Krispy Kreme Reports Financial Results for the Fourth Quarter and Fiscal Year Ended February 2, 2014

Adjusted Net Income Rises 37% for the Quarter and 31% for the Year

Raises Fiscal 2015 Diluted EPS Guidance to Reflect Growth of 20% to 30%

Increases Share Repurchase Authorization to $80 Million

WINSTON-SALEM, N.C. - (BUSINESS WIRE) - Mar. 12, 2014 - Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the fourth quarter and fiscal year ended February 2, 2014, and raised its diluted EPS guidance for fiscal 2015 to reflect fewer forecasted shares outstanding as a result of share repurchases. The Company also announced that its Board of Directors increased the Company’s current share repurchase authorization from $50 million to $80 million.

Fiscal Year

The fourth quarter and fiscal year ended February 2, 2014 included 13 and 52 weeks, respectively, compared to 14 and 53 weeks, respectively, for the fourth quarter and fiscal year ended February 3, 2013. Accordingly, financial results for the fiscal 2014 periods are not directly comparable to those of the corresponding fiscal 2013 periods. The Company’s fiscal year ends on the Sunday closest to January 31, which periodically results in a 53-week year.

Fourth Quarter Fiscal 2014 Highlights Compared to the Year-Ago Period (Table 2):

To facilitate comparisons, the following highlights compare the 13 weeks ended February 2, 2014 to the 13 weeks ended January 27, 2013:

  • Revenues increased 3.3% to $112.7 million from $109.1 million; excluding the effects of refranchising stores, revenues for the quarter rose 5.5% from last year
  • Company same store sales rose 1.6%, the 21st consecutive quarterly increase, despite harsh winter weather in several key markets estimated to have penalized fourth quarter comparisons by approximately 1 point
  • Operating income increased 27% to $9.1 million from $7.2 million
  • Adjusted net income rose 37% to $8.3 million ($0.12 per share) from $6.1 million ($0.09 per share); adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash; adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in Table 5 accompanying this release)
  • Net income was $14.8 million ($0.21 per share) compared to $4.0 million ($0.06 per share) last year; net income in the current period reflects credits totaling $10.3 million ($0.14 per share) in income tax expense; the credits reflect additional tax benefits expected to be realized from the Company’s net operating loss and tax credit carryovers resulting from an increase in management’s estimate of future annual earnings
  • Cash provided by operating activities was $15.9 million compared to $19.5 million last year
  • Cash at year end totaled $55.7 million, notwithstanding the Company’s repurchase of $20.5 million of common stock in fiscal 2014

Fiscal 2014 Highlights Compared to Last Year (Table 2):

To facilitate comparisons, the following highlights compare the 52 weeks ended February 2, 2014 to the 52 weeks ended January 27, 2013:

  • Revenues increased 7.9% to $460.3 million from $426.8 million; excluding the effects of refranchising stores, revenues for the year rose 9.3% from last year
  • Company same store sales rose 6.7%, the fifth consecutive annual increase
  • Operating income increased 28% to $46.6 million from $36.4 million
  • Adjusted net income rose 31% to $43.2 million ($0.61 per share) from $32.9 million ($0.47 per share)
  • Net income was $34.3 million ($0.48 per share) compared to $20.0 million ($0.29 per share) last year; net income in the current year reflects credits totaling $10.3 million ($0.14 per share) in income tax expense; the credits reflect additional tax benefits expected to be realized from the Company’s net operating loss and tax credit carryovers resulting from an increase in management’s estimate of future annual earnings
  • Cash provided by operating activities was $56.9 million compared to $57.5 million in fiscal 2013

James H. Morgan, Chairman and Chief Executive Officer, commented: "Fiscal 2014 was an outstanding year at Krispy Kreme, and we thank our Company team members and our franchise partners for their outstanding contributions. Among the significant achievements were:

  • We reported our fifth year in a row of higher same store sales at Company shops, notwithstanding tough comparisons and harsh winter weather that affected several Company markets as we closed out the year in January
  • Our domestic franchisees also posted their fifth consecutive year of rising same store sales
  • We achieved 30% year-over-year growth in adjusted EPS on a 52-week basis; in the fourth quarter, adjusted EPS grew 33% on a 13-week basis
  • We successfully tested our new small free-standing factory shop format and began a rollout that we expect will represent the majority of new domestic shops built in the coming year
  • International franchisees in three new countries opened their first Krispy Kreme shops, bringing our total presence outside the U.S. to 23 countries and 574 locations at year end

"Krispy Kreme ranks among the fastest growing brands in QSR, and we have significant potential to further expand our system both domestically and internationally. Our worldwide store count grew by more than 10% in fiscal 2014, and we are projecting similar net unit growth in fiscal 2015. Company development this year will focus exclusively on our small free-standing factory shops, which have shown very encouraging results since we opened the first of these new format shops in January 2013. Domestic franchise development is expected to consist of a mix of small factory and satellite locations, while internationally, we expect to enter several new markets, including Colombia and Guangdong, China. Our goal remains to have 1,300 domestic and international shops in operation by January 2017.

"Our cash flow generation and strong balance sheet provide us with the resources to pursue an exciting but disciplined organic growth strategy, and complement those efforts with ongoing actions that we believe will create additional value for our shareholders. To that end, the Board of Directors has increased the size of our current share repurchase authorization from $50 million to $80 million and, to date, we have repurchased approximately 1.6 million shares for a total of approximately $30 million, including $9.3 million in purchases since the end of the fourth quarter.

"To summarize, fiscal 2014 represented the best financial results for Krispy Kreme since fiscal 2004, and the foundation has clearly been laid for many years of sustainable growth."

Results for the Quarter Ended February 2, 2014 (Tables 2 and 7)

To facilitate comparisons, the following discussion compares the 13 weeks ended February 2, 2014 to the 13 weeks ended January 27, 2013.

Consolidated Results

For the quarter ended February 2, 2014, revenues rose 3.3% to $112.7 million.

Direct operating expenses increased to $93.3 million from $91.0 million, but as a percentage of total revenues decreased to 82.8% from 83.4%. General and administrative expenses declined to $7.7 million from $8.4 million in the same period last year, and as a percentage of revenues fell to 6.8% from 7.7%. The decrease in general and administrative expenses in the fourth quarter of fiscal 2014 reflects, among other things, lower incentive compensation costs and a reduction in legal costs compared to the prior year. In addition, general and administrative expenses in the fourth quarter last year included a charge of $225,000 for the settlement of nuisance litigation.

Operating income rose 27% to $9.1 million from $7.2 million.

Adjusted net income rose 37% to $8.3 million ($0.12 per share) compared to $6.1 million ($0.09 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 in Table 5 accompanying this release).

Segment Results

For the quarter ended February 2, 2014, Company Stores revenues declined 1.1% to $74.3 million. Exclusive of the effects of refranchising six stores in Kansas, Missouri and Texas during fiscal 2014, Company Stores revenues increased 4.3%. Same store sales at Company stores rose 1.6%, the 21st consecutive quarterly increase. The Company Stores segment posted operating income of $1.6 million compared to $3.0 million last year. The decline in Company Stores’ operating income reflects, among other things, higher consumer incentives, an increase in marketing costs, and the negative effects of adverse weather conditions compared to last year.

Domestic Franchise revenues increased 24.7% to $3.1 million. Higher royalties from a 13.6% increase in sales by domestic franchisees (of which 3.8% reflects the six refranchised stores) accounted for substantially all of the revenue gain. Same store sales rose 6.2% at domestic franchise stores. Domestic Franchise segment operating income was $2.0 million compared to $1.3 million last year.

International Franchise revenues increased 3.7% to $6.9 million. Changes in the rates of exchange between the U.S. dollar and the foreign currencies in which the Company’s international franchisees do business decreased sales by international franchisees measured in U.S. dollars by approximately $6.9 million in the fourth quarter of fiscal 2014 compared to last year, which adversely affected international royalty revenues by approximately $410,000. Excluding the effects of exchange rate changes, sales by international franchisees rose 10.0%. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 3.4%, reflecting, among other things, honeymoon effects from the substantial number of international store openings in recent years, as well as cannibalization as markets develop. The International Franchise segment generated operating income of $4.8 million compared to $4.0 million in the fourth quarter last year. The improvement in segment operating income reflects lower share-based compensation due to the departure of an executive officer, as well as a reduction in trademark protection costs compared to the prior year. In addition, last year’s results reflected a provision of approximately $185,000 for potential uncollectible accounts.

Total KK Supply Chain revenues (including sales to Company stores) increased 5.7% to $55.9 million. KK Supply Chain generated operating income of $8.6 million compared to $7.5 million in the fourth quarter last year. The gain in operating margin in the fourth quarter was driven largely by economies of scale.

Fiscal 2015 Outlook

In fiscal 2015, the Company expects to open between 10 and 15 small, free-standing factory shops, and estimates the Company’s domestic franchisees will open between 20 and 25 Krispy Kreme shops, including both small factory and satellite locations. The Company forecasts that international franchisees will open approximately 85 locations. Allowing for anticipated normal shop closings across the system, management estimates that the total systemwide store count will rise over 10% in fiscal 2015. The Company’s goal is to achieve modest organic same store sales growth in its Company shops in fiscal 2015 driven by traffic, with modest pricing action incremental to that. The Company forecasts that international franchise same store sales will continue the improving trend of recent years.

Based on these factors, management currently expects fiscal 2015 adjusted net income will be in the range of $51 million to $55 million and adjusted EPS will range from $0.73 to $0.79 per share based on a forecasted 70 million diluted shares outstanding. This range reflects a two million share reduction in the forecasted number of diluted shares outstanding from our prior guidance principally to give effect to our share repurchases to date. If achieved, this forecast would represent year-over-year growth in adjusted earnings per share of 20% to 30%. On a GAAP basis, management expects fiscal 2015 net income will be in the range of $32.4 million to $34.8 million.

Adjusted net income and adjusted EPS are non-GAAP measures; see the reconciliation of GAAP to adjusted earnings in Table 5 accompanying this release.

Same Store Sales Reporting Methodology

Beginning in fiscal 2015, the Company plans to revise its computational methodology for same store sales to more accurately reflect overall comparable stores sales performance. Under the new methodology, shops will be included in the same store sales computation after 18 months of operation, compared to 13 months under the current methodology. Because Krispy Kreme shops typically open with an extended honeymoon period of elevated sales levels, under the current methodology most shops will report negative comparisons as they enter the same stores metric at week 57. Deferring stores’ entering the same store sales metric until week 79 is expected to result in a more meaningful measurement of comparable sales because, in most cases, substantially all of the honeymoon sales period will no longer be reflected in the metric.

The Company plans to provide quarterly tables for same store sales calculations for Company, domestic franchise and international franchise shops for fiscal 2012 through fiscal 2014 using the new computational methodology prior to release of its results for the first quarter of fiscal 2015.

Conference Call

The Company will host a conference call to review fiscal 2014 fourth quarter and annual results, as well as management’s outlook for 2015, 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) 312-5514 or, for international callers, by dialing (970) 315-0452. An archived replay of the call will be available shortly after its conclusion by dialing (855) 859-2056, or (404) 537-3406 for international callers; the passcode is 89378591. The audio replay will be available through March 29, 2014. A transcript of the conference call also will be available on the Company’s website.

About Krispy Kreme

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 800 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 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 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; 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.

 

TABLE 1                        
KRISPY KREME DOUGHNUTS, INC.
                             
CONSOLIDATED STATEMENT OF INCOME
 
        13 Weeks Ended   14 Weeks Ended   52 Weeks Ended   53 Weeks Ended
             
        February 2,   February 3,   February 2,   February 3,
        2014     2013     2014     2013  
        (In thousands, except per share amounts)
                             
Revenues   $ 112,746     $ 118,145     $ 460,331     $ 435,843  
Operating expenses:                        
 

Direct operating expenses (exclusive of depreciation and amortization expense shown below)

                       
      93,302       98,260       376,132       362,828  
  General and administrative expenses     7,709       8,778       25,149       25,089  
  Depreciation and amortization expense     2,834       2,653       11,106       9,891  
  Impairment charges and lease termination costs     (169 )     4       1,374       306  
Operating income     9,070       8,450       46,570       37,729  
Interest income     144       12       616       114  
Interest expense     (135 )     (440 )     (1,057 )     (1,642 )
Loss on refinancing of debt     -       -       (967 )     -  
Equity in losses of equity method franchisees     (47 )     (52 )     (221 )     (202 )
Other non-operating income, net     96       80       119       317  
Income before income taxes     9,128       8,050       45,060       36,316  
Provision for income taxes     (5,632 )     3,270       10,804       15,537  
Net income   $ 14,760     $ 4,780     $ 34,256     $ 20,779  
                             
Earnings per common share:                        
  Basic   $ 0.22     $ 0.07     $ 0.51     $ 0.31  
  Diluted   $ 0.21     $ 0.07     $ 0.48     $ 0.30  
                             
Weighted average shares outstanding:                        
  Basic     67,222       66,864       67,261       67,624  
  Diluted     71,045       69,520       71,054       69,896  
                             
Note: Fiscal 2014 contained 52 weeks (13 in the fourth quarter) compared to 53 weeks (14 in the fourth quarter) in fiscal 2013. Accordingly, financial results for the fourth quarter of fiscal 2014 and for fiscal 2014 as a whole are not directly comparable to results for the prior year. See Table 2 for a comparison of the Company's results of operations for the 13 and 52 weeks ended February 2, 2014 and January 27, 2013.
TABLE 2                        
KRISPY KREME DOUGHNUTS, INC.
                             
CONSOLIDATED STATEMENT OF ADJUSTED INCOME - 13 AND 52 WEEK BASIS
                             
                             
        13 Weeks Ended   52 Weeks Ended
        February 2,   January 27,   February 2,   January 27,
        2014   2013   2014   2013
        (In thousands, except per share amounts)
                             
Revenues   $ 112,746   $ 109,122   $ 460,331   $ 426,820
Operating expenses:                        
  Direct operating expenses (exclusive of depreciation and amortization expense shown below)                        
      93,302     91,047     376,132     355,615
  General and administrative expenses     7,709     8,447     25,149     24,758
  Depreciation and amortization expense     2,834     2,464     11,106     9,702
  Impairment charges and lease termination costs     (169)     4     1,374     306
Operating income     9,070     7,160     46,570     36,439
Interest income     144     12     616     114
Interest expense     (135)     (428)     (1,057)     (1,630)
Equity in losses of equity method franchisees     (47)     (52)     (221)     (202)
Other non-operating income, net     96     80     119     317
Income before income taxes     9,128     6,772     46,027     35,038
Provision for current income taxes     792     676     2,790     2,119
Adjusted net income   $ 8,336   $ 6,096   $ 43,237   $ 32,919
                             
Adjusted earnings per common share:                        
  Basic   $ 0.12   $ 0.09   $ 0.64   $ 0.49
  Diluted   $ 0.12   $ 0.09   $ 0.61   $ 0.47
                             
Weighted average shares outstanding:                        
  Basic     67,222     66,864     67,261     67,624
  Diluted     71,045     69,520     71,054     69,896
                             
Note: Fiscal 2014 contained 52 weeks (13 in the fourth quarter) compared to 53 weeks (14 in the fourth quarter) in fiscal 2013. The foregoing table presents fourth quarter and annual fiscal 2013 adjusted net income and adjusted earnings per share exclusive of the 14th/53rd week in order to facilitate comparison of fiscal 2013 results with results for fiscal 2014. For the derivation of amounts shown for the 13 and 52 weeks ended January 27, 2013, please see Exhibit 99.1 to the Company's Current Report on Form 8-K filed on March 14, 2013.
                             
Adjusted net income and adjusted EPS are non-GAAP measures. See the reconciliation of GAAP to adjusted earnings in Table 5.
TABLE 3            
KRISPY KREME DOUGHNUTS, INC.
                 
CONSOLIDATED BALANCE SHEET
 
                 
        February 2,   February 3,
      2014     2013  
        (In thousands)
  ASSETS
CURRENT ASSETS:            
Cash and cash equivalents   $ 55,748     $ 66,332  
Receivables     25,268       25,627  
Receivables from equity method franchisees     675       705  
Inventories     16,750       12,358  
Deferred income taxes     23,847       23,323  
Other current assets     5,199       6,439  
  Total current assets     127,487       134,784  
Property and equipment     92,823       78,024  
Investments in equity method franchisees     -       -  
Goodwill and other intangible assets     24,097       24,195  
Deferred income taxes     83,461       93,088  
Other assets     10,678       11,847  
  Total assets   $ 338,546     $ 341,938  
   
  LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:            
Current maturities of long-term debt   $ 344     $ 2,148  
Accounts payable     16,788       12,198  
Accrued liabilities     29,276       32,330  
  Total current liabilities     46,408       46,676  
Long-term debt, less current maturities     1,659       23,595  
Other long-term obligations and deferred credits     25,386       25,235  
                 
Commitments and contingencies            
                 
SHAREHOLDERS’ EQUITY:            
Preferred stock, no par value     -       -  
Common stock, no par value     338,135       354,068  
Accumulated other comprehensive loss     -       (338 )
Accumulated deficit     (73,042 )     (107,298 )
  Total shareholders’ equity     265,093       246,432  
    Total liabilities and shareholders’ equity   $ 338,546     $ 341,938  
TABLE 4            
KRISPY KREME DOUGHNUTS, INC.
                     
CONSOLIDATED STATEMENT OF CASH FLOWS
 
            52 Weeks Ended   53 Weeks Ended
            February 2,   February 3,
          2014     2013  
              (In thousands)
CASH FLOW FROM OPERATING ACTIVITIES:            
Net income   $ 34,256     $ 20,779  
Adjustments to reconcile net income to net cash provided by operating activities:            
  Depreciation and amortization expense     11,106       9,891  
  Deferred income taxes     8,014       13,413  
  Accrued rent expense     784       585  
  Loss on refinancing of debt     967       -  
  (Gain) loss on disposal of property and equipment     (1,879 )     543  
  (Gain) on refranchising     (876 )     -  
  Share-based compensation     6,452       6,801  
  Provision for doubtful accounts     (345 )     194  
  Amortization of deferred financing costs     285       398  
  Equity in losses of equity method franchisees     221       202  
  Other     325       (219 )
  Change in assets and liabilities:            
    Receivables     556       (248 )
    Inventories     (4,553 )     299  
    Other current and non-current assets     1,917       (1,012 )
    Accounts payable and accrued liabilities     (1,913 )     4,740  
    Other long-term obligations and deferred credits     1,595       2,944  
      Net cash provided by operating activities     56,912       59,310  
CASH FLOW FROM INVESTING ACTIVITIES:            
Purchase of property and equipment    

(25,022

)     (14,218 )
Proceeds from disposals of property and equipment     1,719       178  
Proceeds from refranchising     681       -  

Acquisition of stores from franchisee

   

-

 

    (915 )
Other investing activities    

456

      517  
      Net cash used for investing activities     (22,166 )     (14,438 )
CASH FLOW FROM FINANCING ACTIVITIES:            
Repayment of long-term debt     (24,658 )     (2,346 )
Deferred financing costs     (132 )     (11 )
Proceeds from exercise of stock options     2,517       247  
Proceeds from exercise of warrants     -       9  
Repurchase of common shares     (23,057 )     (20,758 )
      Net cash used for financing activities     (45,330 )     (22,859 )
Net increase (decrease) in cash and cash equivalents     (10,584 )     22,013  
Cash and cash equivalents at beginning of year     66,332       44,319  
Cash and cash equivalents at end of year   $ 55,748     $ 66,332  
                     
Supplemental schedule of non-cash investing and financing activities:            
    Assets acquired under capital leases   $ 918     $ 516  

TABLE 5

KRISPY KREME DOUGHNUTS, INC.

NON-GAAP FINANCIAL INFORMATION

As of February 2, 2014, the Company had net deferred income tax assets of approximately $107 million, of which approximately $58 million related to federal and state net operating loss carryovers. The Company’s federal net operating loss carryovers totaled approximately $174 million.

The Company has reported cumulative pretax income of over $120 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’s fiscal year ends on the Sunday closest to January 31, which periodically results in a 53-week year. Fiscal 2013 contained 53 weeks, while fiscal 2014 contained 52 weeks.

In the second quarter of fiscal 2014, the Company recorded a charge of $1.0 million related to the refinancing 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 to GAAP measures 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.

      Management's   Historical Periods
      Earnings Guidance   Three Months Ended   Year Ended
      Year Ending February 1, 2015   February 2,   February 3,   February 2,   February 3,
      From   To   2014     2013     2014   2013  
      (In thousands, except per share amounts)
                                       
Net income, as reported $ 32,400   $ 34,800   $ 14,760     $ 4,780     $ 34,256   $ 20,779  
Loss on refinancing of debt   -     -     -       -       967     -  
Provision for deferred income taxes   18,600     20,200     (6,424 )     2,589       8,014     13,413  
Adjusted net income   51,000     55,000     8,336       7,369       43,237     34,192  
Earnings for the 14th/53rd week   -     -     -       (1,273 )     -     (1,273 )
Adjusted net income - 13/52 week basis $ 51,000   $ 55,000   $ 8,336     $ 6,096     $ 43,237   $ 32,919  
                                       
Adjusted earnings per common share -                                  
  13/52 week basis:                                  
    Basic $ 0.77   $ 0.83   $ 0.12     $ 0.09     $ 0.64   $ 0.49  
    Diluted $ 0.73   $ 0.79   $ 0.12     $ 0.09     $ 0.61   $ 0.47  
                                       
Weighted average shares outstanding:                                  
  Basic   66,000     66,000     67,222       66,864       67,261     67,624  
  Diluted   70,000     70,000     71,045       69,520       71,054     69,896  
TABLE 6                        
KRISPY KREME DOUGHNUTS, INC.
                                   
SEGMENT INFORMATION
                 
              13 Weeks   14 Weeks   52 Weeks   53 Weeks
              Ended   Ended   Ended   Ended
              February 2,   February 3,   February 2,   February 3,
              2014     2013     2014     2013  
              (In thousands)
Revenues:                        
  Company Stores:                        
    On-premises sales:                        
      Retail sales   $ 34,590     $ 37,292     $ 136,921     $ 127,989  
      Fundraising sales     2,782       3,138       14,591       14,929  
        Total on-premises sales     37,372       40,430       151,512       142,918  
    Wholesale sales     36,957       40,892       155,313       153,576  
          Company Stores revenues     74,329       81,322       306,825       296,494  
  Domestic Franchise     3,143       2,764       11,839       10,325  
  International Franchise     6,900       7,109       25,607       24,941  
  KK Supply Chain:                        
    Total revenues     55,913       57,337       231,229       215,412  
    Less – intersegment sales elimination     (27,539 )     (30,387 )     (115,169 )     (111,329 )
      External KK Supply Chain revenues     28,374       26,950       116,060       104,083  
          Total revenues   $ 112,746     $ 118,145     $ 460,331     $ 435,843  
                                   
Operating income:                        
  Company Stores   $ 1,631     $ 3,263     $ 11,334     $ 8,534  
  Domestic Franchise     1,962       1,518       8,083       5,590  
  International Franchise     4,758       4,430       17,977       17,387  
  KK Supply Chain     8,617       8,269       36,953       32,450  
    Total segment operating income     16,968       17,480       74,347       63,961  
  Unallocated general and administrative expenses     (7,709 )     (8,778 )     (25,149 )     (25,089 )
  Corporate depreciation and amortization expense     (358 )     (248 )     (1,254 )     (837 )
  Impairment charges and lease termination costs     169       (4 )     (1,374 )     (306 )
    Consolidated operating income   $ 9,070     $ 8,450     $ 46,570     $ 37,729  
                                   
Depreciation and amortization expense:                        
  Company Stores   $ 2,256     $ 2,221     $ 9,039     $ 8,142  
  Domestic Franchise     47       14       119       164  
  International Franchise     1       1       7       10  
  KK Supply Chain     172       169       687       738  
  Corporate     358       248       1,254       837  
    Total depreciation and amortization expense   $ 2,834     $ 2,653     $ 11,106     $ 9,891  
                                   
                                   
Note: Fiscal 2014 contained 52 weeks (13 in the fourth quarter) compared to 53 weeks (14 in the fourth quarter) in fiscal 2013. Accordingly, financial results for the fourth quarter of fiscal 2014 and for fiscal 2014 as a whole are not directly comparable to results for the prior year. See Table 7 for a comparison of the Company's segment information for the 13 and 52 weeks ended February 2, 2014 and January 27, 2013.
TABLE 7                        
KRISPY KREME DOUGHNUTS, INC.
                                   
SEGMENT INFORMATION - 13 AND 52 WEEK BASIS
           
              13 Weeks Ended   52 Weeks Ended
               
              February 2,   January 27,   February 2,   January 27,
              2014     2013     2014     2013  
              (In thousands)
Revenues:                        
  Company Stores:                        
    On-premises sales:                        
      Retail sales   $ 34,590     $ 34,462     $ 136,921     $ 125,159  
      Fundraising sales     2,782       2,848       14,591       14,639  
        Total on-premises sales     37,372       37,310       151,512       139,798  
    Wholesale sales     36,957       37,845       155,313       150,529  
          Company Stores revenues     74,329       75,155       306,825       290,327  
  Domestic Franchise     3,143       2,520       11,839       10,081  
  International Franchise     6,900       6,652       25,607       24,484  
  KK Supply Chain:                        
    Total revenues     55,913       52,899       231,229       210,974  
    Less – intersegment sales elimination     (27,539 )     (28,104 )     (115,169 )     (109,046 )
      External KK Supply Chain revenues     28,374       24,795       116,060       101,928  
          Total revenues   $ 112,746     $ 109,122     $ 460,331     $ 426,820  
                                   
Operating income:                        
  Company Stores   $ 1,631     $ 2,983     $ 11,334     $ 8,254  
  Domestic Franchise     1,962       1,300       8,083       5,372  
  International Franchise     4,758       4,035       17,977       16,992  
  KK Supply Chain     8,617       7,522       36,953       31,703  
    Total segment operating income     16,968       15,840       74,347       62,321  
  General and administrative expenses     (7,709 )     (8,447 )     (25,149 )     (24,758 )
  Corporate depreciation and amortization     (358 )     (229 )     (1,254 )     (818 )
  Impairment charges and lease termination costs     169       (4 )     (1,374 )     (306 )
    Consolidated operating income   $ 9,070     $ 7,160     $ 46,570     $ 36,439  
                                   
Depreciation and amortization expense:                        
  Company Stores   $ 2,256     $ 2,063     $ 9,039     $ 7,984  
  Domestic Franchise     47       14       119       164  
  International Franchise     1       1       7       10  
  KK Supply Chain     172       157       687       726  
  Corporate     358       229       1,254       818  
    Total depreciation and amortization expense   $ 2,834     $ 2,464     $ 11,106     $ 9,702  
                                   
Note: Fiscal 2014 contained 52 weeks (13 in the fourth quarter) compared to 53 weeks (14 in the fourth quarter) in fiscal 2013. The foregoing table presents fourth quarter and annual fiscal 2013 segment information exclusive of the 14th/53rd week in order to facilitate comparison of fiscal 2013 results with results for fiscal 2014. For the derivation of amounts shown for the 13 and 52 weeks ended January 27, 2013, please see Exhibit 99.1 to the Company's Current Report on Form 8-K filed on March 14, 2013.
TABLE 8                                
KRISPY KREME DOUGHNUTS, INC.
                                       
SELECTED OPERATING STATISTICS
                                 
          13 Weeks Ended   52 Weeks Ended
          February 2,   January 27,   February 2,   January 27,
        2014 2013 2014 2013
                           
Systemwide sales (in thousands):(1)                                
  Company stores   $ 73,732       $ 74,680       $ 303,973       $ 288,079    
  Domestic Franchise stores     80,537         70,880         317,864         281,334    
  International Franchise stores     116,974         112,525         438,027         423,418    
  International Franchise stores, in constant dollars(2)   116,974         106,295         438,027         403,918    
                                       
                                       
Change in same store sales:(3)                              
  Company stores     1.6

%

 

    7.5

%

 

    6.7

%

 

    5.5

%

 

  Domestic Franchise stores     6.2         9.6         9.9         6.8    
  International Franchise stores     (9.1 )       (7.3 )       (10.4 )       (9.0 )  
  International Franchise stores, in constant dollars(2)   (3.4 )       (7.4 )       (5.6 )       (8.1 )  
                                       
Company Stores - change in same store sales:                                
  Retail pricing     3.7

%

 

    0.0

%

 

    3.4

%

 

    0.7

%

 

  Guest check average (exclusive of the effects of pricing)     (1.7 )       (2.9 )       (0.9 )       (1.4 )  
  Customer count     (0.4 )       10.6         4.0         6.2    
  Other     0.0         (0.2 )       0.2         0.0    
    Total     1.6

%

 

    7.5

%

 

    6.7

%

 

    5.5

%

 

                                       
Change in same store customer count - Company stores (retail sales only)(3)   (0.4

)%

 

    11.9

%

 

    4.5

%

 

    7.1

%

 

                                       
Average guest check - Company stores (retail sales only)   $ 7.32       $ 7.19       $ 7.47       $ 7.29    
                                       
Company Stores - store operating weeks     1,215         1,260         4,864         4,891    
                                       
Company stores wholesale sales:(4)                                
  Grocers/mass merchants:                                
    Change in average weekly number of doors     (6.4

)%

 

    (3.7

)%

 

    (6.2

)%

 

    (4.0

)%

 

    Change in average weekly sales per door     3.4         12.3         9.7         8.9    
  Convenience stores:                                
    Change in average weekly number of doors     (0.1

)%

 

    (2.0

)%

 

    (0.3

)%

 

    (6.3

)%

 

    Change in average weekly sales per door     (2.8 )       6.9         3.2         8.8    

(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 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. 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.

KRISPY KREME DOUGHNUTS, INC.
                 
STORE COUNT
                 
    Number of Company Stores
    Factory            
    Stores Hot Shops Fresh Shops Total
                 
Three months ended February 2, 2014                
November 3, 2013   75     18     1   94  
Opened   1     -     -   1  
Closed   -     -     -   -  
February 2, 2014   76     18     1   95  
                 
Year ended February 2, 2014                
February 3, 2013   76     20     1   97  
Opened   6     -     -   6  
Closed   (1 )   (1 )   -   (2 )
Change in store type   1     (1 )   -   -  
Transferred to Domestic Franchise   (6 )   -     -   (6 )
February 2, 2014   76     18     1   95  
                 
Three months ended February 3, 2013                
October 28, 2012   75     20     1   96  
Opened   2     -     -   2  
Closed   (1 )   -     -   (1 )
February 3, 2013   76     20     1   97  
                 
Year ended February 3, 2013                
January 29, 2012   72     19     1   92  
Opened   4     -     -   4  
Closed   (1 )   -     -   (1 )
Transferred from Domestic Franchise   1     1     -   2  
February 3, 2013   76     20     1   97  
KRISPY KREME DOUGHNUTS, INC.
                 
STORE COUNT
                 
    Number of Domestic Franchise Stores
    Factory            
    Stores Hot Shops Fresh Shops Total
                 
Three months ended February 2, 2014                
November 3, 2013   106     35     14     155  
Opened   1     2     1     4  
Closed   -     -     -     -  
February 2, 2014   107     37     15     159  
                 
Year ended February 2, 2014                
February 3, 2013   99     29     14     142  
Opened   2     8     1     11  
Closed   -     -     -     -  
Transferred from Company Stores   6     -     -     6  
February 2, 2014   107     37     15     159  
                 
Three months ended February 3, 2013                
October 28, 2012   101     27     14     142  
Opened   1     2     -     3  
Closed   (3 )   -     -     (3 )
February 3, 2013   99     29     14     142  
                 
Year ended February 3, 2013                
January 29, 2012   102     25     15     142  
Opened   3     6     -     9  
Closed   (5 )   (1 )   (1 )   (7 )
Transferred to Company stores   (1 )   (1 )   -     (2 )
February 3, 2013   99     29     14     142  
KRISPY KREME DOUGHNUTS, INC.
                     
STORE COUNT
                     
    Number of International Franchise Stores
    Factory                
  Stores   Hot Shops   Fresh Shops   Kiosks   Total
                     
Three months ended February 2, 2014                    
November 3, 2013   123     9     287     144     563  
Opened   6     -     15     5     26  
Closed   (3 )   -     (7 )   (5 )   (15 )
Change in store type   (1 )   -     1     -     -  
February 2, 2014   125     9     296     144     574  
                     
Year ended February 2, 2014                    
February 3, 2013   120     9     257     123     509  
Opened   15     -     53     28     96  
Closed   (8 )   -     (17 )   (6 )   (31 )
Change in store type   (2 )   -     3     (1 )   -  
February 2, 2014   125     9     296     144     574  
                     
Three months ended February 3, 2013                    
October 28, 2012   119     11     249     114     493  
Opened   3     -     17     8     28  
Closed   (2 )   (1 )   (9 )   -     (12 )
Change in store type   -     (1 )   -     1     -  
February 3, 2013   120     9     257     123     509  
                     
Year ended February 3, 2013                    
January 29, 2012   118     11     226     105     460  
Opened   10     -     63     25     98  
Closed   (7 )   (1 )   (26 )   (15 )   (49 )
Change in store type   (1 )   (1 )   (6 )   8     -  
February 3, 2013   120     9     257     123     509  

Source: Krispy Kreme Doughnuts, Inc.

Contacts:

Krispy Kreme

Lafeea Watson
Media
336-726-8878
lwatson@krispykreme.com

Anita K. Booe,
Investor Relations
336-703-6902
abooe@krispykreme.com

###

Share this Story:

Comments:

comments powered by Disqus

Franchise News Room »


News By Industry »


Featured Opportunities

Midas
Midas, a recognized brand throughout the world and highly renowned name in complete car care, is proud to be one of North America's original...
the inside coup
the inside coup™ is a unique franchise opportunity in a multi billion dollar industry, Direct Mail.
Learning Express
Learning Express is the nation's leading specialty toy store franchise - dedicated to providing toys that encourage learning through play, a...
HYPOXI
Operated in studios across the globe, HYPOXI is proven not only to be an effective weight loss solution for men and women, but is also a popular...
ProSource Wholesale
ProSource is America's largest wholesale home improvement franchise; a truly unique B2B franchise model. Our owners enjoy strong cash flow with...

Subscribe to Franchising.com Express

A Franchise Update Media Production
Franchise Update Media | P.O. Box 20547 // San Jose, CA 95160 // PH. (408) 402-5681
Copyright © 2001 - 2017. All Rights Reserved.

In Loving Memory Of Timothy Gardner (1987-2014)