WINSTON-SALEM, N.C. - December 8, 2915 - (BUSINESS WIRE) - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the “Company”) today reported financial results for the third quarter of fiscal 2016, ended November 1, 2015.
President and Chief Executive Officer Tony Thompson commented: “Third quarter results were in line with our expectations. Continued strong systemwide domestic same store sales reflected our effective use of promotional incentives such as ‘special event’ days and premium-priced limited time offers which drove both sales and traffic. We remain focused on growing at a prudent pace and continuing to return excess capital to shareholders through ongoing share repurchases.”
Thompson continued, “We are on track to open over 130 net new Krispy Kreme shops around the world in fiscal 2016. More importantly, we continue managing Krispy Kreme for the long-term by focusing on the tremendous opportunities we see for our iconic brand. Our energies are centered on driving sales, profitability and reducing investment costs at small retail shops which will strengthen our domestic expansion model for both Company and franchise development. We also continue to expand our pipeline for international franchise development with the signing of agreements in seven new countries this year. In addition, we are pleased to be spreading the joy of Krispy Kreme to U.S. troops and their families at military bases across much of Europe through a new partnership with the Army & Air Force Exchange Service. At home and abroad, we believe there is a strong demand for our products and brand.”
Company Stores revenues increased 5.8% to $87.4 million in the third quarter of fiscal 2016, driven by an 11.2% increase in on-premises sales as store operating weeks increased 10.2% and same store sales rose 2.8%. Sales within the consumer packaged goods category, which represents approximately half of the revenues of the Company Stores segment, were flat with the prior year. Company Stores segment operating income increased from $1.7 million to $4.1 million in the third quarter of this year driven by the Company Stores contribution margin increasing from 12.8% to 15.4%. The margin increase was primarily driven by lower agricultural commodity and fuel costs.
Domestic Franchise revenues increased 11.5% to $3.7 million, principally driven by higher royalties. Total sales by domestic franchisees rose 6.9%, and same store sales at domestic franchise shops increased 3.8%. The Domestic Franchise segment generated operating income of $2.0 million in the third quarter of this year and last year. The Company incurred slightly higher operating costs in the third quarter of fiscal 2016 as it continued to expand its domestic franchise program.
International Franchise revenues decreased 7.7% to $6.3 million from $6.9 million in the third quarter last year principally due to unfavorable foreign exchange rates which adversely affected royalty revenues and segment operating income by approximately $800,000. Sales by international franchise stores declined 1.3% (excluding the effects of changes in foreign exchange rates, sales rose 11.0%). Constant currency same store sales at international franchise stores declined 3.7%. International Franchise segment operating income decreased to $4.5 million compared to $5.0 million in the third quarter last year primarily due to the negative impact of foreign exchange rates.
KK Supply Chain revenues (including sales to Company Stores) rose 2.9% to $63.4 million and external KK Supply Chain revenues rose 3.5% to $31.2 million. KK Supply Chain generated operating income of $11.5 million in the third quarter of fiscal 2016 compared to $10.2 million in the third quarter last year.
Management updated its outlook for adjusted earnings per share for fiscal 2016 to $0.78 to $0.80 per share, compared to $0.70 per share in fiscal 2015.
The Company provided the following updates to its full year fiscal 2016 assumptions:
The Company is providing the following expectations for fiscal 2017, which begins February 1, 2016:
The Company will host a conference call to review financial results for the third 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 13624434. The audio replay will be available through December 15, 2015.
Krispy Kreme Doughnuts, Inc. 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 1,080 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
Krispy Kreme
Investor Relations
336-703-6902
abooe@krispykreme.com
Darryl Carr
Krispy Kreme
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.