Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the South Korean Lotte Group, reported financial results for the third quarter of fiscal 2016, ended November 01, 2015.
Third Quarter Fiscal 2016 Highlights Compared to the Year-Ago Period:
- Revenues increased 4.6 percent to 128.5 million USD from 122.9 million USD.
- Systemwide domestic same store sales rose 3.4 percent, including a 2.8 percent gain at Company Stores; constant currency international franchise same store sales declined 3.7 percent.
- Operating income rose 3.8 percent to 13.4 million USD from 12.9 million USD.
- Net income was 7.6 million USD (0.11 USD per share) compared to 8.1 million USD (0.12 USD per share) in the third quarter last year.
- Adjusted net income improved to 12.4 million USD compared to 12.1 million USD and adjusted earnings per share rose 5.6 percent to 0.19 USD per share from 0.18 USD per share. Adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release) and reflect income tax expense only to the extent currently payable in cash.
- The Company repurchased 890’000 shares of its common stock under the Board of Directors approved authorization at a total cost of 15.7 million USD.
Year-to-Date Fiscal 2016 Highlights Compared to the Year-Ago Period:
- Revenues increased 6.4 percent to 388.4 million USD from 365.0 million USD.
- Systemwide domestic same store sales rose 4.7 percent, including a 3.1 percent gain at Company Stores; constant currency international franchise same store sales declined 2.7 percent.
- Operating income rose 7.0 percent to 41.4 million USD from 38.7 million USD.
- Net income was 24.2 million USD (0.36 USD per share) compared to 23.5 million USD (0.34 USD per share) last year.
- Adjusted net income improved to 38.8 million USD compared to 36.9 million USD and adjusted earnings per share rose 9.4 percent to 0.58 USD per share from 0.53 USD per share.
- Cash provided by operating activities was 55.4 million USD compared to 45.7 million USD last year.
- The Company repurchased 2.8 million shares of its common stock under the Board of Directors approved authorization at a total cost of 50.0 million USD.
President and Chief Executive Officer Tony Thompson commented: «Third quarter results were in line with our expectations. Continued strong systemwide domestic same store sales reflected our effective use of promotional incentives such as «special event» days and premium-priced limited time offers which drove both sales and traffic. We remain focused on growing at a prudent pace and continuing to return excess capital to shareholders through ongoing share repurchases».
Thompson continued, «We are on track to open over 130 net new Krispy Kreme shops around the world in fiscal 2016. More importantly, we continue managing Krispy Kreme for the long-term by focusing on the tremendous opportunities we see for our iconic brand. Our energies are centered on driving sales, profitability and reducing investment costs at small retail shops which will strengthen our domestic expansion model for both Company and franchise development. We also continue to expand our pipeline for international franchise development with the signing of agreements in seven new countries this year. In addition, we are pleased to be spreading the joy of Krispy Kreme to U.S. troops and their families at military bases across much of Europe through a new partnership with the Army + Air Force Exchange Service. At home and abroad, we believe there is a strong demand for our products and brand».
Third Quarter Fiscal 2016 Segment Results
Company Stores revenues increased 5.8 percent to 87.4 million USD in the third quarter of fiscal 2016, driven by an 11.2 percent increase in on-premises sales as store operating weeks increased 10.2 percent and same store sales rose 2.8 percent. Sales within the consumer packaged goods category, which represents approximately half of the revenues of the Company Stores segment, were flat with the prior year. Company Stores segment operating income increased from 1.7 million USD to 4.1 million USD in the third quarter of this year driven by the Company Stores contribution margin increasing from 12.8 percent to 15.4 percent. The margin increase was primarily driven by lower agricultural commodity and fuel costs.
Domestic Franchise revenues increased 11.5 percent to 3.7 million USD, principally driven by higher royalties. Total sales by domestic franchisees rose 6.9 percent, and same store sales at domestic franchise shops increased 3.8 percent. The Domestic Franchise segment generated operating income of 2.0 million USD in the third quarter of this year and last year. The Company incurred slightly higher operating costs in the third quarter of fiscal 2016 as it continued to expand its domestic franchise program.
International Franchise revenues decreased 7.7 percent to 6.3 million USD from 6.9 million USD in the third quarter last year principally due to unfavorable foreign exchange rates which adversely affected royalty revenues and segment operating income by approximately 800’000 USD. Sales by international franchise stores declined 1.3 percent (excluding the effects of changes in foreign exchange rates, sales rose 11.0 percent). Constant currency same store sales at international franchise stores declined 3.7 percent. International Franchise segment operating income decreased to 4.5 million USD compared to 5.0 million USD in the third quarter last year primarily due to the negative impact of foreign exchange rates.
KK Supply Chain revenues (including sales to Company Stores) rose 2.9 percent to 63.4 million USD and external KK Supply Chain revenues rose 3.5 percent to 31.2 million USD. KK Supply Chain generated operating income of 11.5 million USD in the third quarter of fiscal 2016 compared to 10.2 million USD in the third quarter last year.
Fiscal 2016 Outlook
Management updated its outlook for adjusted earnings per share for fiscal 2016 to 0.78 USD to 0.80 USD per share, compared to 0.70 USD per share in fiscal 2015. The Company provided the following updates to its full year fiscal 2016 assumptions:
- Approximately ten net new Company shops
- Approximately 20 net new domestic franchise shops
- 100 to 110 net new international franchise shops
- Capital expenditures of approximately 30 million USD
- Continued growth in domestic same store sales
- A continued reduction in agricultural commodity and fuel costs compared to fiscal 2015
- No additional negative impact for derivatives as all derivative contracts have been settled as of the end of the third quarter
- Negative effects of a stronger U.S. dollar
- Fourth quarter gain of approximately 660’000 USD from the settlement of a claim for lost income related to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico
Fiscal 2017 Outlook
The Company is providing the following expectations for fiscal 2017, which begins February 01, 2016:
- Approximately ten net new Company shops
- Approximately 20 net new domestic franchise shops
- Approximately 100 net new international franchise shops
- Capital expenditures of 30 million USD to 35 million USD
- Continued growth in domestic same store sales
- Relatively flat agricultural commodity and fuel costs compared to fiscal 2016
- Continued negative effects of a stronger U.S. dollar
- Effective tax rate of 40 percent (Image: Krispy Kreme Doughnuts)
