Krispy Kreme: Reports Q1/2016 Financial Results

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the South Korean Lotte Group, reported financial results for the first quarter of fiscal 2016, ended May 03, 2015 and updated its adjusted EPS outlook for fiscal 2016 (ending January 31, 2016) to a range of 0.80 USD to 0.85 USD. First quarter fiscal 2016 highlights compared to the year-ago period:

  • Systemwide store count rose 17.3 percent since the first quarter of last year to 1’003 Company and franchise shops worldwide
  • Systemwide domestic same store sales rose 5.2 percent, including a 4.3 percent gain at Company Stores; constant currency international franchise same store sales declined 1.7 percent
  • Revenues increased 9.0 percent to 132.5 million USD from 121.6 million USD
  • Operating income rose 6.8 percent to 17.3 million USD from 16.2 million USD
  • Net income rose 10.5 percent to 10.7 million USD (0.16 USD per share) compared to 9.7 million USD (0.14 USD per share) in the first quarter last year
  • Adjusted net income rose 5.0 percent to 16.6 million USD (0.24 USD per share) from 15.8 million USD (0.23 USD per share).
  • Cash provided by operating activities was 17.1 million USD compared to 13.7 million USD in the first quarter last year
  • The Company repurchased 391’300 shares of its common stock under the Board of Directors approved authorization for a total cost of 7.4 million USD of which 5.9 million USD was settled during the quarter.

President and Chief Executive Officer Tony Thompson commented: «Solid domestic same store sales growth and improved margin performance at our Company shops enabled us to exceed our internal projections for the first quarter, providing us a strong start to the fiscal year. Guests continued to respond favourably to our limited time offerings. This, combined with our more strategic use of promotional incentives, drove the higher profitability».

Thompson added: «We continue to generate momentum in our franchise business, partnering with new and existing franchisees to spread the joy of Krispy Kreme within the US and throughout the world. We recently signed development agreements for new domestic shops in Arkansas, Montana, Illinois and Kentucky, while internationally we signed agreements in Cambodia, Guatemala, and South Africa as part of our goal to enter a total of six new countries this year. We continue to believe that Krispy Kreme is positioned well for earnings and cash flow growth and our intention is to return a portion of that to shareholders through on-going share repurchases».

First Quarter Fiscal 2016 Segment Results

Company Stores revenues increased 12.8 percent to 90.7 million USD in the first quarter of fiscal 2016, driven by a 24.9 percent increase in retail sales as store operating weeks increased 18.9 percent and same store sales rose 4.3 percent. The Company opened two new factory shops in the first quarter. Company Stores segment operating income increased 2.7 million USD to 16.8 million USD from 12.7 million USD compared to last year driven by the Company Stores contribution margin increasing from 15.8 percent to 18.5 percent of sales. The margin increase primarily resulted from positive retail same store sales growth as well as the Company´s more strategic use of promotional incentives.

Domestic Franchise revenues increased 6.0 percent to 3.7 million USD, principally driven by higher royalties. Total sales by domestic franchisees rose 4.6 percent, and same store sales at Domestic Franchise shops increased 5.8 percent. The Domestic Franchise segment generated operating income of 2.1 million USD compared to 2.2 million USD in the first quarter last year.

International Franchise revenues increased 2.2 percent to 6.7 million USD. Royalty income rose due to an increase of 128 locations as compared to the first quarter last year. Sales by international franchise stores rose 5.4 percent to 121 million USD (15.2 percent excluding the effects of foreign exchange rate changes). Constant currency same store sales at international franchise stores declined 1.7 percent. International Franchise segment operating income improved to 4.9 million USD compared to 4.3 million USD in the first quarter last year.

KK Supply Chain revenues (including sales to Company stores) rose 5.3 percent to 63.5 million USD. External KK Supply Chain revenues rose 0.9 percent to 31.3 million USD. KK Supply Chain generated operating income of 10.9 million USD in the first quarter of fiscal 2016 compared to 11.3 million USD in the first quarter last year.

Full Year Outlook

Management maintains its outlook for adjusted net income for fiscal 2016 of between 55 million USD and 59 million USD (compared to 48.3 million USD in fiscal 2015) but has updated its outlook for adjusted net income per share to between 0.80 USD and 0.85 USD per share to reflect share repurchase activity completed during the first quarter (compared to adjusted net income per share of 0.70 USD in fiscal 2015). The Company´s previous range for fiscal 2016 adjusted net income per share was 0.79 USD to 0.85 USD per share. The Company´s outlook reflects, among other things, the following assumptions:

  • Ten to twelve net new Company shops
  • 15 to 20 net new domestic franchise shops
  • 95 to 110 net new international franchise shops
  • Capital expenditures of between 35 million USD and 45 million USD including ongoing investments in technology
  • Continued growth in domestic same store sales
  • A reduction in agricultural commodity and fuel costs compared to fiscal 2015
  • Negative effects of a stronger U.S. Dollar

With the onset of the new fiscal year, the Company has made the following changes to the presentation of the Consolidated Statement of Income, segment financial information and the change in same store sales:

  • Pre-opening costs related to Company Stores; gains and losses on commodity derivatives, net and gain on refranchisings, net of business acquisition charges are now separate line items on the Consolidated Statement of Income and are no longer in the respective business segments´ operating income.
  • Company Stores contribution has been added to the Supplemental Financial and Operating Information in order to provide more transparency on Company Stores performance. Company Stores contribution represents Company Stores revenues less costs of food, beverage and packaging; labor and benefit costs; vehicle costs; occupancy and other store related costs and excludes depreciation and amortization expense; marketing expense and segment general and administrative expenses. Company Stores contribution is a non-GAAP financial measure. The Company believes that this is a useful measure to assess and evaluate the performance of Company shops.
  • The Company is presenting the change in same store sales metric on a retail sales only basis. This metric now excludes fundraising sales. The Company believes this change will provide a more meaningful measurement of the change in same store sales and that this is a more relevant metric as the continued success of our retail model is largely dependent on the 90 percent of on-premises sales coming from the retail business.