Krispy Kreme Reports Financial Results for the First Quarter of Fiscal 2015

Company Reports Highest Quarterly Pretax Income in 10 Years; Weather, Infrastructure Investment and Transition Costs Drive Modest Revision to Full Year Outlook

WINSTON-SALEM, N.C. - (BUSINESS WIRE) - Jun. 2, 2014 - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the “Company”) today reported financial results for the first quarter of fiscal 2015, ended May 4, 2014. The Company also lowered its adjusted earnings per share guidance for the full year to a range of $0.69 to $0.74 from $0.73 to $0.79 per share.

First Quarter Fiscal 2015 Highlights Compared to the Year-Ago Period:

  • Systemwide store count rose 3.3% since year end to 855 Company and franchise shops worldwide
  • Systemwide domestic same store sales rose 2.3%; constant currency international franchise same store sales declined 2.2%
  • Revenues increased 0.8% to $121.6 million from $120.6 million; excluding the effects of refranchising stores, revenues for the quarter rose 2.1%
  • Operating income rose 6.6% to $16.2 million from $15.2 million
  • Adjusted net income rose 12.2% to $15.8 million ($0.23 per share) from $14.1 million ($0.20 per share); adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash; adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release)
  • Net income was $9.7 million ($0.14 per share) compared to $8.0 million ($0.11 per share) in the first quarter last year
  • Cash provided by operating activities was $13.7 million compared to $14.4 million in the first quarter last year

Executive Chairman James H. Morgan commented: “Today we reported our highest quarterly pretax earnings for a single quarter in over ten years, a remarkable achievement that reflects the collective efforts of our team members and franchise partners. We note, however, that severe winter weather adversely affected both on-premises and wholesale sales throughout our Company store base in the Southeast, and contributed to a 1.5% decline in same store sales at Company shops against a very tough 12.2% same store sales gain in the first quarter last year. Our domestic franchisees, however, who were less affected by weather, posted a gain in same store sales of 4.5% on top of an 11.8% rise in the first quarter last year.

“Notwithstanding the increase in first quarter earnings, we are revising our full-year outlook but still projecting a double-digit increase in adjusted earnings per share. The change reflects, among other things, our first quarter performance, higher than anticipated investment in a new enterprise resource planning system and higher costs than we had planned associated with executive management succession. Taking all these factors into account, we felt it was prudent to revise our expectations for the balance of the year.

“Finally, the appointment of Tony Thompson as President and Chief Executive Officer of Krispy Kreme provides us with the right leader for the next phase of our development and success. I am personally delighted to have someone of Tony’s caliber and record of achievement to succeed me as CEO, and am confident that Krispy Kreme’s future will be rewarding for all of our constituencies in the years ahead.”

First Quarter Fiscal 2015 Results

Consolidated Results

For the first quarter ended May 4, 2014, revenues increased 0.8% to $121.6 million from $120.6 million. Excluding the effects of refranchising three stores in Kansas and Missouri and three stores in Dallas in February and July of 2013, respectively, revenues rose 2.1%.

Direct operating expenses were $95.2 million, representing 78.3% of revenues compared to 80.0% of revenues last year.

General and administrative expenses rose to $7.0 million from $6.1 million in the year-ago period, and as a percentage of revenues increased to 5.8% from 5.0%. The increase in general and administrative expenses in the first quarter of fiscal 2015 reflects, among other things, approximately $400,000 of incremental expenses related to the implementation of a new enterprise resource planning system.

Operating income rose 6.6% to $16.2 million from $15.2 million.

Segment Results

With the exception of the first quarter last year, Company Stores’ profitability in the quarter was the strongest of any quarter in years. Revenues decreased 1.8% to $80.4 million from $81.9 million. Exclusive of the effects of refranchising six stores in fiscal 2014, revenues increased 1.3%. Same store sales at Company shops declined 1.5% against an extremely robust gain of 12.2% in the first quarter last year. The Company Stores segment posted operating income of $4.4 million compared to $5.3 million last year.

Domestic Franchise revenues increased 21.9% to $3.5 million, reflecting higher royalties, initial franchise fees and ancillary revenues, including rental income on stores leased and subleased to two franchisees in connection with the fiscal 2014 refranchisings. Total sales by domestic franchisees rose 8.3%, of which approximately 1.9 percentage points reflects the fiscal 2014 refranchisings, while same store sales at Domestic Franchise shops increased 4.5%. Domestic Franchise segment operating income improved to $2.2 million from $1.4 million.

International Franchise revenues increased 2.1% to $6.6 million, driven by higher royalties. Sales by international franchise stores rose 3.9% to $115 million (5.9% excluding the effects of foreign exchange rate changes). Constant currency same store sales at international franchise stores fell 2.2%. The International Franchise segment generated operating income of $4.3 million compared to $4.5 million. The decline in International Franchise segment operating income reflects continuing deployment of increased resources to support current and anticipated future international growth.

KK Supply Chain revenues (including sales to Company stores) rose 0.8% to $60.3 million. External KK Supply Chain revenues rose 5.7% to $31.1 million. KK Supply Chain generated operating income of $12.8 million in the first quarter of fiscal 2015, up from $10.2 million. KK Supply Chain operating income in the first quarter of fiscal 2015 includes approximately $1.4 million of realized and unrealized gains on agricultural derivative positions, which increased adjusted earnings per share by $0.02.

Full Year Outlook

Based on first quarter results and other current information, management is revising its forecast of adjusted net income for fiscal 2015 to between $48 million and $51 million ($0.69 and $0.74 per share) from $51 to $55 million ($0.73 to $0.79 per share). This reflects, among other things, an increase in estimated costs related to implementation of new technology systems, higher compensation costs related to management succession, an unfavorable variance to expected results in the first quarter, partially offset by lower forecasted current income tax expense. Achievement of the revised forecast would represent a year-over-year increase in adjusted earnings per share of between 13% and 21% from the $0.61 per share reported for fiscal 2014 which, was, in turn, up 30% from fiscal 2013.

Adjusted net income, adjusted income tax expense and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).

Same Store Sales Reporting Methodology

As previously announced, the Company has revised its methodology for computing its same store sales metric. Under the revised methodology, shops are included in the same store sales computation after 18 months of operation, compared to 13 months under the former methodology. The Company believes that deferring stores’ entry into the same store sales metric until week 79 results in a more meaningful measurement of comparable sales because, in most cases, substantially all of the elevated sales levels typically experienced in the initial weeks following the opening of a new Krispy Kreme shop will no longer be reflected in the metric.

All same store sales change metrics in this release and in the accompanying tables reflect the new methodology for all periods. The Company filed a Current Report on Form 8-K on May 8, 2014 providing quarterly tables showing the change in same store sales for Company, domestic franchise and international franchise shops for fiscal 2012 through fiscal 2014 calculated using the revised computational methodology and the former methodology.

Conference Call

The Company will host a conference call to review financial results for the first quarter of fiscal 2015 as well as its outlook for the balance of the year this afternoon at 4:30 p.m. (ET). A webcast of the conference call will be available at The conference call also can be accessed over the phone by dialing (877) 312-5514 or, for international callers, by dialing (970) 315-0452. An archived replay of the call will be available shortly after its conclusion by dialing (855) 859-2056, or (404) 537-3406 for international callers; the passcode is 43498784. The audio replay will be available through June 9, 2014. A transcript of the conference call also will be available on the Company’s 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, there are over 850 Krispy Kreme shops in more than 20 countries around the world. Connect with Krispy Kreme at

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,” “forecast,” “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 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; increased costs or other effects of new government regulations relating to healthcare benefits; and risks associated with the use and implementation of information technology. 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, performance or achievements 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.


          Three Months Ended
          May 4,   May 5,
          2014   2013
          (In thousands, except per share amounts)
Revenues     $ 121,580     $ 120,625  
Operating expenses:              
  Direct operating expenses (exclusive of depreciation and              
    amortization expense shown below)       95,172       96,558  
  General and administrative expenses       7,047       6,055  
  Depreciation and amortization expense       3,173       2,820  
  Impairment charges and lease termination costs       8       8  
Operating income       16,180       15,184  
Interest income       171       61  
Interest expense       (143 )     (437 )
Equity in losses of equity method franchisees       (57 )     (53 )
Other non-operating income and (expense), net       168       (5 )
Income before income taxes       16,319       14,750  
Provision for income taxes       6,663       6,751  
Net income     $ 9,656     $ 7,999  
Earnings per common share:              
  Basic     $ 0.15     $ 0.12  
  Diluted     $ 0.14     $ 0.11  
Weighted average shares outstanding:              
  Basic       66,522       67,012  
  Diluted       69,746       70,578  


      May 4,   February 2,
    2014   2014
      (In thousands)
CURRENT ASSETS:              
Cash and cash equivalents $ 43,555   $ 55,748
Receivables   27,512     25,268
Receivables from equity method franchisees   721     675
Inventories   16,689     16,750
Deferred income taxes   23,794     23,847
Other current assets   7,463     5,199
  Total current assets   119,734     127,487
Property and equipment   96,610     92,823
Investments in equity method franchisees   -     -
Goodwill and other intangible assets   24,083     24,097
Deferred income taxes   77,352     83,461
Other assets   10,863     10,678
  Total assets $ 328,642   $ 338,546
Current portion of long-term debt and capital lease obligations $ 313   $ 344
Accounts payable   16,765     16,788
Accrued liabilities   26,392     29,276
  Total current liabilities   43,470     46,408
Long-term debt and capital lease obligations, less current portion   1,633     1,659
Other long-term obligations and deferred credits   26,527     25,386
Commitments and contingencies          
Preferred stock, no par value   -     -
Common stock, no par value   320,398     338,135
Accumulated other comprehensive income   -     -
Accumulated deficit   (63,386)     (73,042)
  Total shareholders’ equity   257,012     265,093
    Total liabilities and shareholders’ equity $ 328,642   $ 338,546
          Three Months Ended
          May 4,   May 5,
        2014   2013
            (In thousands)
Net income $ 9,656         $ 7,999  
Adjustments to reconcile net income to net cash provided by operating activities:          
  Depreciation and amortization expense   3,173       2,820  
  Deferred income taxes   6,162       6,105  
  Accrued rent expense   140       217  
  (Gain) loss on disposal of property and equipment   42       (147 )
  Share-based compensation   1,167       946  
  Provision for doubtful accounts   (32 )     52  
  Amortization of deferred financing costs   27       124  
  Equity in losses of equity method franchisees   57       53  
  Other   (1,399 )     (173 )
Change in assets and liabilities:          
  Receivables   (2,271 )     (495 )
  Inventories   61       (2,132 )
  Other current and non-current assets   (682 )     3,084  
  Accounts payable and accrued liabilities   (2,279 )     (4,290 )
  Other long-term obligations and deferred credits   (161 )     230  
      Net cash provided by operating activities   13,661       14,393  
Purchase of property and equipment   (6,869 )     (5,459 )
Proceeds from disposals of property and equipment   133       613  
Other investing activities   232       183  
      Net cash used for investing activities   (6,504 )     (4,663 )
Repayment of long-term debt and capital lease obligations   (105 )     (1,608 )
Proceeds from exercise of stock options   6,232       269  
Repurchase of common shares   (25,477 )     -  
      Net cash used for financing activities   (19,350 )     (1,339 )
Net increase (decrease) in cash and cash equivalents   (12,193 )     8,391  
Cash and cash equivalents at beginning of period   55,748       66,332  
Cash and cash equivalents at end of period $ 43,555     $ 74,723  




As of February 2, 2014, the Company had net deferred income tax assets of approximately $107 million, of which approximately $58 million related to federal and state net operating loss carryovers. The Company’s federal net operating loss carryovers totaled approximately $174 million.

The Company has reported cumulative pretax income of over $120 million since the beginning of fiscal 2010, and the Company also has generated significant taxable income during this period. However, because of the Company’s utilization of its federal and state net operating loss carryovers and other deferred tax assets, the Company’s cash payments for income taxes have been relatively insignificant during this period. As a result, the provision for income tax expense has substantially exceeded cash payments for income taxes. Until such time as the Company’s net operating loss carryovers are exhausted or expire, GAAP income tax expense is expected to continue to substantially exceed the amount of cash income taxes payable by the Company.

In the second quarter of fiscal 2014, the Company recorded a charge of $1.0 million related to the retirement of its secured credit facilities, consisting principally of the writeoff of deferred financing costs related to the Company’s term loan, which was retired in full, and the termination of an interest rate hedge related to the term loan. Charges of this nature are not expected to recur on a regular basis.

The following non-GAAP financial information and related reconciliation of adjusted net income to GAAP net income are provided to assist the reader in understanding the effects of the above facts and transactions on the Company’s results of operations. 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. 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 1, 2015   May 4,   May 5,   February 2,
        From   To   2014   2013   2014
        (In thousands, except per share amounts)
Net income, as reported   $ 30,200      $ 32,000      $ 9,656      $ 7,999      $ 34,256
Loss on retirement of debt     -     -     -     -     967
Provision for deferred income taxes     17,800     19,000     6,162     6,105     8,014
Adjusted net income   $ 48,000   $ 51,000   $ 15,818   $ 14,104   $ 43,237
Adjusted earnings per common share:                              
  Basic   $ 0.73   $ 0.77   $ 0.24   $ 0.21   $ 0.64
  Diluted   $ 0.69   $ 0.74   $ 0.23   $ 0.20   $ 0.61
Weighted average shares outstanding:                              
  Basic     66,200     66,200     66,522     67,012     67,261
  Diluted     69,200     69,200     69,746     70,578     71,054


                Three Months Ended
                May 4,   May 5,
                2014   2013
                (In thousands)
  Company Stores:            
    On-premises sales:            
      Retail sales   $ 36,107     $ 36,017  
      Fundraising sales     4,979       4,777  
        Total on-premises sales     41,086       40,794  
    Wholesale sales     39,362       41,127  
          Company Stores revenues     80,448       81,921  
  Domestic Franchise     3,499       2,871  
  International Franchise     6,581       6,445  
  KK Supply Chain:            
        Total revenues     60,312       59,811  
        Less – intersegment sales elimination     (29,260 )     (30,423 )
          External KK Supply Chain revenues     31,052       29,388  
            Total revenues   $ 121,580     $ 120,625  
Operating income:            
  Company Stores   $ 4,416     $ 5,314  
  Domestic Franchise     2,156       1,439  
  International Franchise     4,280       4,531  
  KK Supply Chain     12,754       10,239  
        Total segment operating income     23,606       21,523  
  General and administrative expenses     (7,047 )     (6,055 )
  Corporate depreciation and amortization expense     (371 )     (276 )
  Impairment charges and lease termination costs     (8 )     (8 )
        Consolidated operating income   $ 16,180     $ 15,184  
Depreciation and amortization expense:            
  Company Stores   $ 2,584     $ 2,354  
  Domestic Franchise     46       14  
  International Franchise     1       3  
  KK Supply Chain     171       173  
  Corporate     371       276  
        Total depreciation and amortization expense   $ 3,173     $ 2,820  
              Three Months Ended
              May 4,   May 5,
            2014 2013
Systemwide Sales (in thousands):(1)                
  Company stores   $ 79,818       $ 81,121    
  Domestic Franchise stores     87,711         80,986    
  International Franchise stores     114,511         110,255    
  International Franchise stores, in constant dollars(2)     114,511         108,115    
Change in Same Store Sales (on-premises sales only):(3)                
  Company stores     (1.5 ) %     12.2   %
  Domestic Franchise stores     4.5   %     11.8   %
  International Franchise stores     (4.5 ) %     (8.0 ) %
  International Franchise stores, in constant dollars(2)     (2.2 ) %     (4.5 ) %
Company Stores - change in same store sales attributable to:                
  Retail pricing     2.4   %     3.0   %
  Guest check average (exclusive of pricing)     (0.8 )       (0.2 )  
  Customer count     (3.8 )       9.5    
  Fundraising pricing     0.6         -    
  Other     0.1         (0.1 )  
    Total     (1.5 ) %     12.2   %
Change in Same Store Customer Count - Company stores                
  (retail sales only)     (4.3 ) %     11.3   %
Average guest check - Company stores (retail sales only)   $ 7.45       $ 7.33    
Company stores - store operating weeks     1,234         1,218    
Wholesale Metrics - Company stores:(4)                
  Grocers/mass merchants:                
    Change in average weekly number of doors     (3.1 ) %     (4.2 ) %
    Change in average weekly sales per door     (1.1 ) %     15.8   %
  Convenience stores:                
    Change in average weekly number of doors     2.5   %     (2.6 ) %
    Change in average weekly sales per door     (4.9 ) %     7.3   %

(1) Systemwide sales, a non-GAAP financial measure, include sales by both Company and franchise Krispy Kreme stores. The Company believes systemwide sales data are useful in assessing consumer demand for the Company’s products, the overall success of the Krispy Kreme brand and, ultimately, the performance of the Company. All of the Company’s royalty revenues are computed as percentages of sales made by the Company’s domestic and international franchisees, and substantially all of KK Supply Chain’s external sales of doughnut mixes and other ingredients ultimately are determined by demand for the Company’s products at franchise stores. Accordingly, sales by the Company’s franchisees have a direct effect on the Company’s royalty and KK Supply Chain revenues, and therefore on the Company’s profitability. 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 78 consecutive weeks during the current year period (but only to the extent such sales occurred in the 79th 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 79 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.

    Number of Company Stores
    Stores Hot Shops Fresh Shops Total
Three months ended May 4, 2014                
February 2, 2014   76     18   1   95  
Opened   2     -   -   2  
Closed   -     -   -   -  
May 4, 2014   78     18   1   97  
Three months ended May 5, 2013                
February 3, 2013   76     20   1   97  
Opened   1     -   -   1  
Closed   -     -   -   -  
Transferred to Domestic Franchise   (3 )   -   -   (3 )
May 5, 2013   74     20   1   95  
    Number of Domestic Franchise Stores
    Stores Hot Shops Fresh Shops Total
Three months ended May 4, 2014                
February 2, 2014   107   37   15   159
Opened   2   3   -   5
Closed   -   -   (1)   (1)
May 4, 2014   109   40   14   163
Three months ended May 5, 2013                
February 3, 2013   99   29   14   142
Opened   -   1   -   1
Closed   -   -   -   -
Transferred from Company stores   3   -   -   3
May 5, 2013   102   30   14   146
    Number of International Franchise Stores
  Stores   Hot Shops   Fresh Shops   Kiosks   Total
Three months ended May 4, 2014                    
February 2, 2014   125     9   296     144     574  
Opened   2     -   14     7     23  
Closed   (1 )   -   -     (1 )   (2 )
May 4, 2014   126     9   310     150     595  
Three months ended May 5, 2013                    
February 3, 2013   120     9   257     123     509  
Opened   3     -   16     8     27  
Closed   (2 )   -   (2 )   -     (4 )
May 5, 2013   121     9   271     131     532  

SOURCE Krispy Kreme Doughnuts, Inc.


Lafeea Watson
Krispy Kreme 
Media Relations

Anita K. Booe
Krispy Kreme 
Investor Relations


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Krispy Kreme is a global retailer of premium-quality sweet treats, including its signature Original Glazed® doughnut.


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