Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the South Korean Lotte Group, reported financial results for the first quarter of fiscal 2012, ended May 01, 2011. Q1/2012 highlights compared to the year-ago period:
- Revenues increased 13,6 percent to 104,6 million USD from 92,1 million USD
- Company same store sales rose 5,8 percent, the tenth consecutive quarterly increase
- Operating income rose 61,7 percent to 9,8 million USD from 6,1 million USD
- Operating income, excluding the effects of impairment charges and lease termination costs of 240’000 USD and 1,3 million USD in fiscal 2012 and 2011, respectively, rose 36,5 percent to 10,0 million USD from 7,4 million USD
- Net income was 9,2 million USD (0,13 USD per share diluted) compared to 4,5 million USD (0,06 USD per share diluted) in the first quarter last year
- Cash provided by operating activities was 5,1 million USD compared to 1,7 million USD in the first quarter last year
The Company ended the first quarter with a total of 652 Krispy Kreme stores systemwide, a net increase of six shops during the quarter. As of May 01, 2011, there were 86 Company stores and 566 franchise locations.
James H. Morgan, President and Chief Executive Officer: «We delivered a strong performance in the first quarter, characterized by double-digit revenue growth, a significant increase in consolidated operating income and our best quarterly net profit since the fourth quarter of fiscal 2004. Substantially improved results in the Company Stores segment were a major driver of our improved results. We also benefited from lower impairment charges and lease termination costs and a significant reduction in interest expense resulting from the January 2011 refinancing of our credit facilities. While commodity costs created some headwinds and will continue to do so for the remainder of the year, we believe we are off to a good start in fiscal 2012. We are pleased to reaffirm our outlook for consolidated operating income, exclusive of impairment charges and lease termination costs, of between 22 million USD and 24 million USD for the year, although we believe first quarter results make the high end of that range appear increasingly achievable».
Consolidated results for Q1/2012
For the first quarter ended May 01, 2011, revenues increased 13,6 percent to 104,6 million USD from 92,1 million USD. Year-over-year revenue increases were generated in all four business segments.
Direct operating expenses increased to 87,0 million USD from 77,2 million USD in the same period last year, but as a percentage of total revenues, were down slightly to 83,2 percent from 83,8 percent. General and administrative expenses decreased to 5,6 million USD from 5,7 million USD in the same period last year and, as a percentage of total revenues, decreased to 5,4 percent from 6,2 percent. Impairment charges and lease termination costs were 240’000 USD compared to 1,3 million USD in the year-ago period.
Operating income increased to 9,8 million USD from 6,1 million USD.
Interest expense decreased to 480’000 USD from 1,9 million USD, principally reflecting lower interest rates as a result of the January 2011 refinancing of the Company´s credit facilities as well as the reduced level of indebtedness.
Net income was 9,2 million USD (0,13 USD per share diluted) compared to 4,5 million USD (0,06 USD per share diluted), in the first quarter last year.
Segment Results for Q1/2012
Company Stores revenues increased 11,1 percent to 69,5 million USD from 62,5 million USD. Same store sales at Company stores rose 5,8 percent, the tenth consecutive quarterly increase. Price increases instituted during the first quarter to help offset higher input costs drove the increase, as higher customer traffic was offset by a decrease in the average guest check exclusive of pricing effects. The Company Stores segment posted an operating profit of 2,2 million USD, compared to break-even results last year.
Domestic Franchise revenues increased 7,7 percent to 2,4 million USD from 2,2 million USD, reflecting a 6,8 percent rise in sales by domestic franchisees. Same store sales rose 4,6 percent at domestic franchise stores. The increase in revenues was offset by higher segment operating expenses, resulting in Domestic Franchisee segment operating income of 1,1 million USD in the first quarter of fiscal 2012, flat to last year.
International Franchise revenues increased 18,4 percent to 5,6 million USD from 4,8 million USD. A 500’000 USD reduction in initial franchise fees, reflecting 16 store openings in the first quarter of fiscal 2012 compared to 41 openings in the first quarter of fiscal 2011, was offset by higher royalty revenues reflecting a 16,4 percent increase in constant dollar sales by international franchise stores. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 9,6 percent, reflecting, among other things, honeymoon effects from the over 300 stores opened internationally in the past three years, as well as cannibalization as markets develop. The rate of decline in constant Dollar international franchise same store sales fell for the fifth consecutive quarter.
International Franchise revenues benefited from the recognition of approximately 375’000 USD of revenues related to Krispy Kreme Mexico which accrued in prior periods but which had not previously been recognized due to uncertainty about their collectibility. The Company sold its equity interest in KK Mexico on May five and in connection with the sale received payment of approximately 765’000 USD of past due amounts, consisting of approximately 375’000 USD of previously unrecognized revenues and approximately 390’000 USD of receivables for which reserves previously had been established. In light of the collection of the past due amounts in connection with the sale, the Company recorded the 375’000 USD of revenues and the 390’000 USD bad debt recovery in the first quarter of fiscal 2012. The Company will report a gain on the sale of its interest in KK Mexico currently estimated at 5,9 million USD (4,4 million USD after Mexican taxes or 0,06 USD per share) in the second quarter. The International Franchise segment generated operating income of 4,2 million USD compared to 3,5 million USD last year.
Total KK Supply Chain revenues (including sales to Company stores) increased 17,4 percent to 53,9 million USD from 45,9 million USD in the first quarter last year, largely driven by selling price increases in major product categories. External KK Supply Chain revenues rose 19,9 percent to 27,1 million USD from 22,6 million USD in the first quarter last year. KK Supply Chain generated operating income of 8,3 million USD in the first quarter of fiscal 2012 compared to 8,7 million USD in the first quarter last year. KK Supply Chain has raised selling prices to recover rising input costs resulting from higher agricultural commodity prices, but generally has not marked up those higher costs; accordingly, KK Supply Chains´ gross profit and operating margins declined in the first quarter of fiscal 2012 compared to the first quarter of last year.
