Krispy Kreme Reports Financial Results For The Fourth Quarter And Fiscal Year Ended February 3, 2013 Raises Fiscal 2014 Guidance

WINSTON-SALEM, N.C., March 14, 2013 /PRNewswire/ -- Krispy Kreme Doughnuts, Inc. (NYSE:   KKD) (the "Company") today reported financial results for the fourth quarter and fiscal year ended February 3, 2013, and raised its guidance for fiscal 2014. 

Fiscal Year

The fourth quarter and fiscal year ended February 3, 2013 included 14 and 53 weeks, respectively, compared to 13 and 52 weeks, respectively, for the fourth quarter and fiscal year ended January 29, 2012.  Accordingly, financial results for the fiscal 2013 periods are not directly comparable to those of the corresponding fiscal 2012 periods.  The Company's fiscal year ends on the Sunday closest to January 31, which periodically results in a 53-week year. 

Fourth Quarter Fiscal 2013 Highlights Compared to the Year-Ago Period (Tables 1 and 2):

  • Revenues increased 15.9% to $118.1 million from $102.0 million
  • Operating income rose 60% to $8.5 million from $5.3 million
  • Adjusted net income increased 85% to $7.4 million ($0.11 per share) from $4.0 million ($0.06 per share); adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash; adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of all adjusted earnings measures to the related GAAP amounts in Table 6 accompanying this release)
  • Net income was $4.8 million ($0.07 per share) compared to $143.5 million ($2.01 per share) in the fourth quarter last year; net income for the fourth quarter of last year included an unusual credit of $139.6 million ($1.95 per share) from the reversal of valuation allowances on deferred income tax assets
  • Cash provided by operating activities was $21.3 million compared to $10.9 million in the fourth quarter last year

To facilitate comparisons, the following highlights compare the 13 weeks ended January 27, 2013 to the 13 weeks ended January 29, 2012:

  • Revenues increased 7.0% to $109.1 million from $102.0 million
  • Company same store sales rose 7.5%, the seventeenth consecutive quarterly increase
  • Operating income increased 35% to $7.2 million from $5.3 million
  • Adjusted net income rose 53% to $6.1 million ($0.09 per share) from $4.0 million ($0.06 per share)

Fiscal 2013 Highlights Compared to Fiscal 2012 (Tables 1 and 3):

  • Revenues increased 8.1% to $435.8 million from $403.2 million
  • Operating income rose 48% to $37.7 million from $25.6 million
  • Adjusted net income increased 54% to $34.2 million ($0.49 per share) from $22.2 million ($0.31 per share); adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash and, in fiscal 2012, exclude the gain on the Company's sale of its 30% equity interest in KK Mexico
  • Net income was $20.8 million ($0.30 per share) compared to $166.3 million ($2.33 per share) last year; net income in fiscal 2012 included an unusual credit of $139.6 million ($1.95 per share) from the reversal of valuation allowances on deferred income tax assets and a $4.7 million after tax gain ($0.06 per share) on the Company's sale of its 30% equity interest in KK Mexico
  • Cash provided by operating activities was $59.3 million compared to $33.9 million in fiscal 2012

To facilitate comparisons, the following highlights compare the 52 weeks ended January 27, 2013 to the 52 weeks ended January 29, 2012:

  • Revenues increased 5.9% to $426.8 million from $403.2 million
  • Company same store sales rose 5.5%
  • Operating income increased 43% to $36.4 million from $25.6 million
  • Adjusted net income rose 49% to $32.9 million ($0.47 per share) from $22.2 million ($0.31 per share)

James H. Morgan, Chairman and Chief Executive Officer, commented:  "In the fourth quarter, Krispy Kreme not only achieved earnings at the top end of our November guidance, but also posted its best fourth quarter results since fiscal 2004.  The year as a whole also was our best since fiscal 2004, and demonstrated again the strength of our business model and affirmed our confidence in achieving our goal of sustainable and profitable growth for years to come.  Going forward, the Krispy Kreme investment thesis will no longer be predicated solely on the progress we have made in building a strong foundation for our business, but also on our ability to execute our long-term growth plans.  Based upon the strength of these results and the momentum we have carried into the new year, we are pleased to increase our fiscal 2014 earnings guidance.

"Krispy Kreme is truly blessed with four attributes most companies spend a lifetime trying to achieve:  a brand that is beloved worldwide, best-in-class products, compelling strategies, and incredibly capable and energized franchisees and team members.  We are committed to doing everything in our power to continue improving our profitability while expanding our system to 1,300 stores by fiscal 2017 through Company and domestic and international franchise development.  We are gratified by our accomplishments and are optimistic that we can build on them to achieve our long-term aspirations, and those of our shareholders." 

Results For the 13 Weeks Ended January 27, 2013 (Tables 2 and 8)

To facilitate comparisons, the following discussion compares the 13 weeks ended January 27, 2013 with the 13 weeks ended January 29, 2012.

Consolidated Results

For the 13 weeks ended January 27, 2013, revenues increased 7.0% to $109.1 million.  All four business segments reported year-over-year revenue growth.

Direct operating expenses increased to $91.0 million from $87.9 million, but as a percentage of total revenues, decreased to 83.4% from 86.2%.  General and administrative expenses increased to $8.4 million from $6.7 million in the same period last year.  General and administrative expenses in the fourth quarter of last year included a non-recurring credit of approximately $840,000.  Excluding that item, general and administrative expenses were 7.7% of revenues compared to 7.4% last year. 

Operating income rose 35% to $7.2 million from $5.3 million.

Adjusted net income was $6.1 million ($0.09 per share) compared to $4.0 million ($0.06 per share), in the fourth quarter last year.  Adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in Table 6 accompanying this release).

Segment Results

For the 13 weeks ended January 27, 2013, Company Stores revenues increased 9.6% to $75.2 million.  Same store sales at Company stores rose 7.5%, the seventeenth consecutive quarterly increase, driven by higher traffic.  The Company Stores segment posted operating income of $3.0 million compared to an operating loss of $0.3 million last year.

Domestic Franchise revenues increased 4.2% to $2.5 million.  Higher royalties from an 8.3% increase in sales by domestic franchisees were partially offset by a reduction in other franchise revenue.  Same store sales rose 9.6% at domestic franchise stores.  During the quarter, we added new personnel and took additional steps to begin execution of our domestic franchise expansion programs.  Domestic Franchise segment operating income was $1.3 million in the fourth quarter of both years.

International Franchise revenues increased 6.3% to $6.7 million.  Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 7.4%, reflecting, among other things, honeymoon effects from the substantial number of international store openings in recent years, as well as cannibalization as markets develop.  International Franchise costs and expenses in the quarter included an increase of almost $200,000 compared to the prior year quarter in trademark protection costs, a provision of approximately $185,000 for potential uncollectible accounts and higher personnel and personnel-related costs to support continued and anticipated international growth.  The International Franchise segment generated operating income of $4.0 million compared to $4.2 million in the fourth quarter last year.

Total KK Supply Chain revenues (including sales to Company stores) increased 1.8% to $52.9 million.  KK Supply Chain generated operating income of $7.5 million compared to $7.1 million in the fourth quarter last year.

Fiscal 2014 Outlook

In fiscal 2014, management estimates that the Company and its domestic franchisees will each open approximately 10 Krispy Kreme shops, and that international franchisees will open approximately 75 locations.  Although the Company looks for continued organic same store sales growth in its domestic stores, international franchise same store sales will likely remain pressured by the substantial growth in international markets in recent years.

Based on these factors, management currently expects fiscal 2014 operating income in the range of $41 million to $44 million, which would represent an increase of 13% to 21% from the $36.4 million operating income for fiscal 2013 measured on a 52-week basis.  Management estimates adjusted net income will be in the range of $37 million to $40 million and adjusted EPS will range from $0.53 to $0.57 per share based on a forecasted 70 million diluted shares outstanding.

Adjusted net income and adjusted EPS are non-GAAP measures; see the reconciliation of GAAP to adjusted earnings in Table 6 accompanying this release.

Conference Call

The Company will host a conference call to review fiscal 2013 fourth quarter and annual results, as well as management's outlook for fiscal 2014, this afternoon at 4:30 p.m. (ET).  A live webcast of the conference call will be available at www.krispykreme.com.  The conference call also can be accessed over the phone by dialing (800) 901-5217 or, for international callers, by dialing (617) 786-2964.  An archived replay of the call will be available shortly after its conclusion by dialing (888) 286-8010, or (617) 801-6888 for international callers; the passcode is 17091755.  The audio replay will be available through March 21, 2013.  A transcript of the conference call also will be available on the Company's website.

About Krispy Kreme

Krispy Kreme is a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, including its signature Original Glazed® doughnut.  Headquartered in Winston-Salem, N.C., the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937.  Today, Krispy Kreme shops can be found in over 740 locations in 22 countries around the world.  Connect with Krispy Kreme at KrispyKreme.com and on Facebook, Foursquare, Twitter and YouTube.

Defined Terms

"Honeymoon effect" means the common pattern for many start-up restaurants in which a flurry of activity due to start-up publicity and natural curiosity is followed by a decline during which a steady repeat customer base develops.  "Cannibalization" means the tendency for new stores to become successful, in part or in whole, by "shifting" sales from existing stores in the same market. 

Information contained in this press release, other than historical information, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on management's beliefs, assumptions and expectations of our future economic performance, considering the information currently available to management.  These statements are not statements of historical fact.  Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements.  The words "believe," "may," "could," "will," "should," "would," "anticipate," "estimate," "expect," "intend," "objective," "seek," "strive" or similar words, or the negative of these words, identify forward-looking statements.  Factors that could contribute to these differences include, but are not limited to:  the quality of Company and franchise store operations; our ability, and our dependence on the ability of our franchisees, to execute on our and their business plans; our relationships with our franchisees; our ability to implement our international growth strategy; our ability to implement our domestic small shop operating model; political, economic, currency and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients, and the price of motor fuel; our relationships with wholesale customers; our ability to protect our trademarks and trade secrets; changes in customer preferences and perceptions; risks associated with competition; risks related to the food service industry, including food safety and protection of personal information; compliance with government regulations relating to food products and franchising; and increased costs or other effects of new government regulations relating to healthcare benefits.  These and other risks and uncertainties, which are described in more detail in the Company's most recent Annual Report on Form 10-K and other reports and statements filed with the United States Securities and Exchange Commission, are difficult to predict, involve uncertainties that may materially affect actual results and may be beyond the Company's control, and could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.  New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company.  Any forward-looking statement speaks only as of the date on which such statement is made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.





































TABLE 1












KRISPY KREME DOUGHNUTS, INC















CONSOLIDATED STATEMENT OF INCOME





14 Weeks Ended


13 Weeks Ended


53 Weeks Ended


52 Weeks Ended










February 3,


January 29,


February 3,


January 29,




2013


2012


2013


2012




(In thousands, except per share amounts)















Revenues

$

118,145


$

101,957


$

435,843


$

403,217

Operating expenses:













Direct operating expenses (exclusive of depreciation and














amortization expense shown below) 


98,260



87,880



362,828



346,434


General and administrative expenses 


8,778



6,673



25,089



22,188


Depreciation and amortization expense


2,653



2,002



9,891



8,235


Impairment charges and lease termination costs 


4



113



306



793

Operating income 


8,450



5,289



37,729



25,567

Interest income 


12



35



114



166

Interest expense 


(440)



(390)



(1,642)



(1,666)

Equity in losses of equity method franchisees 


(52)



(53)



(202)



(122)

Gain on sale of interest in equity method franchisee


-



-



-



6,198

Other non-operating income and (expense), net 


80



(46)



317



215

Income before income taxes 


8,050



4,835



36,316



30,358

Provision for income taxes 


3,270



(138,707)



15,537



(135,911)

Net income

$

4,780


$

143,542


$

20,779


$

166,269















Earnings per common share:













Basic 

$

0.07


$

2.06


$

0.31


$

2.40


Diluted  

$

0.07


$

2.01


$

0.30


$

2.33















Weighted average shares outstanding:













Basic 


66,864



69,542



67,624



69,145


Diluted  


69,520



71,567



69,896



71,497
















 


TABLE 2












KRISPY KREME DOUGHNUTS, INC















CONSOLIDATED STATEMENT OF ADJUSTED INCOME - 13 WEEK BASIS





14 Weeks Ended


Less - Week

Ended


13 Weeks Ended


13 Weeks Ended










February 3,


February 3,


January 27,


January 29,




2013


2013


2013


2012




(In thousands, except per share amounts)















Revenues

$

118,145


$

(9,023)


$

109,122


$

101,957

Operating expenses:













Direct operating expenses (exclusive of depreciation and














amortization expense shown below) 


98,260



(7,213)



91,047



87,880


General and administrative expenses 


8,778



(331)



8,447



6,673


Depreciation and amortization expense 


2,653



(189)



2,464



2,002


Impairment charges and lease termination costs 


4



-



4



113

Operating income 


8,450



(1,290)



7,160



5,289

Interest income 


12



-



12



35

Interest expense 


(440)



12



(428)



(390)

Equity in losses of equity method franchisees 


(52)



-



(52)



(53)

Other non-operating income and (expense), net 


80



-



80



(46)

Income before income taxes 


8,050



(1,278)



6,772



4,835

Provision for current income taxes 


681



(5)



676



855

Adjusted net income

$

7,369


 

$

(1,273)


$

6,096


$

3,980















Adjusted earnings per common share:













Basic 

$

0.11





$

0.09


$

0.06


Diluted  

$

0.11





$

0.09


$

0.06















Weighted average shares outstanding:













Basic 


66,864






66,864



69,542


Diluted  


69,520






69,520



71,567







































































Note:  The fourth quarter of fiscal 2013 contained 14 weeks compared to 13 weeks in the fourth quarter of fiscal 2012.  The foregoing table presents fourth quarter fiscal 2013 results exclusive of results for the 14th week in order to facilitate comparison of fourth quarter fiscal 2013 results with results for the fourth quarter of fiscal 2012.















Adjusted net income and adjusted EPS are non-GAAP measures.  See the reconciliation of GAAP to adjusted earnings in Table 6.








































































TABLE 3












KRISPY KREME DOUGHNUTS, INC















CONSOLIDATED STATEMENT OF ADJUSTED INCOME - 52 WEEK BASIS





53 Weeks Ended


Less - Week

Ended


52 Weeks Ended


52 Weeks Ended










February 3,


February 3,


January 27,


January 29,




2013


2013


2013


2012




(In thousands, except per share amounts)















Revenues

$

435,843


$

(9,023)


$

426,820


$

403,217

Operating expenses:













Direct operating expenses (exclusive of depreciation and














amortization expense shown below) 


362,828



(7,213)



355,615



346,434


General and administrative expenses 


25,089



(331)



24,758



22,188


Depreciation and amortization expense 


9,891



(189)



9,702



8,235


Impairment charges and lease termination costs 


306



-



306



793

Operating income 


37,729



(1,290)



36,439



25,567

Interest income 


114



-



114



166

Interest expense 


(1,642)



12



(1,630)



(1,666)

Equity in losses of equity method franchisees 


(202)



-



(202)



(122)

Other non-operating income and (expense), net 


317



-



317



215

Income before income taxes 


36,316



(1,278)



35,038



24,160

Provision for current income taxes 


2,124



(5)



2,119



2,000

Adjusted net income

$

34,192


$

(1,273)


$

32,919


$

22,160















Adjusted earnings per common share:













Basic 

$

0.51





$

0.49


$

0.32


Diluted  

$

0.49





$

0.47


$

0.31















Weighted average shares outstanding:













Basic 


67,624






67,624



69,145


Diluted  


69,896






69,896



71,497







































































Note:  Fiscal 2013 contained 53 weeks compared to 52 weeks in fiscal 2012.  The foregoing table presents fiscal 2013 results exclusive of results for the 53rd week in order to facilitate comparison of fiscal 2013 results with results for fiscal 2012.















Adjusted net income and adjusted EPS are non-GAAP measures.  See the reconciliation of GAAP to adjusted earnings in Table 6.