Krispy Kreme Reports Improved Results for the Third Quarter of Fiscal 2010
WINSTON-SALEM, N.C., Dec. 7 // PRNewswire-FirstCall // -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the third quarter of fiscal 2010, ended November 1, 2009.
Third Quarter Highlights:
- Operating income for the third quarter was $0.6 million, compared to an operating loss of $1.3 million in the third quarter last year
- Operating income for this year's third quarter reflects provisions for the settlement of litigation and related legal costs totaling approximately $2.0 million ($.03 per share)
- The Company posted a net loss of $2.4 million in the third quarter ($.04 per share), compared to a net loss of $5.9 million ($.09 per share) in the third quarter last year; last year's net loss reflected a non-operating charge of $900,000 ($.01 per share) related to a loan to a franchisee
- Cash provided by operating activities in the third quarter was $5.8 million, compared to $1.3 million in the third quarter last year; for the fiscal year-to-date, cash provided by operating activities was $15.9 million compared to $10.8 million last year
- Same store sales at Company-owned stores rose 5.1% year-over-year in the third quarter, compared to a gain of 5.9% in the second quarter, 2.1% in the first quarter and 0.9% in the fourth quarter of last year
- "Our results continued to improve year-over-year in the third quarter," commented Jim Morgan, the Company's President and Chief Executive Officer. "Our improved results are evidence of progress in implementing our strategic initiatives, which have us on a path toward building a growing, profitable business that is sustainable for the long term." Our third quarter progress toward improving our business included the following:
- We opened two new Company small retail shops, bringing our total small shop openings to five for the year so far;
- We signed letters of intent for five additional small retail concept shop leases in Virginia and Tennessee;
- Our domestic franchisees opened two small retail shops in the quarter, one in Arizona and the other in Pennsylvania;
- Our international franchisees continued to expand, with a net increase of 15 locations in the quarter, including the first Krispy Kreme shop in Turkey which opened in Istanbul;
- We awarded franchise development rights for Thailand and the Dominican Republic;
- We continued to increase franchisee support, including hiring personnel with substantial international supply chain experience to support our international expansion and introducing an expanded suite of store support tools for domestic franchisees, including integrated local, national and social marketing, on-line new store design support and a pilot of new food cost management tools; and
- We used cash from operations to make a discretionary $5 million prepayment on our term loan, bringing our total prepayments year-to-date to $25 million; our debt stands at $49 million, compared to $75 million one year ago.
"There is still much work to be done to achieve our long-term goals of sustained revenue growth and consistent profitability, but we are pleased with the improvement in our financial results for the third quarter and year-to-date fiscal 2010," Morgan continued. "These results continue to reflect the efforts and dedication of our team members and franchisees. We believe that we have the right strategies, and that the benefits of 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 third quarter results this afternoon at 4:30 p.m. (ET). A live webcast of the conference call will be available at www.KrispyKreme.com. To access an archived audio replay of the call, dial 888-203-1112 and enter the passcode 7863742. International callers may access the replay by dialing 719-457-0820 and entering passcode 7863742. The audio replay will be available through December 14, 2009.
About Krispy Kreme
Krispy Kreme is a leading branded retailer and wholesaler of high-quality doughnuts and packaged sweets, including its Original Glazed(®) 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 560 locations in 18 countries around the world.
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.
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
Nov. 1, Feb. 1,
2009 2009
----- -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $18,543 $35,538
Receivables 18,197 19,229
Accounts and notes receivable - equity method franchisees 684 1,019
Inventories 14,474 15,587
Deferred income taxes 106 106
Other current assets 10,448 4,327
-------- --------
Total current assets 62,452 75,806
Property and equipment 77,029 85,075
Investments in equity method franchisees 526 1,187
Goodwill 23,856 23,856
Other assets 9,279 9,002
-------- --------
Total assets $173,142 $194,926
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $902 $1,413
Accounts payable 6,063 8,981
Accrued liabilities 33,465 29,222
-------- --------
Total current liabilities 40,430 39,616
Long-term debt, less current maturities 48,128 73,454
Deferred income taxes 106 106
Other long-term obligations 23,619 23,995
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - -
Common stock, no par value 365,000 361,801
Accumulated other comprehensive loss (331) (913)
Accumulated deficit (303,810) (303,133)
-------- --------
Total shareholders' equity 60,859 57,755
-------- --------
Total liabilities and shareholders' equity $173,142 $194,926
======== ========
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
-------------------- -----------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2009 2008 2009 2008
------ ------ ------ ------
Revenues $83,600 $94,338 $259,750 $292,216
Operating expenses:
Direct operating Expenses
(exclusive of depreciation
and amortization shown
below) 74,369 87,143 222,595 264,926
General and administrative
expenses 6,128 5,842 17,259 17,406
Depreciation and
amortization expense 2,154 2,107 6,146 6,609
Impairment charges
and lease termination costs 109 345 3,922 (648)
Other operating (income) and
expense, net 207 213 474 626
------ ------ ------ ------
Operating income (loss) 633 (1,312) 9,354 3,297
Interest income 10 65 38 287
Interest expense (2,295) (2,978) (8,424) (7,341)
Equity in losses of Equity
method franchisees (393) (335) (506) (685)
Other non-operating Income
and (expense), net 144 (921) (356) 71
------ ------ ------ ------
Income (loss) before
income taxes (1,901) (5,481) 106 (4,371)
Provision for income
taxes (benefit) 487 404 783 (613)
------ ------ ------ ------
Net loss $(2,388) $(5,885) $(677) $(3,758)
======= ======= ====== =======
Loss per common share:
Basic $(.04) $(.09) $(.01) $(.06)
======= ======= ====== =======
Diluted $(.04) $(.09) $(.01) $(.06)
======= ======= ====== =======
Basic -weighted average shares
outstanding 67,612 66,794 67,354 65,587
Diluted -weighted average shares
outstanding 67,612 66,794 67,354 65,587
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
-------------------
Nov. 1, Nov. 2,
2009 2008
------ ------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(677) $(3,758)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 6,146 6,609
Deferred income taxes (380) (283)
Impairment charges 916 (109)
Accrued rent expense (569) (460)
Loss on disposal of property and equipment 599 344
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 537 (62)
Share-based compensation 3,448 4,263
Provision for doubtful accounts 40 534
Amortization of deferred financing costs 636 701
Equity in losses of equity method franchisees 506 685
Other (137) 1,237
Change in assets and liabilities:
Receivables 1,225 2,243
Inventories 1,063 2,114
Other current and non-current assets (241) 7
Accounts payable and accrued liabilities 2,105 (1,777)
Other long-term obligations 180 (588)
------- ------
Net cash provided by operating activities 15,897 10,769
------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,160) (2,618)
Proceeds from disposals of property and equipment 156 427
Other investing activities 209 (46)
------- ------
Net cash used for investing activities (5,795) (2,237)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of long-term debt (25,894) (1,673)
Deferred financing costs (954) (434)
Proceeds from exercise of stock options - 3,103
Repurchase of common shares (249) (2,069)
------- ------
Net cash used for financing activities (27,097) (1,073)
------- ------
Effect of exchange rate changes on cash - (19)
------- ------
Net increase (decrease) in cash and cash equivalents (16,995) 7,440
Cash and cash equivalents at beginning of period 35,538 24,735
------- -------
Cash and cash equivalents at end of period $18,543 $32,175
======= =======
KRISPY KREME DOUGHNUTS, INC.
SEGMENT INFORMATION
(In thousands)
Three Months Ended Nine Months Ended
-------------------- -----------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2009 2008 2009 2008
------- ------- ------- ------
Revenues:
Company Stores $60,020 $64,708 $185,730 $201,961
Domestic Franchise 1,945 1,882 5,798 6,177
International Franchise 3,583 4,511 11,267 13,355
KK Supply Chain:
Total revenues 39,314 46,747 121,926 143,724
Less -intersegment
sales eliminations (21,262) (23,510) (64,971) (73,001)
------- ------- ------- ------
External KK Supply
Chain revenues 18,052 23,237 56,955 70,723
------- ------- ------- ------
Total revenues $83,600 $94,338 $259,750 $292,216
======= ======= ======== ========
Operating income (loss):
Company Stores $(1,380) $(4,470) $2,951 $(8,985)
Domestic Franchise 811 1,157 2,425 3,800
International Franchise 2,117 3,031 6,495 8,728
KK Supply Chain 5,549 5,449 19,375 17,440
Unallocated general And
administrative expenses (6,355) (6,134) (17,970) (18,334)
Impairment charges and lease
termination costs (109) (345) (3,922) 648
------- ------- ------- ------
Total operating income (loss) $633 $(1,312) $9,354 $3,297
======= ======= ======= ======
Depreciation and amortization
expense:
Company Stores $1,694 $1,548 $4,709 $4,854
Domestic Franchise 14 21 57 64
International Franchise - - - -
KK Supply Chain 219 248 669 765
Corporate administration 227 290 711 926
------- ------- ------- ------
Total depreciation And
amortization expense $2,154 $2,107 $6,146 $6,609
======= ======= ======= ======
KRISPY KREME DOUGHNUTS, INC.
SYSTEMWIDE STORE COUNT
NUMBER OF STORES
----------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -----
Number of Stores at November 1, 2009:
Company:
Factory 71 - 71
Satellite 13 - 13
----- ----- -----
Total Company 84 - 84
----- ----- -----
Franchise:
Factory 101 93 194
Satellite 37 248 285
----- ----- -----
Total Franchise 138 341 479
----- ----- -----
Total Systemwide 222 341 563
===== ===== =====
NUMBER OF STORES
----------------
FACTORY SATELLITE TOTAL
------- --------- -----
Three Months Ended November 1, 2009:
AUGUST 2, 2009 270 278 548
Opened 2 22 24
Closed (5) (4) (9)
Converted to satellite stores (2) 2 -
---- ---- ----
NOVEMBER 1, 2009 265 298 563
==== ==== ====
Nine Months Ended November 1, 2009:
FEBRUARY 1, 2009 281 242 523
Opened 6 65 71
Closed (18) (13) (31)
Converted to satellite stores (4) 4 -
---- ---- ----
NOVEMBER 1, 2009 265 298 563
==== ==== ====
KRISPY KREME DOUGHNUTS, INC.
SELECTED OPERATING STATISTICS
(Dollars in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2009 2008 2009 2008
------ ------- ------- -------
Year over year percentage change
in systemwide sales (1) (4.7)% (1.0)% (8.2)% 1.8%
Year over year percentage change
in systemwide sales, exclusive of
the effects of changes in foreign
currency rates(2) (4.6)% NA (5.0)% NA
Average weekly sales per store (3):
Company $52.0 $49.9 $52.1 $51.0
Systemwide $25.3 $29.5 $26.4 $32.6
Systemwide, exclusive of the
effects of changes in foreign
currency rates (2) $25.3 NA $27.3 NA
Store operating weeks (4):
Company 1,148 1,287 3,553 3,939
Systemwide 7,026 6,319 20,434 17,993
Change in Company same Store
sales (5) 5.1% (1.3)% 4.2% (1.3)%
Company off-premises sales (6):
Change in average weekly number
of doors (11.4)% (5.9)% (11.0)% (7.0)%
Change in average weekly sales
per door 6.6% (9.1)% 2.7% (8.5)%
(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 third quarter and first nine 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 operation.
(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 57(th) 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 Doughnuts, Inc.
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