Krispy Kreme: Profit drops 53 percent in Q1/2010

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the Lotte Group, reported financial results for the first quarter of fiscal 2010, ended May 03, 2009. First Quarter Highlights:

• Operating income for the first quarter was 5,8 million USD compared to 5,6 million USD in the first quarter last year.
• Net income in the first quarter was 1,9 million (0,03 USD per share) compared to 4,0 million USD (0,06 USD per share) in the first quarter of fiscal 2009.
• Same store sales at Company-owned stores rose 2,1 percent year-over-year in the first quarter, compared to a gain of 0,9 percent in the fourth quarter.

«We continue to make progress in executing our strategic plans», said Jim Morgan, Chairman, President and Chief Executive Officer. «Our operating profit improved from the first quarter of last year despite the effects of 2,4 million USD of lease termination costs in this year´s quarter, and we reported a bottom line profit of 1,9 million USD despite those charges and 1,1 million USD of charges related to amendments to our secured credit facilities. While we are pleased with the improvement in our operating results for the quarter, we are not satisfied with them, and we remain focused on rebuilding the Company for the long term». First quarter accomplishments include:

• We introduced the Kool Kreme soft serve product into two additional Company shops, expanding this new product test to a total of five Company shops, with two more shops scheduled to be added later this month.
• As a result of recent new Company shop openings, we reached sufficient scale in the Piedmont Triad, NC and Nashville, TN media markets to begin deploying expanded broadcast media advertising in the coming months.
• We have entered into letters of intent for three more small retail concept shops we plan to open in the coming months in the Raleigh, NC, Louisville, KY and Columbia, SC metropolitan areas.
• We completed development of the first baked goods menu items we will begin to test in our shops this fall; those items include bagels, muffins, cinnamon and pecan rolls and Danish pastries.
• The first Krispy Kreme shop in Malaysia opened in Kuala Lumpur; it is the first of 20 Krispy Kreme shops our Malaysian franchisee plans to open in the market over the next five years; Krispy Kreme´s unique products can now be found in 17 countries.
• We continued our on-going commitment to provide the best support possible to all Krispy Kreme franchisees, and have been working diligently to deliver tools to assist franchisees with labor and food cost management, sales forecasting and production planning, and local store marketing.

In addition, we have devoted increased attention to marketing in preparation for the traditionally slower summer months, which are now upon us. We are focusing on our mini doughnuts, iced beverages and Kool Kreme soft serve product with its complementary fresh fruit bar.

During the quarter, we prepaid 20 million USD of principal on our term loan, reducing its balance to 54 million USD. Even after this significant use of cash for debt reduction, we finished the quarter with 21 million USD of cash and nine million USD of unused revolving credit. As previously announced, we reached an agreement with our lenders on amendments to our credit facilities that should enable us to remain in compliance with the agreements and enable these facilities to continue to provide backup sources of liquidity.

«Our employees have been the key to the results we have achieved so far», Morgan concluded. «While much remains to be done, our entire Krispy Kreme team is highly focused on executing our strategies, and we look forward to seeing the benefits of these strategies more fully reflected in our financial results in the years ahead».