WINSTON-SALEM, N.C. - March 14, 2013 // PRNewswire // - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the fourth quarter and fiscal year ended February 3, 2013, and raised its guidance for fiscal 2014.
The fourth quarter and fiscal year ended February 3, 2013 included 14 and 53 weeks, respectively, compared to 13 and 52 weeks, respectively, for the fourth quarter and fiscal year ended January 29, 2012. Accordingly, financial results for the fiscal 2013 periods are not directly comparable to those of the corresponding fiscal 2012 periods. The Company's fiscal year ends on the Sunday closest to January 31, which periodically results in a 53-week year.
Fiscal 2013 Highlights Compared to Fiscal 2012 (Tables 1 and 3):
James H. Morgan, Chairman and Chief Executive Officer, commented: "In the fourth quarter, Krispy Kreme not only achieved earnings at the top end of our November guidance, but also posted its best fourth quarter results since fiscal 2004. The year as a whole also was our best since fiscal 2004, and demonstrated again the strength of our business model and affirmed our confidence in achieving our goal of sustainable and profitable growth for years to come. Going forward, the Krispy Kreme investment thesis will no longer be predicated solely on the progress we have made in building a strong foundation for our business, but also on our ability to execute our long-term growth plans. Based upon the strength of these results and the momentum we have carried into the new year, we are pleased to increase our fiscal 2014 earnings guidance.
"Krispy Kreme is truly blessed with four attributes most companies spend a lifetime trying to achieve: a brand that is beloved worldwide, best-in-class products, compelling strategies, and incredibly capable and energized franchisees and team members. We are committed to doing everything in our power to continue improving our profitability while expanding our system to 1,300 stores by fiscal 2017 through Company and domestic and international franchise development. We are gratified by our accomplishments and are optimistic that we can build on them to achieve our long-term aspirations, and those of our shareholders."
To facilitate comparisons, the following discussion compares the 13 weeks ended January 27, 2013 with the 13 weeks ended January 29, 2012.
Consolidated Results
For the 13 weeks ended January 27, 2013, revenues increased 7.0% to $109.1 million. All four business segments reported year-over-year revenue growth.
Direct operating expenses increased to $91.0 million from $87.9 million, but as a percentage of total revenues, decreased to 83.4% from 86.2%. General and administrative expenses increased to $8.4 million from $6.7 million in the same period last year. General and administrative expenses in the fourth quarter of last year included a non-recurring credit of approximately $840,000. Excluding that item, general and administrative expenses were 7.7% of revenues compared to 7.4% last year.
Operating income rose 35% to $7.2 million from $5.3 million.
Adjusted net income was $6.1 million ($0.09 per share) compared to $4.0 million ($0.06 per share), in the fourth quarter last year. Adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in Table 6 accompanying this release).
Segment Results
For the 13 weeks ended January 27, 2013, Company Stores revenues increased 9.6% to $75.2 million. Same store sales at Company stores rose 7.5%, the seventeenth consecutive quarterly increase, driven by higher traffic. The Company Stores segment posted operating income of $3.0 million compared to an operating loss of $0.3 million last year.
Domestic Franchise revenues increased 4.2% to $2.5 million. Higher royalties from an 8.3% increase in sales by domestic franchisees were partially offset by a reduction in other franchise revenue. Same store sales rose 9.6% at domestic franchise stores. During the quarter, we added new personnel and took additional steps to begin execution of our domestic franchise expansion programs. Domestic Franchise segment operating income was $1.3 million in the fourth quarter of both years.
International Franchise revenues increased 6.3% to $6.7 million. 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. International Franchise costs and expenses in the quarter included an increase of almost $200,000 compared to the prior year quarter in trademark protection costs, a provision of approximately $185,000 for potential uncollectible accounts and higher personnel and personnel-related costs to support continued and anticipated international growth. The International Franchise segment generated operating income of $4.0 million compared to $4.2 million in the fourth quarter last year.
Total KK Supply Chain revenues (including sales to Company stores) increased 1.8% to $52.9 million. KK Supply Chain generated operating income of $7.5 million compared to $7.1 million in the fourth quarter last year.
In fiscal 2014, management estimates that the Company and its domestic franchisees will each open approximately 10 Krispy Kreme shops, and that international franchisees will open approximately 75 locations. Although the Company looks for continued organic same store sales growth in its domestic stores, international franchise same store sales will likely remain pressured by the substantial growth in international markets in recent years.
Based on these factors, management currently expects fiscal 2014 operating income in the range of $41 million to $44 million, which would represent an increase of 13% to 21% from the $36.4 millionoperating income for fiscal 2013 measured on a 52-week basis. Management estimates adjusted net income will be in the range of $37 million to $40 million and adjusted EPS will range from $0.53 to $0.57per share based on a forecasted 70 million diluted shares outstanding.
Adjusted net income and adjusted EPS are non-GAAP measures; see the reconciliation of GAAP to adjusted earnings in Table 6 accompanying this release.
The Company will host a conference call to review fiscal 2013 fourth quarter and annual results, as well as management's outlook for fiscal 2014, 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) 901-5217 or, for international callers, by dialing (617) 786-2964. 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 17091755. The audio replay will be available through March 21, 2013. A transcript of the conference call also will be available on the Company's 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 inWinston-Salem, N.C., 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 740 locations in 22 countries around the world. Connect with Krispy Kreme at KrispyKreme.com and on Facebook, Foursquare, Twitter and YouTube.
"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 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 theUnited 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.
TABLE 6
KRISPY KREME DOUGHNUTS, INC.
NON-GAAP FINANCIAL INFORMATION
The Company has net deferred income tax assets of approximately $116 million, of which approximately $76 million relates to federal and state net operating loss carryovers. The Company's federal net operating loss carryovers total approximately $206 million.
In the quarter ended January 29, 2012, the Company reversed approximately $139.6 million of valuation allowances against its deferred income 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 reducing the Company's earnings beginning in fiscal 2013 as a result of an increase in the provision for income taxes. This negative effect on earnings beginning in fiscal 2013 occurs because the reversal of the valuation allowance resulted in the recognition in fiscal 2012 of income tax benefits expected to be realized in later years; absent the reversal of the valuation allowance, 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 resulting from the reversal of a valuation allowance, the Company's income tax expense in fiscal 2013 is not comparable to income tax expense in fiscal 2012 and earlier years. 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.
In the second quarter 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 Company's fiscal year ends on the Sunday closest to January 31, which periodically results in a 14-week fourth quarter and a 53-week year. Fiscal 2013 contained 53 weeks, while fiscal 2012 contained 52 weeks.
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, except for the periodic occurrence of the 53-week year, are expected to be non-recurring, on the Company's results of operations, and to facilitate comparison of fiscal 2013 results with the Company's financial results for 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. 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
Media
Brian K. Little
+1-336-726-8825
blittle@krispykreme.com
Investor Relations
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.