Krispy Kreme Doughnuts Inc. reported financial results for
the first quarter of fiscal 2009, which ended May 4, 2008.
    Net income for the first quarter was $4.0 million, or $0.06 per diluted
share, compared to a net loss of $7.4 million, or $0.12 per diluted share, in
the first quarter last year. While a number of factors affected results for the
first quarter compared to the first quarter of last year as disclosed in the
Company’s Quarterly Report on Form 10-Q filed this morning, the largest single
factor was that results for the first quarter of last year included a charge of
$9.6 million related to the refinancing of long-term debt.
    “We are pleased to report improved bottom line results in the first
quarter of fiscal 2009 compared to the first quarter of last year,” says
Jim Morgan, chairman, president, and CEO. “Much work remains to be done to
achieve the consistent profitability and sustainable growth we envision. While
we continue to face many challenges, I believe more than ever there also are
many opportunities ahead of us. Although our near term results may be uneven,
our employees are working hard to implement the further improvements necessary
for us to be successful for the long term.”
    Among the other factors that affected the Company’s results for the first
quarter of fiscal 2009 were a $930,000 non-cash gain on the disposal of equity
interests in two franchisees and the related release of the Company’s
guarantees of certain debt and leases, as well as a net credit in impairment
and lease termination costs of $645,000 resulting from changes in estimated
sublease rentals on a closed store and the realization of proceeds on the
assignment of another closed store lease.
    Company revenues for the first quarter decreased 6.6 percent to $103.6
million compared to $110.9 million in the first quarter last year. The decline
in revenues reflects a 10.3 percent decrease in Company Stores revenues to
$72.2 million and a 2.0 percent decrease in KK Supply Chain revenues to $24.9
million, partially offset by a 30.2 percent increase in Franchise revenues to
$6.5 million. As of May 4, 2008,
the Company’s consolidated balance sheet reflects cash and debt of
approximately $29.2 million and $75.7 million, respectively.
    During the first quarter of fiscal 2009, 28 new Krispy Kreme stores,
comprised of four factory stores and 24 satellites, were opened systemwide, and
seven stores, comprised of six factory stores and one satellite, were closed
systemwide. This brings the total number of stores systemwide at quarter end to
470, consisting of 289 factory stores and 181 satellites. The net increase of
21 stores in the quarter reflects a net increase of 27 international stores and
a net decrease of six domestic stores. Approximately 75 percent of total stores
are operated by franchisees, and half are located outside the United
States.
    First quarter systemwide sales increased 2.4 percent from the first 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 first quarter compared to the first quarter last
year, principally due to store closures over the past 12 months.
    Many factors could adversely affect the Company’s business. In particular,
the Company is vulnerable to further increases in the cost of raw materials,
which could adversely affect the Company’s operating results and cash flows.
The Company has guaranteed approximately $14 million of obligations of
franchisees in which it has an equity interest, and the aggregate recorded
liability for estimated payments under such guarantees was $3.4 million as of May 4, 2008. Franchisees opened 28
stores and closed seven stores in the first quarter of fiscal 2009. The Company
believes franchisees will close additional stores in the future, and the number
of such closures may be significant. Royalty revenues and most of KK Supply
Chain revenues are directly correlated to sales by franchise stores and,
accordingly, franchise store closures have an adverse effect on the Company’s
revenues, results of operations and cash flows.
    Systemwide sales, a non-GAAP financial measure, include sales by both
Company and franchise stores. The Company believes systemwide sales data are
useful in assessing the overall performance of the Krispy Kreme brand and,
ultimately, the performance of the Company. The Company’s consolidated
financial statements include sales by Company stores, sales to franchisees by
the KK Supply Chain business segment and royalties and fees received from
franchisees, but exclude sales by franchise stores to their customers.

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