Krispy Kreme Reports Earnings Per Share of $0.13 for the First Quarter of Fiscal 2012

WINSTON-SALEM, N.C., May 23, 2011 /PRNewswire/ -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the first quarter of fiscal 2012, ended May 1, 2011.  

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First Quarter Fiscal 2012 Highlights Compared to the Year-Ago Period:

• Revenues increased 13.6% to $104.6 million from $92.1 million
• Company same store sales rose 5.8%, the tenth consecutive quarterly increase
• Operating income rose 61.7% to $9.8 million from $6.1 million
• Operating income, excluding the effects of impairment charges and lease termination costs of $240,000 and $1.3 million in fiscal 2012 and 2011, respectively, rose 36.5% to $10.0 million from $7.4 million
• Net income was $9.2 million ($0.13 per share diluted) compared to $4.5 million ($0.06 per share diluted) in the first quarter last year
• Cash provided by operating activities was $5.1 million compared to $1.7 million in the first quarter last year

The Company ended the first quarter with a total of 652 Krispy Kreme stores systemwide, a net increase of 6 shops during the quarter.  As of May 1, 2011, there were 86 Company stores and 566 franchise locations.

James H. Morgan, President and Chief Executive Officer, commented: "We delivered a strong performance in the first quarter, characterized by double-digit revenue growth, a significant increase in consolidated operating income, and our best quarterly net profit since the fourth quarter of fiscal 2004.  Substantially improved results in the Company Stores segment were a major driver of our improved results.  We also benefitted from lower impairment charges and lease termination costs and a significant reduction in interest expense resulting from the January 2011 refinancing of our credit facilities.  While commodity costs created some headwinds, and will continue to do so for the remainder of the year, we believe we are off to a good start in fiscal 2012.  We are pleased to reaffirm our outlook for consolidated operating income, exclusive of impairment charges and lease termination costs, of between $22 million and $24 million for the year, although we believe first quarter results make the high end of that range appear increasingly achievable."

First Quarter Fiscal 2012 Results

Consolidated Results

For the first quarter ended May 1, 2011, revenues increased 13.6% to $104.6 million from $92.1 million.  Year-over-year revenue increases were generated in all four business segments.

Direct operating expenses increased to $87.0 million from $77.2 million in the same period last year, but as a percentage of total revenues, were down slightly to 83.2% from 83.8%.  General and administrative expenses decreased to $5.6 million from $5.7 million in the same period last year and, as a percentage of total revenues, decreased to 5.4% from 6.2%.  Impairment charges and lease termination costs were $240,000 compared to $1.3 million in the year-ago period.

Operating income increased to $9.8 million from $6.1 million.

Interest expense decreased to $480,000 from $1.9 million, principally reflecting lower interest rates as a result of the January 2011 refinancing of the Company's credit facilities as well as the reduced level of indebtedness.

Net income was $9.2 million ($0.13 per share diluted) compared to $4.5 million ($0.06 per share diluted), in the first quarter last year.

Segment Results

Company Stores revenues increased 11.1% to $69.5 million from $62.5 million.  Same store sales at Company stores rose 5.8%, the tenth consecutive quarterly increase. Price increases instituted during the first quarter to help offset higher input costs drove the increase, as higher customer traffic was offset by a decrease in the average guest check exclusive of pricing effects.  The Company Stores segment posted an operating profit of $2.2 million, compared to breakeven results last year.  

Domestic Franchise revenues increased 7.7% to $2.4 million from $2.2 million, reflecting a 6.8% rise in sales by domestic franchisees. Same store sales rose 4.6% at domestic franchise stores.  The increase in revenues was offset by higher segment operating expenses, resulting in Domestic Franchisee segment operating income of $1.1 million in the first quarter of fiscal 2012, flat to last year.

International Franchise revenues increased 18.4% to $5.6 million from $4.8 million.  A $500,000 reduction in initial franchise fees, reflecting 16 store openings in the first quarter of fiscal 2012 compared to 41 openings in the first quarter of fiscal 2011, was offset by higher royalty revenues reflecting a 16.4% increase in constant dollar sales by international franchise stores.  Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 9.6%, reflecting, among other things, honeymoon effects from the over 300 stores opened internationally in the past three years, as well as cannibalization as markets develop.  The rate of decline in constant dollar international franchise same store sales fell for the fifth consecutive quarter.

International Franchise revenues benefited from the recognition of approximately $375,000 of revenues related to Krispy Kreme Mexico which accrued in prior periods but which had not previously been recognized due to uncertainty about their collectibility.  As previously announced, the Company sold its equity interest in KK Mexico on May 5, and in connection with the sale received payment of approximately $765,000 of past due amounts, consisting of approximately $375,000 of previously unrecognized revenues and approximately $390,000 of receivables for which reserves previously had been established.  In light of the collection of the past due amounts in connection with the sale, the Company recorded the $375,000 of revenues and the $390,000 bad debt recovery in the first quarter of fiscal 2012.  The Company will report a gain on the sale of its interest in KK Mexico currently estimated at $5.9 million ($4.4 million after Mexican taxes, or $0.06 per share) in the second quarter.  The International Franchise segment generated operating income of $4.2 million compared to $3.5 million last year.

Total KK Supply Chain revenues (including sales to Company stores) increased 17.4% to $53.9 million from $45.9 million in the first quarter last year, largely driven by selling price increases in major product categories.  External KK Supply Chain revenues rose 19.9% to $27.1 million from $22.6 million in the first quarter last year.  KK Supply Chain generated operating income of $8.3 million in the first quarter of fiscal 2012 compared to $8.7 million in the first quarter last year.  KK Supply Chain has raised selling prices to recover rising input costs resulting from higher agricultural commodity prices, but generally has not marked up those higher costs; accordingly, KK Supply Chains' gross profit and operating margins declined in the first quarter of fiscal 2012 compared to the first quarter of last year.

Conference Call

Management will host a conference call to review first quarter results as well as management's outlook this morning at 8:00 a.m. (EDT).

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) 291-1289 or, for international callers, by dialing (631) 865-4991.  To access an archived audio replay of the call, dial (800) 642-1687, or (706) 645-9291 for international callers; the passcode is 65595072.  The audio replay will be available through May 30, 2011. A transcript of the conference call also will be available on the Company 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, NC, the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937.  Today, Krispy Kreme shops can be found in over 650 locations in 21 countries around the world.  Visit us 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," "could," "will," "should," "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 new domestic operating model; currency, economic, political and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients; compliance with government regulations relating to food products and franchising; our relationships with off-premises customers; our ability to protect our trademarks and trade secrets; restrictions on our operations and compliance with covenants contained in our secured credit facilities; 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; and increased costs or other effects of new government regulations relating to healthcare benefits.  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 and developments 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.

SOURCE Krispy Kreme Doughnuts, Inc.