WINSTON-SALEM, N.C. - (BUSINESS WIRE) - Mar. 11, 2015 - Krispy Kreme Doughnuts, Inc. (NYSE:KKD) (the “Company”) today reported financial results for the fourth quarter and fiscal year ended February 1, 2015, and reaffirmed its adjusted EPS outlook for fiscal 2016 (ending January 31, 2016).
President and Chief Executive Officer Tony Thompson commented: “We are pleased with the Company’s continuing momentum in fiscal 2015. This past year, we increased adjusted net income by nearly 12%, significantly outpacing our almost 7% revenue growth, and completed our sixth consecutive year of positive same-store sales at Company stores. Systemwide unit count increased over 19%, positioning Krispy Kreme as one of the fastest growing chains within the QSR industry. We are growing again in a disciplined and sustainable manner with a variety of shop formats designed to meet individual market needs. We continue to refine and improve our model to better meet consumer needs and deliver outstanding financial returns.”
Thompson continued: “In the fourth quarter, we scaled back our promotional incentive activities, which had a positive effect on Company shop operating margins. We also achieved two significant development milestones – eight Company store openings in a single quarter, which is more than we have opened annually in any each year since 2005, and a record 57 international franchise store openings in 13 countries.”
Thompson concluded: “Realizing our vision for the Krispy Kreme brand is predicated on four key business drivers: accelerating global growth; leveraging technology; enhancing our core menu; and maximizing brand awareness. We are executing across all of these areas with the underlying goals of spreading the joy of Krispy Kreme and positioning ourselves for further value creation for our shareholders. Fiscal 2016 began with another important milestone, our 1,000th store worldwide celebration, which is a great way to start what we believe will be another year of sustainable growth at Krispy Kreme.”
For the quarter ended February 1, 2015, revenues rose 11.2% to $125.4 million.
Direct operating expenses increased to $102.3 million from $93.3 million, but as a percentage of total revenues declined to 81.6% from 82.8%.
General and administrative expenses were $9.2 million (7.4% of revenues) compared to $7.7 million (6.8% of revenues) in the year-ago period. General and administrative expenses in fiscal 2015 include a $2.5 million charge for the settlement of amounts due under an employment agreement with the Company’s former chief executive officer. A reduction in share-based compensation costs due principally to a change in the timing of equity awards was partially offset by higher provisions for incentive compensation.
Operating income rose 5.4% to $9.6 million ($12.0 million exclusive of the $2.5 million contract settlement charge in fiscal 2015, or 32.6% over the fourth quarter last year).
Adjusted net income rose 36.3% to $11.4 million ($0.17 per share) compared to $8.3 million ($0.12 per share), in the fourth quarter last year. Adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings accompanying this release).
For the quarter ended February 1, 2015, Company Stores revenues increased 12.7% to $83.7 million, while same store sales rose 1.7%. The Company Stores segment posted operating income of $1.4 million compared to $1.6 million last year. The Company opened eight new factory shops in the fourth quarter. Preopening and other start-up costs related to new shops, including shops not yet opened, were approximately $1.3 million in the fourth quarter of fiscal 2015 compared to approximately $150,000 in the fourth quarter last year. The segment’s results for the fourth quarter of fiscal 2015 also reflect charges of approximately $1.0 million for mark-to-market adjustments on wholesale gasoline futures contracts entered into in the fourth quarter to hedge the cost of fuel purchases for fiscal 2016 and 2017. The Company has not designated these derivative contacts as cash flow hedges and, accordingly, changes in their fair values are reflected in earnings as they occur. While a decline in gasoline prices resulted in the fourth quarter mark-to-market charge, significantly lower gasoline prices are expected to benefit fiscal 2016 operating costs and are reflected in management’s earnings outlook.
Domestic Franchise revenues increased 7.6% to $3.4 million, while same store sales rose 4.7%. Domestic Franchise segment operating income was $2.1 million compared to $2.0 million last year.
International Franchise revenues increased 10.6% to $7.6 million, driven by higher royalties and a net 53 shop openings in the quarter. Sales by international franchise shops rose 9.0% to $128 million (16.2% excluding the effects of foreign exchange rate changes), while constant currency same store sales fell 2.6%. International Franchise segment operating income was $5.6 million compared to $4.8 million in the fourth quarter last year.
KK Supply Chain revenues (including sales to Company stores) increased 13.2% to $63.3 million. KK Supply Chain generated operating income of $11.1 million compared to $8.6 million in the fourth quarter last year.
Management is reaffirming its outlook for adjusted net income for fiscal 2016 of between $55 million and $59 million ($0.79 to $0.85 per share), compared to $48.3 million ($0.70 per share) in fiscal 2015.
The Company will host a conference call to review fiscal 2015 fourth quarter and annual results, as well as management’s outlook for fiscal 2016, 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 (877) 407-0784 or, for international callers, by dialing (201) 689-8560. An archived replay of the call will be available shortly after its conclusion by dialing (877) 870-5176, or (858) 384-5517 for international callers; the passcode is 13601290. The audio replay will be available through March 18, 2015. A transcript of the conference call 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 in Winston-Salem, N.C., the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937. Today, there are over 980 Krispy Kreme shops in more than 20 countries around the world. Connect with Krispy Kreme at www.krispykreme.com.
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 domestic and 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 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 implementation of new technology platforms. 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.
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KRISPY KREME DOUGHNUTS, INC.
NON-GAAP FINANCIAL INFORMATION
(Unaudited)
As of February 1, 2015, the Company had net deferred income tax assets of approximately $92 million, of which approximately $44 million related to federal and state net operating loss carryovers. The Company’s federal net operating loss carryovers totaled approximately $159 million.
The Company has reported cumulative pretax income of over $160 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.
The Company recorded a pretax charge of approximately $2.5 million in the fourth quarter of fiscal 2015 for the settlement of amounts due under an employment agreement with the Company’s former chief executive officer. That officer, who was most recently the Company’s Executive Chairman, transitioned from that role to the non-employee role of non-executive chairman of the board of directors in late January 2015. 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.
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(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.
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SOURCE Krispy Kreme Doughnuts, Inc.
Lafeea Watson
Krispy Kreme
Media Relations
336-726-8878
lwatson@krispykreme.com
Anita K. Booe
Krispy Kreme
Investor Relations:
336-703-6902
abooe@krispykreme.com
Krispy Kreme is a global retailer of premium-quality sweet treats, including its signature Original Glazed® doughnut.