Krispy Kreme: reports surprise 3rd-quarter profit

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the South Korean Lotte Group, reported financial results for the third quarter of fiscal 2011, ended October 31, 2010. Highlights compared to the period a year ago:

• Revenues increased 7,9 percent to $90,2 million USD from $83,6 million USD
• Excluding the effects of refranchising Company stores, revenues rose 9,6 percent
• Company same store sales rose 5,0 percent, the eighth consecutive quarterly increase
• Operating income rose to $4,1 million USD from $633’000 USD
• Operating income for last year´s third quarter reflected charges for the settlement of litigation and related legal costs totaling approximately $2,0 million USD ($0,03 USD per share)
• Net income was $2,4 million USD ($0,03 USD per share diluted) compared to a net loss of $2,4 million USD ($0,04 USD per share) in the third quarter last year

The Company ended the third quarter with a total of 649 Krispy Kreme stores systemwide, a net increase of 16 shops during the quarter. As of October 31, 2010, there were 85 Company stores and 564 franchise locations.

«We delivered a strong performance in the third quarter, characterized by revenue growth, a significant increase in consolidated operating income, and a positive bottom line for the fourth consecutive quarter. Higher sales by Company and franchise shops drove profit improvements in the KK Supply Chain segment, and our International Franchise business continued to exceed our expectations. Company Stores continued its impressive track record of positive same store sales, although there is much more work to be done to restore our largest business segment to consistent profitability. We are devoting considerable attention toward this critical objective and over time, expect that the sales growth we are experiencing will more positively impact overall results», said Jim Morgan, the Company´s President and Chief Executive Officer.

Outlook

«In our second quarter earnings release on September 02, 2010, we communicated our expectation for fiscal 2011 operating income, exclusive of impairment charges and lease termination costs, of between $13 million USD and $17 million USD. Based on our third quarter results, which exceeded our expectations, and other current information, our current fiscal 2011 outlook for consolidated operating income, exclusive of impairment charges and lease termination costs, is between $17 million USD and $20 million USD», Morgan continued.

«Looking forward to fiscal 2012, we anticipate opening five to ten Company stores, between five and 15 domestic franchise stores, and more than 30 international franchise stores. We expect continued organic same store sales growth in our domestic stores, but believe international franchise same store sales will continue to be pressured by the substantial growth in international markets in recent years. The most significant uncertainty for fiscal 2012 is commodity costs, which are expected to rise significantly compared to the current year. Accordingly, we are working to reduce the consumption of certain key ingredients, and are evaluating the timing and scope of price increases needed to offset higher input costs. Although our planning and budgeting process for fiscal 2012 is ongoing, based on these general themes, we currently estimate that fiscal 2012 operating income, exclusive of impairment and lease termination costs, will be in the range of $22 million USD to $24 million USD. This range represents an increase of from 29 percent to 41 percent from the low end of our revised fiscal year 2011 guidance, and an increase of from ten percent to 20 percent from the top end of the fiscal 2011 range. It is important to note that this outlook is very preliminary, and we expect to establish more formal guidance in conjunction with the release of our fourth quarter results in April», Morgan said.

Info: Krispy Kreme Reports Earnings Per Share of $0.03 for the Third Quarter of Fiscal 2011 – complete press release.