WINSTON-SALEM, N.C. - September 9, 2015 - (BUSINESS WIRE) - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the “Company”) today reported financial results for the second quarter of fiscal 2016, ended August 2, 2015. The Company also updated its adjusted EPS outlook for fiscal 2016 and announced that its Board of Directors increased the Company’s current share repurchase authorization.
President and Chief Executive Officer Tony Thompson commented: “Systemwide domestic same store sales were strong, increasing 5.5% and both Company Stores same store sales and traffic were positive for the quarter. We continue to be more strategic in our use of promotional incentives as we balance driving consistent same store sales growth and overall store level profitability. We were pleased with our retail sales performance; however, Company Stores segment profitability was negatively impacted by lower than anticipated results within our consumer packaged goods category. This, combined with some charges associated with our derivative instruments, resulted in us adjusting our financial outlook for fiscal 2016.”
Thompson continued, “We remain focused and very confident in the long-term opportunities for the brand. As part of our ongoing efforts to enhance shareholder value, we are returning a significant portion of our excess cash flow to our shareholders via our ongoing share repurchase program, which our Board increased by $50 million during the quarter.”
In recognition of the Company’s continuing ability to generate cash flow in excess of its current business needs, the Board of Directors increased the Company’s current share repurchase authorization by $50 million during the second quarter from $105 million to $155 million. At the end of the second quarter, approximately $59.1 million remained outstanding under the share repurchase authorization.
Company Stores revenues increased 7.1% to $84.1 million in the second quarter of fiscal 2016, driven by a 14.3% increase in on-premises sales as store operating weeks increased 14.1% and same store sales rose 2.3%. Company Stores contribution increased to $11.3 million compared to $10.5 million last year driven by the increase in revenue as the contribution margin was flat with the prior year. While the performance of the Company’s retail sales continued to improve year-over-year, softness within its consumer packaged goods category weighed on overall segment profitability.
Domestic Franchise revenues increased 19.4% to $3.9 million, principally driven by higher royalties and an increase in development and franchise fees. Total sales by domestic franchisees rose 8.3%, and same store sales at Domestic Franchise shops increased 7.3%. Domestic franchisees opened seven stores during the second quarter this year compared to three during the same period last year. The Domestic Franchise segment generated operating income of $2.4 million compared to $1.9 million in the second quarter last year.
International Franchise revenues decreased 2.9% to $7.3 million from $7.5 million in the second quarter last year. Sales by international franchise stores rose 3.4% (16.1% excluding the effects of foreign exchange rate changes). International Franchise segment revenues include approximately $700,000 and $900,000 of royalties collected in the second quarter of fiscal 2016 and 2015, respectively, related to franchisee sales in prior periods which had not previously been recorded due to uncertainty surrounding their collection. Constant currency same store sales at international franchise stores declined 2.7%. International Franchise segment operating income improved to $5.5 million compared to $5.1 million in the second quarter last year as a result of lower operating costs.
KK Supply Chain revenues (including sales to Company stores) rose 6.7% to $63.5 million. External KK Supply Chain revenues rose 2.6% to $32.0 million. KK Supply Chain generated operating income of $10.1 million in the second quarter of fiscal 2016 compared to $9.8 million in the second quarter last year.
Based on the softer than expected performance of its consumer packaged goods category and the year-to-date charges associated with the Company’s derivative financial positions, management updated its outlook of adjusted net income per share for fiscal 2016. The Company currently estimates its adjusted net income per share for fiscal 2016 will be in the range of $0.76 to $0.80 per share. This compares to adjusted net income per share of $0.70 in fiscal 2015.
The Company’s full year outlook reflects, among other things, the following assumptions:
The Company will host a conference call to review financial results for the second quarter of fiscal 2016 as well as its outlook for the balance of the year this afternoon at 5:00 p.m. (ET). A 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 13610458. The audio replay will be available through September 16, 2015.
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 1,000 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 and changes in sales volume; risks associated with the use and implementation of information technology; our ability, and our dependence on the ability of our franchisees, to execute on our and their business plans; our relationships with our franchisees; actions by franchisees that could harm our business; our ability to implement our domestic and international growth strategy; our ability to implement and operate our domestic shop 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; reliance on third parties in many aspects of our business; 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. 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. 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 but exclude sales among Company and franchise 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) Company Stores contribution represents Company Stores revenues less costs of food, beverage and packaging; labor and benefit costs; vehicle costs; occupancy and other store related costs and excludes depreciation and amortization expense; marketing expenses and segment general and administration expenses. Company Stores contribution is a non-GAAP financial measure and the Company believes this is a useful measure to assess and evaluate the performance of its Company Stores segment.
(4) The change in “same store sales” represents the aggregate retail sales (excluding fundraising sales) during the current year period for all stores which had been open for 18 or more months during the current year period divided by the aggregate retail sales of such stores for the comparable weeks in the preceding year period. Once a store has been open for at least 18 consecutive months, 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.
(5) Company Stores consumer packaged goods – wholesale sales “average weekly number of doors” represents the average number of customer locations to which product deliveries to grocers/mass merchants and convenience stores 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.
SOURCE Krispy Kreme Doughnuts, Inc.
Anita Booe
Investor Relations
336-703-6902
abooe@krispykreme.com
Darryl Carr
Media Relations
336-726-8996
dcarr@krispykreme.com
Krispy Kreme is a global retailer of premium-quality sweet treats, including its signature Original Glazed® doughnut.