WINSTON-SALEM, N.C., Sept. 6 // PRNewswire-FirstCall // -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the second fiscal quarter ended July 29, 2007 and announced certain turnaround steps the Company is taking.
Second quarter systemwide sales decreased approximately 0.5% from the second quarter of last year. Systemwide average weekly sales per store decreased approximately 2.8% to approximately $37,500. Company Stores average weekly sales per store increased 1.6% to approximately $51,800. Systemwide average weekly sales per store are lower than Company average weekly sales per store principally because satellite stores, which have lower average weekly sales than factory stores, are more prevalent in franchise operations than in Company operations.
Revenues for the second quarter of fiscal 2008 decreased 7.5% to $104.1 million compared to $112.5 million in the second quarter of last year. Company Stores revenues decreased 4.7% to $75.3 million, Franchise revenues were flat at $5.1 million and KK Supply Chain revenues decreased 16.8% to $23.7 million.
The net loss for the second quarter of fiscal 2008 was $27.0 million, or $0.42 per diluted share, compared to a net loss of $4.6 million, or $0.07 per diluted share, in the comparable period last year.
Impairment charges and lease termination costs totaled $22.1 million in the second quarter this year, compared to $382,000 in the second quarter of fiscal 2007. The current year charge includes approximately $10.6 million arising from the decision to divest the Company's manufacturing and distribution facility in Illinois. Most of the remainder of the charge relates to underperforming stores, including stores closed and likely to be closed.
"After several quarters of progress on our turnaround, second quarter
results did not meet our expectations," said Daryl Brewster, the Company's
President and Chief Executive Officer. "We are taking steps to transform
the Company and improve its performance." These steps include:
* Closing or improving underperforming Company shops
* Planning to divest an underutilized manufacturing facility in the KK
Supply Chain to lower costs, and evaluating strategic options related
to other aspects of the supply chain
* Realigning Company Stores and Franchise management and reducing the
cost of store support functions
* Continuing international expansion
* Opening small retail stores through our domestic and international
franchisees
* Cooperating with franchisees who are restructuring their operations
* Continuing to focus on reducing G&A costs
* Continuing marketing efforts and driving product innovation
* Developing plans to refranchise certain geographic markets
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
July 29, Jan. 28,
2007 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $24,893 $36,242
Receivables 20,886 26,769
Accounts and notes receivable - equity method
franchisees 2,200 834
Inventories 24,404 21,006
Insurance recovery receivable - 34,967
Other current assets 6,616 12,000
Total current assets 78,999 131,818
Property and equipment 135,297 168,654
Investments in equity method franchisees 2,839 3,224
Goodwill and other intangible assets 28,534 28,934
Deferred income taxes 20 20
Other assets 10,247 16,842
Total assets $255,936 $349,492
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $1,851 $1,730
Accounts payable 8,677 7,874
Accrued litigation settlement - 86,772
Deferred income taxes 20 20
Other accrued liabilities 34,006 38,474
Total current liabilities 44,554 134,870
Long-term debt, less current maturities 94,336 105,966
Other long-term obligations 29,597 29,694
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - -
Common stock, no par value 352,524 310,942
Accumulated other comprehensive income 1,384 1,266
Accumulated deficit (266,459) (233,246)
Total shareholders' equity 87,449 78,962
Total liabilities and shareholders' equity $255,936 $349,492
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
July 29, July 30, July 29, July 30,
2007 2006 2007 2006
Revenues $104,098 $112,535 $215,016 $231,900
Operating expenses:
Direct operating expenses
(exclusive of depreciation
and amortization shown below) 95,333 97,048 192,328 194,133
General and administrative expenses 6,922 12,154 13,744 28,761
Depreciation and amortization
expense 4,086 5,459 8,774 10,937
Impairment charges and lease
termination costs 22,109 382 34,772 1,137
Settlement of litigation - - (14,930) -
Other operating (income) and
expense, net 16 111 (269) 100
Operating (loss) (24,368) (2,619) (19,403) (3,168)
Interest income 407 424 845 708
Interest expense (2,635) (5,036) (5,155) (10,169)
Loss on extinguishment of debt - - (9,622) -
Equity in (losses) of equity method
franchisees (258) (365) (479) (859)
Other non-operating income and
(expense), net 23 3,097 46 3,219
(Loss) before income taxes (26,831) (4,499) (33,768) (10,269)
Provision for income taxes 209 78 670 350
Net (loss) $(27,040) $(4,577) $(34,438) $(10,619)
(Loss) per common share:
Basic $(.42) $(.07) $(.54) $(.17)
Diluted $(.42) $(.07) $(.54) $(.17)
Weighted average shares outstanding 63,872 61,854 63,511 61,847
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
July 29, July 30,
2007 2006
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(34,438) $(10,619)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 8,774 10,937
Deferred income taxes 39 (292)
Impairment charges 33,124 398
Settlement of litigation (14,930) -
Accrued rent expense 109 823
(Gain) on disposal of property and equipment (446) 83
(Gain) on sale of interest in equity method franchisee - (3,520)
Share-based compensation 4,525 6,902
Provision for doubtful accounts 1,215 2,008
Amortization of deferred financing costs 5,726 1,374
Equity in losses of equity method franchisees 479 859
Other 185 303
Change in assets and liabilities:
Receivables 3,312 (2,690)
Inventories (3,378) 1,497
Other current and non-current assets 703 4,262
Accounts payable and accrued liabilities (3,364) (3,522)
Other long-term obligations 310 809
Net cash provided by operating activities 1,945 9,612
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,357) (1,987)
Proceeds from disposals of property and equipment 4,866 3,627
Investments in and advances to franchise investees - (625)
Recovery of investments in and advances to franchise
investee - 2,500
Sale of interest in equity method franchisee - 3,840
Acquisition of stores from franchisee - (400)
Decrease in other assets 5 14
Net cash provided by investing activities 1,514 6,969
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of short-term debt - 2,984
Repayment of short-term debt - (1,317)
Proceeds from issuance of long-term debt 110,000 -
Repayment of long-term debt (122,165) (2,137)
Deferred financing costs (2,868) -
Proceeds from exercise of stock options 182 -
Net change in book overdraft - (60)
Net cash (used for) financing activities (14,851) (530)
Effect of exchange rate changes on cash 43 23
Cash balances of subsidiary at date of deconsolidation - (1,413)
Net increase (decrease) in cash and cash equivalents (11,349) 14,661
Cash and cash equivalents at beginning of period 36,242 16,980
Cash and cash equivalents at end of period $24,893 $31,641
Supplemental schedule of non-cash investing and
financing activities:
Assets acquired under capital leases $656 $41
KRISPY KREME DOUGHNUTS, INC.
Store Count
NUMBER OF STORES
FACTORY SATELLITE TOTAL
Three months ended July 29, 2007:
APRIL 29, 2007 301 103 404
Opened 3 16 19
Closed (5) (7) (12)
JULY 29, 2007 299 112 411
Six months ended July 29, 2007:
JANUARY 28, 2007 296 99 395
Opened 12 20 32
Closed (9) (7) (16)
JULY 29, 2007 299 112 411
KRISPY KREME DOUGHNUTS, INC.
SELECTED OPERATING STATISTICS
(Dollars in thousands)
Three Months Ended Six Months Ended
July July July July
29, 30, 29, 30,
2007 2006 2007 2006
Year over year percentage change in
systemwide sales (1) (0.5)% (14.8)% (1.7)% (15.7)%
Average weekly sales per factory
store (2):
Company $53.3 $52.8 $55.0 $53.9
Systemwide $50.5 $48.1 $51.1 $48.6
Factory store operating weeks (3):
Company 1,411 1,495 2,828 2,997
Systemwide 3,812 4,016 7,625 8,130
Average weekly sales per store (4):
Company $51.8 $51.0 $53.6 $52.2
Systemwide $37.5 $38.6 $38.4 $39.2
Store operating weeks (5):
Company 1,450 1,547 2,906 3,093
Systemwide 5,127 5,011 10,136 10,073
On-premises sales (6):
Company change in same store sales 1.4 % 0.7 %
Systemwide change in same store sales (1.8)% (2.1)%
Company off-premises sales (7):
Change in average weekly number of
doors (1.6)% (0.1)%
Change in average weekly sales per
door (6.1)% (5.2)%
(1) Systemwide sales, a non-GAAP financial measure, include the sales by
both Company and franchise stores. The Company believes systemwide
sales data is useful in assessing the overall performance of the
Krispy Kreme brand and, ultimately, the performance of the Company.
(2) Represents, on a Company and systemwide basis, total sales of all
stores divided by the number of operating weeks for factory stores.
(3) Represents, on a Company and systemwide basis, the aggregate number of
operating weeks for factory stores.
(4) Represents, on a Company and systemwide basis, total sales of all
stores divided by the number of operating weeks for both factory and
satellite stores.
(5) Represents, on a Company and systemwide basis, the aggregate number of
operating weeks for both factory and satellite stores.
(6) The change in "same store sales" represents, on a Company and
systemwide basis, 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.
(7) 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.
SEGMENT INFORMATION
(Dollars in thousands)
Three Months Ended Six Months Ended
July July July July
29, 30, 29, 30,
2007 2006 2007 2006
Revenues:
Company Stores $75,265 $78,937 $155,717 $164,935
Franchise 5,094 5,054 10,094 9,603
KK Supply Chain:
Total revenues 48,753 54,834 101,482 112,078
Less- intersegment elimination (25,014) (26,290) (52,277) (54,716)
External KK Supply Chain revenues 23,739 28,544 49,205 57,362
Total revenues $104,098 $112,535 $215,016 $231,900
Operating income (loss):
Company Stores $(5,164) $(1,561) $(5,332) $1,769
Franchise 2,911 4,138 6,204 7,839
KK Supply Chain 7,251 7,744 13,946 17,900
Unallocated general and
administrative expenses (7,257) (12,558) (14,379) (29,539)
Impairment charges and lease
termination costs (22,109) (382) (34,772) (1,137)
Settlement of litigation - - 14,930 -
Total operating (loss) $(24,368) $(2,619) $(19,403) $(3,168)
Depreciation and amortization
expense:
Company Stores $2,923 $4,154 $6,415 $8,322
Franchise 24 31 48 63
KK Supply Chain 839 870 1,711 1,745
Corporate administration 300 404 600 807
Total depreciation and
amortization expense $4,086 $5,459 $8,774 $10,937
Krispy Kreme is a global retailer of premium-quality sweet treats, including its signature Original Glazed® doughnut.