Pending its release of audited Fiscal Year 2002 financial statements on March 8, 2002, Krispy Kreme Doughnuts, Inc., today announced certain key preliminary business results designed to provide investors with early indications of the tone of business in the fourth quarter of its fiscal year 2002, which ended February 3, 2002.

Preliminary results indicated that total company revenues increased 40.3 percent in the fourth quarter of fiscal year 2002 to $114.9 million, while on a full year basis, total company revenues were up 30.4 percent to $392.2 million. Systemwide sales for the fourth quarter of fiscal year 2002 were $182.6 million, an increase of 46.3 percent, while company store sales increased 31.9 percent to $75.4 million. For the full fiscal year 2002, systemwide sales of $621.7 million rose 38.7 percent versus the same period a year ago. Company store sales for all of Fiscal Year 2002 increased 24.6 percent when compared to the full fiscal year of 2001. The company noted that the results for fiscal year 2002 reflect 53 weeks, an event that occurs every fifth year. As a result, the fourth quarter of fiscal year 2002 contained fourteen weeks.

The company indicated that top-line growth and business momentum continued to be very strong, as measured by the three major drivers of systemwide sales growth—average new store first week sales, new store openings, and comparable store sales growth. New store first week sales continued to climb throughout the year, reaching an average in excess of $189,000 for the full fiscal year of 2002. This represents an increase of 21 percent over last year’s average of $155,596. The opening week record was set in this fourth quarter, with new stores in Seattle and Toronto registering more than $454,000 and $465,000 Cdn, respectively, in their first week.

The second major driver of systemwide sales growth, the pace of new store openings, continued to exceed expectations. The company announced that it opened 48 stores in fiscal year 2002, compared with the most recent guidance of 43 openings. This brings total stores at the end of the year to 218 net of one closure in the fourth quarter. Additionally, the company opened three doughnut and coffee shops (stores featuring the new hot doughnut technology) in Charlotte, Greensboro, and Winston-Salem, North Carolina. Preliminary store opening expectations for fiscal 2003 call for 59 new stores and 10 to 15 doughnut and coffee shops.

Finally, Krispy Kreme announced its comparable store sales results for the fourth quarter. Systemwide results for the comparable thirteen-week period increased 13.1 percent versus the same period a year ago. Included in this were company store comparable sales, which rose 10.7 percent versus last year. Scott Livengood, the company’s chairman, president, and CEO said, “We were very pleased with our strong comparable store sales. Despite significantly reduced tourism in some of our markets and an unusually warm fall in many areas of the country, our systemwide comparable store sales increases continue to run well into the double digits. Comp store sales increases were approximately the same as last quarter and were gratifying given a challenging economic environment.”

Krispy Kreme additionally expressed comfort with its latest earnings guidance of $.44 per diluted share for the full 53 weeks of fiscal year 2002 and $.61 per diluted share in fiscal year 2003. Regarding its balance sheet, the company stated that as of February 3, 2002, it had cash and investments on hand in excess of $45 million, outstanding debt of approximately $8.3 million and availability under of a line of credit of approximately $32 million.

Commenting on the company’s performance, Livengood said, “Fiscal Year 2002 has been an exceptional year for the company. Our new initiatives, including the small-format doughnut and coffee shop, international opportunity and expanded beverage program, combined with the continuing early stage build-out of our factory store network in North America, create exceptional growth opportunities for Krispy Kreme for years to come. We are excited about the coming year.”

Krispy Kreme also announced that the new manufacturing and distribution facility, which is under construction in
Effingham, Illinois, will open on schedule in April. It will supply its proprietary doughnut mix and other supplies to the
growing number of stores in the Midwest, West, and Canada. Krispy Kreme had initially announced its plans to finance the facility with a debt instrument known as a synthetic lease. While this type of lease is both common and complies with the most rigorous accounting standards, the company said today it will instead use conventional, on-balance sheet financing on the $35 million facility.

Livengood said the change was made because of the potential for misperceptions regarding these leases. He further stated, “In the current economic climate, investors understandably are paying closer attention to the financial strength of their companies. There is no reason for us to do anything that could be misinterpreted, regardless of how legal and acceptable it may be. The perception and confidence of our investors and customers is more important than the propriety of accounting vehicles.

“Fortunately, Krispy Kreme’s balance sheet and cash generation ability is very strong, and close scrutiny by investors works to our advantage.”

Livengood went on to indicate that the company’s banks have approved conventional financing for this facility without use of the company’s cash or unused credit line, a further indication of the company’s financial strength.

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