WINSTON-SALEM, N.C., Nov. 19, 2012 // PRNewswire // - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the third quarter of fiscal 2013, ended October 28, 2012. The Company also raised its outlook for fiscal 2013 and provided preliminary guidance for fiscal 2014.
Third Quarter Fiscal 2013 Highlights Compared to the Year-Ago Period:
The Company ended the third quarter of fiscal 2013 with a total of 731 Krispy Kreme shops systemwide, a net increase of 20 shops during the quarter. As of October 28, 2012, there were 96 Company stores and 635 franchise locations.
President and Chief Executive Officer James H. Morgan commented: "We commend the entire Krispy Kreme family for their accomplishments in the third quarter. Their efforts enabled us to deliver extraordinary results, including healthy revenue gains, robust same store sales, and substantial growth in both adjusted net income and operating cash flow. We have now generated positive same store sales for an impressive sixteen consecutive quarters. Even more important, our Company Stores segment has emerged as a strong contributor to our overall profitability due to the solid foundation that has been laid over the past four years by our operations team and those who support them, as well as the outstanding effort of our marketing group."
Morgan continued, "While we are pleased with our near-term achievements, our management focus is always centered on how best to position ourselves over the long term. Our decision making process and capital deployment is designed to build on Krispy Kreme's 75-year legacy so that we can create sustainable long-term value for our shareholders. By executing on our strategies, we are confident that we can continue to successfully grow the Company while at the same time realizing our brand mission to touch and enhance lives through the joy that is Krispy Kreme."
Morgan concluded, "Given our strong third quarter and year-to-date performance, we are pleased to be increasing our earnings outlook for fiscal 2013 and projecting continued double digit earnings growth for fiscal 2014."
For the third quarter ended October 28, 2012, revenues increased 8.5% to $107.1 million from $98.7 million.
Direct operating expenses increased to $90.2 million from $85.9 million, but as a percentage of total revenues fell to 84.2% from 87.0%. General and administrative expenses increased slightly to $5.1 million from $4.9 million in the year-ago period and, as a percentage of total revenues, decreased to 4.7% from 5.0%.
Adjusted net income was $8.3 million ($0.12 per share) compared to $4.7 million ($0.07 per share) in the third quarter last year. 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 $5.0 million ($0.07 per share) compared to $4.7 million ($0.07 per share), in the third quarter last year. Net income and EPS for the third quarter of fiscal 2013 reflect a book tax rate of 43% compared to a rate of 9% in the third quarter last year. The increase reflects the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012. Accordingly, net income and EPS for the third quarter of fiscal 2013 are not comparable to those for the third quarter of fiscal 2012.
Company Stores revenues increased 7.2% to $72.5 million from $67.6 million. Same store sales at Company stores rose 6.8%, the sixteenth consecutive quarterly increase, and were driven by higher traffic. The Company Stores segment posted operating income of $2.0 million compared to an operating loss of $574,000 in the third quarter last year.
Domestic Franchise revenues rose 7.3% to $2.5 million from $2.3 million, reflecting higher royalties. Total sales by domestic franchisees rose 6.1%, while same store sales increased 5.0%. Domestic Franchise segment operating income improved to $1.2 million compared to $1.1 million in the third quarter last year.
International Franchise revenues increased 12.1% to $6.0 million from $5.4 million, driven by higher royalties. Sales by international franchise stores rose 12.6%. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 7.7%, 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 $4.3 million, up from $3.3 million in the third quarter last year.
KK Supply Chain revenues (including sales to Company stores) rose 5.1% to $52.8 million from $50.3 million in the same period last year. External KK Supply Chain revenues rose 11.4% to $26.1 million from $23.4 million in the year-ago period. KK Supply Chain generated operating income of $7.3 million in the third quarter of fiscal 2013, up from $7.0 million in the third quarter last year.
Given the Company's third quarter and fiscal year-to-date results, along with other current information, it is raising its fiscal 2013 outlook for consolidated operating income to between $34 million and $36 million from the previous forecast of between $29 million and $33 million. The Company currently forecasts adjusted earnings per share for fiscal 2013 of between $0.44 and $0.47. The Company noted that fiscal 2013 is a 53-week year and the fourth quarter will therefore have 14 weeks instead of 13. In order to facilitate comparisons, the preceding Company guidance for fiscal 2013 does not reflect the anticipated, but irregularly occurring, benefit of the extra week.
For fiscal 2014, the Company anticipates opening 5 to 10 Company stores, between 10 and 15 domestic franchise stores, and more than 75 international franchise stores. Although the Company looks for continued organic same store sales growth in its domestic stores, international franchise same store sales will likely continue to be pressured by the substantial growth in international markets in recent years.
Based on these factors, the Company's preliminary fiscal 2014 guidance is for operating income in the range of $38 million to $42 million and adjusted EPS for fiscal 2014 of between $0.49 and $0.55 per share. The foregoing adjusted EPS range reflects estimated adjusted income tax expense of $2 million; adjusted income tax expense consists solely of taxes currently payable in cash. 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.
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).
The Company will host a conference call to review financial results for the third quarter of fiscal 2013 as well as its outlook this afternoon at 4:30 p.m. (ET).
A live webcast of the conference call will be available at www.krispykreme.com. The conference call also can be accessed over the phone by dialing (800) 510-0219 or, for international callers, by dialing (617) 614-3451. 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 31034181. The audio replay will be available through November 26, 2012. A transcript of the conference call also will be available on the Company website.
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 730 locations in 21 countries around the world. Connect with Krispy Kreme at www.krispykreme.com and on Facebook, Foursquare, Twitter and YouTube.
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.
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 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 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 three quarters of fiscal 2013 is not comparable to income tax expense in the first three quarters 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.
In addition, in the first nine months of fiscal 2012, the Company realized a pretax gain of $6.2 million ($4.7 million after tax, or $.06 per share) on the sale of its 30% ownership interest in KK Mexico, an equity method investee. The Company does not expect to realize similar gains in the future.
The following non-GAAP financial information and related reconciliation to GAAP measures are provided to assist the reader in understanding the effects of the above transactions and events, which are expected to be non-recurring, on the Company's results of operations, and to facilitate comparisons of fiscal 2013 results with the Company's results for the comparable periods 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.
SOURCE Krispy Kreme Doughnut Corporation
Brian K. Little
+1-336-726-8825
blittle@KrispyKreme.com
Anita K. Booe
+1-336-703-6902
abooe@KrispyKreme.com
Krispy Kreme is a global retailer of premium-quality sweet treats, including its signature Original Glazed® doughnut.