Industry News | September 8, 2009

Slow Gains for Krispy Kreme in 2Q

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Krispy Kreme Doughnuts, Inc. (NYSE: KKD - News; the "Company") last week reported financial results for the second quarter of fiscal 2010, ended August 2, 2009.

Second Quarter Highlights:

* Operating income for the second quarter was $2.9 million compared to an operating loss of $1.0 million in the second quarter last year * The company posted a net loss of $157,000

in the second quarter (nil per share) compared to a net loss of $1.9 million ($0.03 per share) in the second quarter last year

* Same store sales at company-owned stores rose 5.9 percent year-over-year in the second quarter, compared to a gain of 2.1 percent in the first quarter this year and a decline of 4.1 percent in the second quarter last year

"Our operating results continued to improve year-over-year in the second quarter," says Jim Morgan, the company's president and CEO.

"The warm summer months traditionally are a challenging time for our domestic Krispy Kreme shops, but we believe our improved results in the second quarter show that we can succeed in making our business more profitable year-round through continued implementation of our strategic initiatives." Our second quarter progress included these accomplishments:

* We opened our third new Company small retail concept shop on July 29, in the Raleigh, North Carolina, market;

* We signed letters of intent for three leases in the Raleigh, North Carolina, market, bringing our total new small retail concept commitments to eight;

* Three domestic franchisees opened a total of four small retail concept shops in the quarter in Texas, Arizona and New York;

* International franchisees continued to expand, with a net increase of 11 stores in the quarter;

* The Kool Kreme soft serve test was expanded into five additional company shops, bringing the total number of Company test locations to ten; all Krispy Kreme shops in both the Piedmont Triad, North Carolina and Nashville, Tennessee, markets offer Kool Kreme, and our broadcast advertising in these markets includes messaging about Kool Kreme;

* Our use of broadcast media has expanded beyond the Piedmont Triad, North Carolina and Nashville, Tennessee markets into Huntsville, Alabama, and Columbia, South Carolina;

* We expanded the elements of our marketing mix beyond broadcast and print media into social and interactive media, including Facebook and Twitter; we also signed a new sponsorship agreement with the NFL Carolina Panthers; and

* We introduced new longer shelf-life, individually wrapped snack products, including glazed cherry and apple pies and chocolate cupcakes, in our off-premises distribution channels in selected markets.

"While there is still much work to be done to achieve sustained revenue growth and our long-term goals, we are pleased to have improved our financial performance in the second quarter and first half of fiscal 2010 compared to the same periods last year," Morgan says.

"These results reflect the hard work and dedication of our team members and franchisees. We continue to believe we have the right strategies, and that the results from their implementation will be more fully reflected in our financial results in the quarters and years ahead."