Industry News | April 13, 2007

Krispy Kreme Narrows Losses

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Krispy Kreme Doughnuts, Inc. reported that revenues for the fourth quarter decreased 8.2 percent to $112.2 million compared to $122.2 million in the fourth quarter of last year. Company stores sales decreased 11.2 percent to $79.2 million, revenues from franchise operations increased 34.0 percent to $5.8 million, and Krispy Kreme Supply Chain ("KK Supply Chain," formerly called "Krispy Kreme Manufacturing and Distribution") revenues decreased 5.2 percent to $27.2 million.

Fourth-quarter system-wide sales decreased 6.4 percent from the fourth quarter of last year. System-wide average weekly sales per store increased approximately 2 percent from the prior year period to approximately $39,500 per store, and company store average weekly sales per store increased to approximately $54,100 per store. The higher company store average weekly sales per store data reflect, among other things, store closures (including those formerly operated by consolidated franchisees) and the related shift in off-premises doughnut production into a fewer number of factory stores. Excluding the stores formerly operated by consolidated franchisees, company store average weekly sales per store increased approximately 9 percent versus the prior comparable period.

The net loss for the fourth quarter was $24.4 million, or $0.39 per diluted share, compared to a net loss of $37.7 million, or $0.61 per diluted share, in the comparable period last year. The net loss for the quarter includes a charge related to the settlement of litigation of approximately $16 million, representing the increase from October 29, 2006 to January 28, 2007 in the estimated fair value of the securities issued by the company on March 2, in connection with the previously announced settlement of the class action litigation and partial settlement of the shareholder derivative action.

During the fourth quarter, the company recorded a $2.1 million provision for doubtful accounts substantially all of which relates to receivables from franchisees. Also during the quarter, the company recorded a $1.3 million charge related to the proposed settlement of certain wage and hour complaints lodged against the company.

During the quarter, 28 new Krispy Kreme stores, comprised of 12 factory stores and 16 satellites, were opened systemwide, and 14 stores, comprised of nine factory stores and five satellites, were closed. This brings the total number of stores system-wide at year-end to 395, consisting of 296 factory stores and 99 satellites.

"We have made progress during the past year, including resolving important legal matters, restoring positive cash flow, getting current with our financials, and closing a new senior secured credit facility," says Daryl Brewster, president and CEO of Krispy Kreme Doughnuts, Inc. "Additionally, we've seen stability in our overall average unit volume, developed a pipeline for new products, and seen growth internationally utilizing a flexible real estate model."