Krispy Kreme: Reports Financial Results For Q1/2014

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Corporation reported financial results for the first quarter of fiscal 2014, ended May 05, 2013. The Company also raised its guidance for the full year. Highlights compared to the year-ago period:

  • Revenues increased 11,2 percent to 120,6 million USD from 108,5 million USD
  • Company same store sales rose 11,4 percent, the eighteenth consecutive quarterly increase
  • Operating income rose 40 percent to 15,2 million USD from 10,8 million USD
  • Adjusted net income rose 37 percent to 14,1 million USD (0,20 USD per share) from 10,3 million USD (0,14 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 8,0 million USD (0,11 USD per share) compared to 6,0 million USD (0,08 USD per share) in the first quarter last year
  • Cash provided by operating activities was 14,4 million USD compared to 10,4 million USD in the first quarter last year

Chairman, President and Chief Executive Officer James H. Morgan commented: «Our exceptional performance in the first quarter is a testament to both the strength of our brand and the dedication of our team members and franchisees worldwide. It is also evidence of our ongoing momentum which we believe will make this another outstanding year at Krispy Kreme. We continue to believe we are in the very early stages of developing Krispy Kreme´s long-term potential as we continue to execute on our strategic priorities, demonstrate our capability to grow same store sales, generate significant operating cash flow, and increase earnings over the long term. While our same store sales numbers over the next three quarters are likely to be less dramatic as we come up against our outstanding comp performance last year, we are confident in our belief that we can deliver strong and sustainable financial returns for our shareholders. We are, therefore, pleased to raise our annual outlook for fiscal 2014 adjusted earnings from between 0,53 USD and 0,57 USD to between 0,59 USD and 0,63 USD per share. We look forward to reporting our ongoing results as fiscal 2014 progresses».

Consolidated Results Q1/2014

For the first quarter ended May 5, 2013, revenues increased 11,2 percent to 120,6 million USD from 108,5 million USD. Direct operating expenses increased to 96,6 million USD from 88,7 million USD, but as a percentage of total revenues fell to 80,0 percent from 81,7 percent. General and administrative expenses decreased to 6,1 million USD from 6,5 million USD in the year-ago period and, as a percentage of total revenues, decreased to 5,0 percent from 6,0 percent. Operating income rose 40 percent to 15,2 million USD from 10,8 million USD. Adjusted net income was 14,1 million USD (0,20 USD per share) compared to 10,3 million USD (0,14 USD per share) in the first quarter last year. Net income was 8,0 million USD (0,11 USD per share) compared to 6,0 million USD (0,08 USD per share) in the first quarter last year.

Segment Results Q1/2014

Company Stores revenues increased 11,7 percent to 81,9 million USD from 73,3 million USD. Same store sales at Company stores rose 11,4 percent, the eighteenth consecutive quarterly increase, driven principally by higher traffic with a lesser contribution from pricing. Company Stores segment operating income improved to 5,3 million USD from 2,9 million USD in the first quarter last year.

Domestic Franchise revenues rose 9,0 percent to 2,9 million USD from 2,6 million USD, reflecting higher royalties slightly offset by lower franchise fees. Total sales by domestic franchisees rose 12,5 percent, while same store sales increased 11,3 percent. Domestic Franchise costs and expenses in the quarter include increases over last year related to the addition of new personnel and other costs associated with the execution of our domestic franchise expansion program. The Domestic Franchise segment posted operating income 1,4 million USD compared to 1,6 million USD in the first quarter last year.

International Franchise revenues increased 6,9 percent to 6,4 million USD from 6,0 million USD, reflecting higher royalties and initial franchise fees. Sales by international franchise stores rose 5,1 percent. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 7,3 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 a provision of approximately 120’000 USD for potential uncollectible accounts as well as higher personnel and personnel-related costs to support continuing and anticipated international growth. International Franchise segment operating income was flat with the first quarter of last year at 4,5 million USD.

KK Supply Chain revenues (including sales to Company stores) rose 11,2 percent to 59,8 million USD from 53,8 million USD in the same period last year. External KK Supply Chain revenues rose 10,9 percent to 29,4 million USD from 26,5 million USD in the year-ago period. KK Supply Chain generated operating income of 10,2 million USD in the first quarter of fiscal 2014, up from 8,5 million USD in the first quarter last year. Lower provisions for potentially uncollectible accounts and for slow moving inventories, positive mark-to-market adjustments on derivative positions, and economies of scale contributed to the margin improvement.

Outlook

First quarter results exceeded management´s expectations. While comparisons will be more challenging for the balance of the fiscal year due to the Company´s outstanding performance in the comparable fiscal 2013 periods, management is increasingly optimistic about the Company´s prospects going forward. Accordingly, the Company is raising its fiscal 2014 outlook for adjusted net income to between 42 million USD and 45 million USD from the previous forecast of between 37 million USD and 40 million USD. The Company also is raising its forecast for adjusted earnings per share for fiscal 2014 to between 0,59 USD and 0,63 USD compared to the previous range of 0,53 USD to 0,57 USD. The revised forecast reflects not only the Company´s outperformance in the first quarter, but also higher expectations for the balance of fiscal 2014. Achievement of the increased forecast would represent a year-over-year increase in adjusted earnings per share of between 26 percent and 34 percent from the 0,47 USD per share reported on a 52-week basis for fiscal 2013.

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