Krispy Kreme: raises fiscal 2011 earnings outlook

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the South Korean Lotte Group, reported financial results for the second quarter of fiscal 2011, ended August 01, 2010. The Company also raised its earnings outlook for fiscal 2011 as a whole. Second Quarter Fiscal 2011 Highlights Compared to the Year-Ago Period:

• Revenues increased 6,3 percent to 87,9 million USD from 82,7 million USD
• Excluding the effects of re-franchising Company stores, revenues rose 8,2 percent
• Company same store sales rose 5,7 percent, the seventh consecutive quarterly increase
• Operating income increased 41,2 percent to 4,2 million USD from 2,9 million USD
• Net income was 2,2 million USD, or 0,03 USD per share diluted, compared to a net loss of 157’000 USD, or nil per share, in the second quarter last year

The Company ended the second quarter of fiscal 2011 with a total of 633 Krispy Kreme stores system-wide, a net increase of 17 shops during the quarter. As of August 01, 2010, there were 84 Company stores and 549 franchise locations.

«Our financial results improved from the year ago period, as we realized revenue growth in all business segments, increased our consolidated operating income by roughly half, and delivered positive net income for the third consecutive quarter. We are encouraged by the same store sales momentum at our Company stores, but also recognize that we must strengthen our execution so that top-line performance can more directly impact bottom-line profitability», said Jim Morgan, the Company´s President and Chief Executive Officer.

Fiscal 2011 Outlook

«In our first quarter earnings release on June 03, we indicated that we expected operating income, exclusive of impairment charges and lease termination costs, to range from eleven million USD to 15 million USD for fiscal 2011. Based on our results for the first half of the year, which exceeded our expectations, and other current information, we are raising that outlook. We now estimate that fiscal 2011 operating income, exclusive of impairment charges and lease termination costs, will range from 13 million USD to 17 million USD», Morgan continued.

«As we look ahead, we will continue working diligently to implement our strategic initiatives with the intention of maximizing shareholder value. Our transition is an ongoing process, and we are confident we can build an even stronger foundation for the future by continuing to both invest in our businesses and support our domestic and international franchisees. These steps are critical to accelerating long-term growth in both revenues and earnings. We believe that we are only beginning to unlock the potential of the Krispy Kreme brand for our guests, customers, franchisees, team members and shareholders», Morgan concluded.

Consolidated Results in Q2/2011

For the second quarter ended August 01, 2010, revenues increased 6,3 percent to 87,9 million USD from 82,7 million USD. Year-over-year revenue increases were generated in all four business segments.

Direct operating expenses increased to 76,9 million USD from 71,3 million USD, and as a percentage of total revenues, increased to 87,5 percent from 86,1 percent. General and administrative expenses were 4,9 million USD compared to 4,8 million USD in the same period last year and, as a percentage of total revenues, decreased to 5,6 percent from 5,8 percent. General and administrative expenses in the year-ago period included a non-recurring credit of 1,1 million USD from additional insurance proceeds related to litigation settled in October 2006. Impairment charges and lease termination costs were a credit of 216’000 USD compared to a charge of 1,5 million USD in the year-ago period.

Operating income increased 41,2 percent to 4,2 million USD from 2,9 million USD. Interest expense decreased to 1,6 million USD from 2,3 million USD, principally reflecting the Company´s reduced level of indebtedness. Net income was 2,2 million USD, or 0,03 USD per diluted share, compared to a net loss of 157’000 USD, or nil per share, in the second quarter of last year.

Second Quarter Fiscal 2011 Segment Results

Company Stores revenues were essentially flat at approximately 60 million USD. Higher same store sales and off-premises sales to grocers/mass merchants were offset by locations that were either closed or re-franchised along with lower off-premises sales to convenience stores. Excluding the effects of re-franchising, Company Stores revenues rose 4,0 percent. Same store sales at Company stores rose 5,7 percent, the seventh consecutive quarterly increase.

Domestic Franchise revenues increased 15,1 percent to 2,1 million USD, reflecting an 8,8 percent rise in sales by domestic franchisees. Excluding the effects of re-franchising, sales by domestic franchisees rose 4,2 percent. Same store sales rose 5,0 percent at domestic franchise stores. The Domestic Franchise segment generated operating income of 1,0 million USD compared to 434’000 USD last year.

International Franchise revenues increased 5,3 percent to 4,0 million USD, reflecting higher royalties from increased sales by international franchise stores. A decline in international franchise same store sales was offset by new store openings. Adjusted to eliminate the effects of changes in foreign exchange rates, International Franchise same store sales fell 14,3 percent, reflecting waning honeymoon effects from the 313 stores opened internationally in the past three years, as well as anticipated cannibalization as markets develop. The International Franchise segment generated operating income of 2,5 million USD compared to 1,9 million USD last year. International franchisees continued to expand, with a net increase of 16 locations in the second quarter.

Total KK Supply Chain revenues (including sales to Company stores) rose 18,9 percent to 44,9 million USD, driven by selling price increases in major product categories and by higher unit volumes. External KK Supply Chain revenues rose 26,7 percent to 21,9 million USD compared to 17,3 million USD in the second quarter last year. KK Supply Chain generated operating income of 7,3 million USD compared to 5,7 million USD in the second quarter last year reflecting, among other things, higher revenues as well as lower freight and other distribution costs

Krispy Kreme to add CMO to Senior Leadership Team

Krispy Kreme Doughnuts Inc. announced that marketing veteran Dwayne Chambers will join the Company´s senior leadership team as Senior Vice President and Chief Marketing Officer (CMO). Chambers (45) will officially assume his responsibilities on September 27, 2010. Chambers, a highly respected senior-level marketer with more than 20 years of quick service restaurant (QSR) marketing and brand development experience, will lead all domestic and international marketing operations for Krispy Kreme. Chambers comes to the Company from Fuddruckers, where he headed their marketing efforts as Senior Vice President of Marketing and Brand Development.