
Number of Stores Open at April 29, 2012:
Company:
Factory 72 - 72
Satellite 20 - 20
Total Company 92 - 92
—- —- —-
Franchise:
Factory 102 115 217
Satellite 40 343 383
Total franchise 142 458 600
—- —- —-
Total systemwide 234 458 692
=== === ===
NUMBER OF STORES
—
COMPANY FRANCHISE TOTAL
— ——-
Quarter ended April 29, 2012
January 29, 2012 92 602 694
Opened - 23 23
Closed - (25) (25)
—- —- —-
April 29, 2012 92 600 692
=== === ===
Quarter ended May 1, 2011
January 30, 2011 85 561 646
Opened 1 20 21
Closed - (15) (15)
—- —- —-
May 1, 2011 86 566 652
=== === ===
KRISPY KREME DOUGHNUTS, INC.
SELECTED OPERATING STATISTICS
Three Months Ended
——
April 29, May 1,
2012 2011
—— ——
Systemwide Sales (in thousands):(1)
Company stores $72,805 $69,027
Domestic
Franchise
stores 71,972 66,697
International
Franchise
stores 104,920 91,591
International
Franchise
stores, in
constant
dollars(2) 104,920 91,144
Change in Same Store Sales (on-premises sales
only):(3)
Company stores 2.1% 5.8%
Domestic
Franchise
stores 5.8% 4.6%
International
Franchise
stores (7.9)% (4.3)%
International
Franchise
stores, in
constant
dollars(2) (7.4)% (9.6)%
Change in Same Store Customer Count -Company
stores
(retail sales
only) 1.3% 2.9%
Wholesale Metrics - Company stores:(4)
Grocers/mass
merchants:
Change in
average
weekly
number of
doors (4.5)% 6.7%
Change in
average
weekly
sales per
door 8.2% 11.0%
Convenience
stores:
Change in
average
weekly
number of
doors (10.6)% 1.9%
Change in
average
weekly
sales per
door 14.8% 3.8%
(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. The Company’s
consolidated financial
statements appearing elsewhere
herein include sales by
Company stores, sales to
franchisees by the KK Supply
Chain business segment, and
royalties and fees received
from franchise stores based on
their sales, but exclude sales
by franchise stores to their
customers.
(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 wholesale
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.
NON-GAAP FINANCIAL INFORMATION
As of January 29, 2012, the Company had net deferred income tax assets of approximately $139.6 million, including approximately $90 million of tax assets related to federal and state net operating loss carryovers. The Company’s federal net operating loss carryovers totaled approximately $240 million.
In the quarter ended January 29, 2012, the Company reversed $139.6 million of valuation allowances against deferred tax assets because management concluded that realization of such assets was more likely than not. While such reversal, which was required by GAAP, increased the Company’s earnings by $139.6 million in fiscal 2012, the reversal has the effect of increasing the provision for income taxes, and therefore decreasing net income, beginning in the first quarter of fiscal 2013. The reversal had no effect on the Company’s cash payments for income taxes. This negative effect on earnings occurs because the reversal of the valuation allowances resulted in the recognition in fiscal 2012 of income tax benefits expected to be realized in later years. Absent the reversal of the valuation allowances, any such tax benefits would have been recognized when realized in future periods upon the generation of taxable income. Accordingly, beginning in the first quarter of fiscal 2013, the Company’s effective income tax rate, which in fiscal 2012 and earlier years bore little or no relationship to pretax income, more closely reflects the blended federal and state income tax rates in jurisdictions in which the Company operates.
Because of the increase in the Company’s effective income tax rate as described above, the Company’s income tax expense in the first quarter of fiscal 2013 is not comparable to income tax expense in the first quarter of fiscal 2012. In addition, until such time as the Company’s net operating loss carryovers are exhausted or expire, GAAP income tax expense is expected to substantially exceed the amount of cash income taxes payable by the Company, which are expected to remain insignificant for the foreseeable future.
The following non-GAAP financial information and related reconciliation to GAAP measures are provided to assist the reader in understanding the effect of the fiscal 2012 reversal of the valuation allowances on the Company’s results of operations for fiscal 2013, and to facilitate comparisons of fiscal 2013 results with the Company’s results for the first quarter of fiscal 2012. In addition, the non-GAAP financial information is intended to illustrate the material difference between the Company’s income tax expense and income taxes currently payable. Adjusted net income and adjusted EPS reflect income tax expense only to the extent such expense is currently payable in cash. These non-GAAP performance measures are consistent with other measurements made by management in the operation of the business which do not consider income taxes except to the extent to which those taxes currently are payable, for example, capital allocation decisions and incentive compensation measurements that are made on a pretax basis.
Management’s Historical Periods
——
Earnings Guidance Three Months Ended Year Ended
—- —— —-
Year Ending February 3, 2013 April 29, May 1, January 29,
From To 2012 2011 2012
—— —- —— —— ——
(In thousands, except per share amounts)
Net income, as reported $15,000 $17,200 $6,026 $9,171 $166,269
Provision for deferred income
taxes 10,200 12,000 4,234 45 (139,403)
Gain on sale of interest in KK
Mexico (net of
income
taxes
of
$1,492) - - - - (4,706)
Adjusted net income $25,200 $29,200 $10,260 $9,216 $22,160
======= ======= ======= ====== =======
Adjusted earnings per common
share:
Basic $0.36 $0.42 $0.15 $0.13 $0.32
=====
Diluted $0.35 $0.41 $0.14 $0.13 $0.31
=======
Weighted average shares
outstanding:
Basic 69,600 69,600 69,562 68,754 69,145
Diluted 71,600 71,600 71,888 71,169 71,497
SOURCE Krispy Kreme Doughnut Corporation
Krispy Kreme Doughnut Corporation
CONTACT: Media, Brian K. Little, +1-336-726-8825, .(JavaScript must be enabled to view this email address); Investor Relations, Anita K. Booe, +1-336-703-6902, .(JavaScript must be enabled to view this email address)
Web Site: http://www.krispykreme.com