Industry News | September 11, 2008

Krispy Kreme Reports 2Q Losses

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Krispy Kreme Doughnuts Inc. (NYSE:KKD) incurred a net loss in the second quarter of $1.9 million, or $0.03 per diluted share, compared to a net loss of $27.0 million, or $0.42 per diluted share, in the second quarter last year.

Total revenues for the second quarter decreased 9.5 percent to $94.2 million compared to $104.1 million in the second quarter last year. The decline in revenues reflects decreases in company stores and Krispy Kreme supply chain revenues, partially offset by an increase in franchise revenues. Company stores revenues decreased 13.5 percent to $65.1 million. Within this segment, on-premises revenues fell 10.5 percent in total (4.1 percent on a same-store basis) and off-premises revenues fell 15.7 percent compared to the second quarter last year. Supply shain revenues declined 5.1 percent to $22.5 million, and Franchise revenues rose 30.1 percent to $6.6 million.

As of August 3, 2008, the company's consolidated balance sheet reflected cash and debt of about $33.

2 million and $75.4 million, respectively. During the second quarter of fiscal 2009, 31 new Krispy Kreme stores, comprised of five factory stores and 26 satellites, were opened systemwide, and seven stores, comprised of five factory stores and two satellites, were closed systemwide. This brings the total number of stores systemwide at quarter end to 494, consisting of 286 factory stores and 208 satellites. The net increase of 24 stores in the quarter reflects a net increase of 29 international stores and a net decrease of five domestic stores. All 31 new stores were opened by franchisees. About 80 percent of total stores are operated by franchisees, and more than half are located outside the U.S.

Second quarter systemwide sales increased 3.9 percent from the second quarter of last year. The growth in systemwide sales was entirely attributable to growth in sales by international franchisees; the domestic component of systemwide sales fell in the second quarter compared to the second quarter last year, principally due to store closures over the past 12 months.

"We are not satisfied with our financial results for the second quarter," says Jim Morgan, Chairman, President and CEO. "Some of the shortfall was due to external factors, but we must move forward on implementing our key strategic initiatives in order to achieve the positive long-term results we believe are possible."