Krispy Kreme: reports net income for Q4 and FY 2010

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the Lotte Group, reported financial results for the fourth quarter and fiscal year ended January 31, 2010 (fiscal 2010).

• Fourth Quarter Fiscal 2010 Highlights Compared to the Year-Ago Period:
  • Revenues decreased 5,6 percent to 86,8 million USD from 91,9 million USD; approximately one million USD of the decrease was due to re-franchising
  • Company same store sales rose 1,1 percent, the 5th consecutive quarterly increase
  • Operating income increased 65 percent to 2,4 million USD from 1,5 million USD (the results reflect impairment charges and lease termination costs in both periods of 2,0 million USD and 1,2 million USD, respectively)
  • Net income was 0,5 million USD compared to a net loss of 0,3 million USD

• Fiscal Year 2010 Highlights Compared to the Year-Ago Period:
  • Revenues decreased 10,1 percent to 346,5 million USD from 385,5 million USD; approximately eight million USD of the decrease was due to re-franchising
  • Company same store sales rose 3,5 percent
  • Operating income more than doubled to 11,8 million USD from 4,8 million USD (the results reflect impairment charges and lease termination costs in both periods of 5,9 million USD and 0,5 million USD, respectively)
  • Net loss was 0,2 million USD compared to a net loss of 4,1 million USD
  • Cash provided by operating activities increased to 19,8 million USD from 16,6 million USD
  • Reduced total debt by 31,4 million USD, to 43,4 million USD at year end

The Company ended fiscal 2010 with a total of 582 Krispy Kreme stores systemwide, a net increase of 59 locations since February 01, 2009. As of January 31, 2010, there were 83 Company stores and 499 franchise locations.

«During fiscal 2010, we made substantial progress in building a stronger foundation for our Company and improving our business model. We generated positive Company same store sales in all four quarters despite the difficult economy, while also delivering substantially higher operating income. In addition, we reduced our debt by over 40 percent during the year. The improvements in our operating results and financial position are a testament to the soundness of our business strategy, and reflect our ongoing efforts to enhance shareholder value over the long term. With the support of our team members and franchise partners, we intend to build on these accomplishments and look forward to continued momentum in fiscal 2011», says Jim Morgan, the Company´s President and Chief Executive Officer, in a press release.

Fiscal 2011 Outlook

The Company expects consolidated revenues will stabilize in fiscal 2011 after years of decline due to store closings and other factors. Excluding the effects of re-franchising Company stores, consolidated revenues are expected to rise in fiscal 2011. The Company is providing the following outlook with respect to its expectations for fiscal year 2011:

• Seven to ten Company stores and 35 to 45 domestic and international franchise shop openings are expected
• Total domestic store count is expected to rise for the first time since 2005
• Same store sales at Company stores are expected to rise in the low to mid single digits, inclusive of pricing
• Total revenues are expected to rise slightly, exclusive of the effects of re-franchising
• Higher input costs, including sugar and fuel, are expected to increase operating costs by about five million USD
• Higher spending to support domestic and international franchisee growth and operations is expected to continue
• Consolidated operating income is expected to range from ten million USD to 13 million USD, exclusive of any impairment charges and lease termination costs
• The Company expects to report a net profit for the year

«We are continuing to make targeted investments to build our operational capabilities to support future growth, despite those investments penalizing our results in the short term. We are working vigorously to continue implementation of our strategic plans and, in doing so, we believe we are setting the stage for additional and more robust growth in revenues and earnings in fiscal 2012 and beyond», says Morgan in the release.

Fourth Quarter Fiscal 2010 Results

For the fiscal quarter ended January 31, 2010, revenues decreased 5,6 percent to 86,8 million USD from 91,9 million USD, with year-over-year increases in domestic and international franchise revenue offset by decreases in Company Stores and KK Supply Chain revenues. Direct operating expenses were 74,6 million USD compared to 80,2 million USD in the year-ago period, and as a percentage of total revenues, decreased to 86,0 percent from 87,3 percent.

General and administrative expenses were 5,5 million USD compared to 6,1 million USD in the same period last year and, as a percentage of total revenues, decreased to 6,3 percent from 6,6 percent. The fourth quarter of fiscal 2010 included a non-recurring credit of 1,3 million USD from the receipt of additional insurance proceeds related to the securities class action suit that was settled in October 2006. Impairment charges and lease termination costs were 2,0 million USD compared to 1,2 million USD in the year-ago period.

Operating income increased 65 percent to 2,4 million USD from 1,5 million USD.

Interest expense declined by 1,1 million USD to 2,3 million USD from 3,3 million USD. The year-ago period included a charge of 0,9 million USD representing a mark-to-market adjustment on an interest rate derivative for which there was no comparable charge in the fourth quarter of 2010. During the quarter, the Company reduced its outstanding debt by 5,6 million USD to 43,4 million USD.

Other non-operating income and expense in the fourth quarter of fiscal 2009 included a non-cash gain of 2,8 million USD relating to the re-franchising of four Company stores in Eastern Canada.

The provision for income taxes in the fourth quarter of fiscal 2010 reflected a benefit of 560’000 USD from enactment of the Worker, Homeownership and Business Assistance Act of 2009. The tax provision in the fourth quarter of fiscal 2009 included a 1,2 million USD charge related to the Canada re-franchising gain.

Net income was 0,5 million USD, or 0,01 USD per diluted share, compared to a net loss of 0,3 million USD (less than 0,01 USD per share) last year.

About: Krispy Kreme Doughnuts Inc. is a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, including its signature Original Glazed(R) doughnut. Headquartered in Winston-Salem, NC, the Company was founded in 1937. Today, Krispy Kreme shops can be found in over 580 locations in 19 countries around the world. The company today is a subsidiary of the Korean Lotte Group.