Krispy Kreme: Financial Results For Q4 And FY 2013

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Corporation reported financial results for the fourth quarter and fiscal year ended February 03, 2013 and raised its guidance for fiscal 2014. The fourth quarter and fiscal year 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 Q4/2012

  • Revenues increased 15,9 percent to 118,1 million USD from 102,0 million USD
  • Operating income rose 60 percent to 8,5 million USD from 5,3 million USD
  • Adjusted net income increased 85 percent to 7,4 million USD (0,11 USD per share) from 4,0 million USD (0,06 USD 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.
  • Net income was 4,8 million USD (0,07 USD per share) compared to 143,5 million USD (2,01 USD 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 USD (1,95 USD per share) from the reversal of valuation allowances on deferred income tax assets
  • Cash provided by operating activities was 21,3 million USD compared to 10,9 million USD 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 percent to 109,1 million USD from 102,0 million USD
  • Company same store sales rose 7,5 percent, the seventeenth consecutive quarterly increase
  • Operating income increased 35 percent to 7,2 million USD from 5,3 million USD
  • Adjusted net income rose 53 percent to 6,1 million USD (0,09 USD per share) from 4,0 million USD (0,06 USD per share)

Fiscal 2013 Highlights Compared to Fiscal 2012:

  • Revenues increased 8,1 percent to 435,8 million USD from 403,2 million USD
  • Operating income rose 48 percent to 37,7 million USD from 25,6 million USD
  • Adjusted net income increased 54 percent to 34,2 million USD (0,49 USD per share) from 22,2 million USD (0,31 USD 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 percent equity interest in KK Mexico
  • Net income was 20,8 million USD (0,30 USD per share) compared to 166,3 million USD (2,33 USD per share) last year; net income in fiscal 2012 included an unusual credit of 139,6 million USD (1,95 USD per share) from the reversal of valuation allowances on deferred income tax assets and a 4,7 million USD after tax gain (0,06 USD per share) on the Company´s sale of its 30 percent equity interest in KK Mexico
  • Cash provided by operating activities was 59,3 million USD compared to 33,9 million USD 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 percent to 426,8 million USD from 403,2 million USD
  • Company same store sales rose 5,5 percent
  • Operating income increased 43 percent to 36,4 million USD from 25,6 million USD
  • Adjusted net income rose 49 percent to 32,9 million USD (0,47 USD per share) from 22,2 million USD (0,31 USD 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

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 percent to 109,1 million USD. All four business segments reported year-over-year revenue growth. Direct operating expenses increased to 91,0 million USD from 87,9 million USD, but as a percentage of total revenues, decreased to 83,4 percent from 86,2 percent. General and administrative expenses increased to 8,4 million USD from 6,7 million USD 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 USD. Excluding that item, general and administrative expenses were 7,7 percent of revenues compared to 7,4 percent last year. Operating income rose 35 percent to 7,2 million USD from 5,3 million USD. Adjusted net income was 6,1 million USD (0,09 USD per share) compared to 4,0 million USD (0,06 USD per share), in the fourth quarter last year.

Segment Results

For the 13 weeks ended January 27, 2013, Company Stores revenues increased 9,6 percent to 75,2 million USD. Same store sales at Company stores rose 7,5 percent, the seventeenth consecutive quarterly increase, driven by higher traffic. The Company Stores segment posted operating income of 3,0 million USD compared to an operating loss of 0,3 million USD last year. Domestic Franchise revenues increased 4,2 percent to 2,5 million USD. Higher royalties from an 8,3 percent increase in sales by domestic franchisees were partially offset by a reduction in other franchise revenue. Same store sales rose 9,6 percent 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 USD in the fourth quarter of both years.

International Franchise revenues increased 6,3 percent to 6,7 million USD. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 7,4 percent, 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 USD compared to the prior year quarter in trademark protection costs, a provision of approximately 185’000 USD 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 USD compared to 4,2 million USD in the fourth quarter last year.

Total KK Supply Chain revenues (including sales to Company stores) increased 1,8 percent to 52,9 million USD. KK Supply Chain generated operating income of 7,5 million USD compared to 7,1 million USD 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 ten 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 USD to 44 million USD, which would represent an increase of 13 percent to 21 percent from the 36,4 million USD operating income for fiscal 2013 measured on a 52-week basis. Management estimates adjusted net income will be in the range of 37 million USD to 40 million USD and adjusted EPS will range from 0,53 USD to 0,57 USD per share based on a forecasted 70 million diluted shares outstanding.

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