Krispy Kreme Reports Operating Income of $2.9 Million for the Second Quarter of Fiscal 2010 -- Net Income Nears Breakeven

Krispy Kreme Reports Operating Income of $2.9 Million for the Second Quarter of Fiscal 2010 -- Net Income Nears Breakeven

WINSTON-SALEM, N.C., Sept 03, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the second quarter of fiscal 2010, ended August 2, 2009.

Second Quarter Highlights:

  • Operating income for the second quarter was $2.9 million compared to an operating loss of $1.0 million in the second quarter last year
  • The Company posted a net loss of $157,000 in the second quarter (nil per share) compared to a net loss of $1.9 million ($0.03 per share) in the second quarter last year
  • Same store sales at Company-owned stores rose 5.9% year-over-year in the second quarter, compared to a gain of 2.1% in the first quarter this year and a decline of 4.1% in the second quarter last year

"Our operating results continued to improve year-over-year in the second quarter," commented Jim Morgan, the Company's President and Chief Executive Officer. "The warm summer months traditionally are a challenging time for our domestic Krispy Kreme shops, but we believe our improved results in the second quarter show that we can succeed in making our business more profitable year-round through continued implementation of our strategic initiatives." Our second quarter progress included these accomplishments:

  • We opened our third new Company small retail concept shop on July 29, in the Raleigh, North Carolina market;
  • We signed letters of intent for three leases in the Raleigh, North Carolina market, bringing our total new small retail concept commitments to eight;
  • Three domestic franchisees opened a total of four small retail concept shops in the quarter in Texas, Arizona and New York;
  • International franchisees continued to expand, with a net increase of 11 stores in the quarter;
  • The Kool Kreme((R)) soft serve test was expanded into five additional Company shops, bringing the total number of Company test locations to ten; all Krispy Kreme shops in both the Piedmont Triad, North Carolina and Nashville, Tennessee markets offer Kool Kreme, and our broadcast advertising in these markets includes messaging about Kool Kreme;
  • Our use of broadcast media has expanded beyond the Piedmont Triad, North Carolina and Nashville, Tennessee markets into Huntsville, Alabama and Columbia, South Carolina;
  • We expanded the elements of our marketing mix beyond broadcast and print media into social and interactive media, including Facebook and Twitter; we also signed a new sponsorship agreement with the NFL Carolina Panthers; and
  • We introduced new longer shelf-life, individually wrapped snack products, including glazed cherry and apple pies and chocolate cupcakes, in our off-premises distribution channels in selected markets.

"While there is still much work to be done to achieve sustained revenue growth and our long-term goals, we are pleased to have improved our financial performance in the second quarter and first half of fiscal 2010 compared to the same periods last year," Morgan continued. "These results reflect the hard work and dedication of our team members and franchisees. We continue to believe we have the right strategies, and that the results from their implementation will be more fully reflected in our financial results in the quarters and years ahead."

The Company has filed its Quarterly Report on Form 10-Q, which includes interim financial information as well as management's discussion and analysis of the Company's financial condition and results of operations.

Management will host a conference call to review second quarter results this afternoon at 4:30 p.m. (ET). A live webcast of the conference call will be available at To access an archived audio replay of the call, dial 888-203-1112 and enter the passcode 2904404. International callers may access the replay by dialing 719-457-0820 and entering passcode 2904404. The audio replay will be available through September 10, 2009.

About Krispy Kreme

Krispy Kreme is a leading branded retailer and wholesaler of high-quality doughnuts and packaged sweets, including its Original Glazed((R)) doughnut. Headquartered in Winston-Salem, North Carolina, the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937. Today, Krispy Kreme can be found in over 548 locations around the world. Visit us at

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," "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 operating model; currency, economic, political and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients; compliance with government regulations relating to food products and franchising; our relationships with off-premises customers; our ability to protect our trademarks and trade secrets; risks associated with our high levels of indebtedness; restrictions on our operations and compliance with covenants contained in our secured credit facilities; changes in customer preferences and perceptions; and risks associated with competition. 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, contain 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.



(In thousands)

Aug. 2, Feb. 1,
2009 2009

Cash and cash equivalents $19,620 $35,538
Receivables 17,582 19,229
Accounts and notes receivable - equity
method franchisees 594 1,019
Inventories 15,413 15,587
Deferred income taxes 106 106
Other current assets 7,676 4,327
Total current assets 60,991 75,806
Property and equipment 81,767 85,075
Investments in equity method franchisees 700 1,187
Goodwill 23,856 23,856
Other assets 8,123 9,002
Total assets $175,437 $194,926

Current maturities of long-term debt $1,009 $1,413
Accounts payable 5,215 8,981
Accrued liabilities 31,677 29,222
Total current liabilities 37,901 39,616
Long-term debt, less current maturities 53,227 73,454
Deferred income taxes 106 106
Other long-term obligations 22,259 23,995

Commitments and contingencies

Preferred stock, no par value - -
Common stock, no par value 363,847 361,801
Accumulated other comprehensive loss (481) (913)
Accumulated deficit (301,422) (303,133)
Total shareholders' equity 61,944 57,755
Total liabilities and shareholders'
equity $175,437 $194,926



(In thousands, except per share amounts)

Three Months Ended Six Months Ended
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2009 2008 2009 2008

Revenues $82,730 $94,237 $176,150 $197,878
Operating expenses:
Direct operating expenses
(exclusive of depreciation and
amortization shown below) 71,258 88,304 148,226 177,783
General and administrative
expenses 4,817 4,717 11,131 11,564
Depreciation and amortization
expense 1,999 2,266 3,992 4,502
Impairment charges and lease
termination costs 1,456 (348) 3,813 (993)
Other operating (income) and
expense, net 257 302 267 413
Operating income (loss) 2,943 (1,004) 8,721 4,609
Interest income 14 96 28 222
Interest expense (2,312) (2,300) (6,129) (4,363)
Equity in losses of equity
method franchisees (214) (82) (113) (350)
Other non-operating income and
(expense), net (500) 68 (500) 992
Income (loss) before income taxes (69) (3,222) 2,007 1,110
Provision for income taxes
(benefit) 88 (1,315) 296 (1,017)
Net income (loss) $(157) $(1,907) $1,711 $2,127

Income (loss) per common share:
Basic $- $(.03) $.03 $.03

Diluted $- $(.03) $.03 $.03

Basic - weighted average
shares outstanding 67,350 65,266 67,225 64,984

Diluted - weighted average
shares outstanding 67,350 65,266 67,830 66,525



(In thousands)

Six Months Ended
Aug. 2, Aug. 3,
2009 2008
Net income $1,711 $2,127
Adjustments to reconcile net income
to net cash provided by operating
Depreciation and amortization 3,992 4,502
Deferred income taxes (283) (173)
Impairment charges 1,220 (148)
Accrued rent expense (468) (345)
Loss on disposal of property and equipment 366 192
Gain on disposal of interest in equity
method franchisee - (931)
Impairment of investment in equity
method franchisee 500 -
Unrealized (gain) loss on interest
rate derivatives 419 (644)
Share-based compensation 2,070 2,674
Provision for doubtful accounts (91) 189
Amortization of deferred financing costs 430 571
Equity in losses of equity method
franchisees 113 350
Other 1 276
Change in assets and liabilities:
Receivables 2,142 2,715
Inventories 174 (1,921)
Other current and non-current assets (351) (870)
Accounts payable and accrued liabilities (1,414) 1,476
Other long-term obligations (462) (555)
Net cash provided by operating
activities 10,069 9,485
Purchase of property and equipment (4,377) (1,450)
Proceeds from disposals of property
and equipment 32 210
Other investing activities (26) 6
Net cash used for investing activities (4,371) (1,234)
Repayment of long-term debt (20,638) (1,359)
Deferred financing costs (954) (434)
Proceeds from exercise of stock options - 2,057
Repurchase of common shares (24) (27)
Net cash provided by (used for) financing
activities (21,616) 237
Effect of exchange rate changes on cash - (8)
Net increase (decrease) in cash and cash
equivalents (15,918) 8,480
Cash and cash equivalents at beginning of
period 35,538 24,735
Cash and cash equivalents at end of period $19,620 $33,215



(In thousands)

Three Months Ended Six Months Ended
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2009 2008 2009 2008

Company Stores $59,853 $65,071 $125,710 $137,253
Domestic Franchise 1,802 2,249 3,853 4,295
International Franchise 3,806 4,378 7,684 8,844
KK Supply Chain:
Total revenues 37,754 46,258 82,612 96,977
Less- intersegment sales
eliminations (20,485) (23,719) (43,709) (49,491)
External KK Supply Chain
revenues 17,269 22,539 38,903 47,486
Total revenues $82,730 $94,237 $176,150 $197,878

Operating income (loss):
Company Stores $1,387 $(4,221) $4,331 $(4,515)
Domestic Franchise 434 1,523 1,614 2,643
International Franchise 1,943 2,375 4,378 5,697
KK Supply Chain 5,687 3,999 13,826 11,991
Unallocated general and
administrative expenses (5,052) (5,028) (11,615) (12,200)
Impairment charges and lease
termination costs (1,456) 348 (3,813) 993
Total operating income (loss) $2,943 $(1,004) $8,721 $4,609

Depreciation and amortization
Company Stores $1,519 $1,678 $3,015 $3,306
Domestic Franchise 22 22 43 43
International Franchise - - - -
KK Supply Chain 223 255 450 517
Corporate administration 235 311 484 636
Total depreciation and
amortization expense $1,999 $2,266 $3,992 $4,502



Number of Stores at August 2, 2009:
Factory 77 - 77
Satellite 12 - 12
Total Company 89 - 89
Factory 100 93 193
Satellite 33 233 266
Total Franchise 133 326 459
Total Systemwide 222 326 548

Three Months Ended August 2, 2009:
MAY 3, 2009 277 259 536
Opened - 21 21
Closed (5) (4) (9)
Converted to satellite stores (2) 2 -
AUGUST 2, 2009 270 278 548

Six Months Ended August 2, 2009:
FEBRUARY 1, 2009 281 242 523
Opened 4 43 47
Closed (13) (9) (22)
Converted to satellite stores (2) 2 -
AUGUST 2, 2009 270 278 548



(Dollars in thousands)

Three Months Ended Six Months Ended
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2009 2008 2009 2008

Year over year percentage change
in systemwide sales (1) (11.7)% 3.9% (9.8)% 3.1%
Year over year percentage change
in systemwide sales, exclusive
of the effects of changes in
foreign currency rates (2) (8.0)% NA (5.1)% NA

Average weekly sales per
store (3):
Company $49.9 $49.3 $52.1 $51.5
Systemwide $25.7 $33.4 $27.0 $34.4
Systemwide, exclusive of
the effects of changes in
foreign currency rates (2) $26.8 $33.4 $28.4 $34.4

Store operating weeks (4):
Company 1,196 1,313 2,405 2,652
Systemwide 6,865 5,975 13,408 11,674

Change in Company same store
sales (5) 5.9% (4.1)% 3.8% (1.3)%

Company off-premises sales (6):
Change in average weekly
number of doors (12.3)% (8.3)% (10.8)% (7.5)%
Change in average weekly sales
per door 3.0% (7.7)% 0.9% (8.1)%

(1) Systemwide sales, a non-GAAP financial measure, include the sales by
both Company and franchise stores. The Company believes systemwide
sales data are useful in assessing the overall performance of the
Krispy Kreme brand and, ultimately, the performance of the Company.
(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 conducts business had been
the same in the second quarter and first six months of fiscal 2010 as
in the comparable periods of fiscal 2009.
(3) Represents, on a Company and systemwide basis, total sales of all
stores divided by the number of operating weeks for both factory and
satellite stores.
(4) Represents, on a Company and systemwide basis, the aggregate number
of weeks in a period that both factory and satellite stores were in
(5) 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 56 consecutive weeks
during the current year period (but only to the extent such sales
occurred in the 57th 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 57 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.
(6) For Company off-premises 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.

SOURCE Krispy Kreme Doughnut Corporation



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