Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Corporation reported financial results for the third quarter of fiscal 2015, ended November 02, 2014. The Company also reaffirmed its adjusted earnings guidance for the full year. Third quarter fiscal 2015 highlights compared to the year-ago period:
- Systemwide store count rose 4.6 percent in the quarter (11.7 percent year-to-date) to 925 Company and franchise shops worldwide
- Systemwide domestic same store sales rose 3.7 percent, including a 3.3 percent gain at Company shops; constant-currency international franchise same store sales declined 2.9 percent
- Revenues increased 7.6 percent to 122.9 million USD from 114.2 million USD
- Operating income rose 9.8 percent to 12.9 million USD from 11.7 million USD
- Adjusted net income was 12.1 million USD (0.18 USD per share) compared to 11.2 million USD (0.16 USD per share)
- Net income was 8.1 million USD (0.12 USD per share) compared to 6.8 million USD (0.09 USD per share) last year
- Cash provided by operating activities was 18.0 million USD compared to 13.5 million USD last year
President and Chief Executive Officer Tony Thompson commented: «We successfully engaged with Krispy Kreme fans and grew traffic during the third quarter through effective limited-time offers and other promotional and marketing incentives. Now that we have regained traffic momentum, in the fourth quarter we are working to balance top line growth with improved shop operating margins. Looking ahead, we intend to bolster customer connectivity, strengthen existing relationships and build new ones through, among other things, the implementation of a new consumer engagement platform. The initial version of the platform, including our «My Krispy Kreme Treats» loyalty program, is currently in limited testing in three markets, with a domestic rollout planned for later next year».
Thompson continued: «Leveraging consumers´ love of our brand means more than just increasing doughnut purchases, as our coffee and other specialty beverages can and should play a larger role in our total sales mix over time. Our goal is to achieve a higher beverage attachment rate within our stores and greater beverage consumption at home, at work and on-the-go. We are encouraged by the growing popularity of our in-shop coffee and espresso offerings, along with early traction of our Krispy Kreme packaged ground coffee, ready-to-drink beverages and «K-Cup» packs introduced over the past several quarters. And as our store footprint grows, we will become more accessible as a retail beverage destination, which should promote more visits to Krispy Kreme not only by frequent beverage consumers but also by our core Krispy Kreme doughnut fans».
Thompson concluded: «Krispy Kreme is well positioned for continued domestic and international growth. We are pursuing growth opportunities in a prudent and sustainable way by opening new Company shops, re-franchising certain markets and signing new agreements with established and new franchise partners. Systemwide store development this year will be slightly above our earlier expectations due to more international store openings than originally planned. Given the enormous growth opportunity ahead of us, we are pleased with our progress in providing more consumers with the joy of experiencing our delicious, one-of-a-kind doughnuts and coffee and complementary products throughout the world».
Q3/2015 Consolidated Results
Revenues increased 7.6 percent to 122.9 million USD from 114.2 million USD.
Direct operating expenses were 101.2 million USD compared to 92.5 million USD, representing 82.3 percent of revenues compared to 80.9 percent of revenues last year.
General and administrative expenses were 5.6 million USD (4.5 percent of revenues) compared to 5.7 million USD (5.0 percent of revenues) in the year-ago period.
Impairment and lease termination costs in last year´s third quarter included a 1.5 million USD charge related to the settlement of litigation.
Operating income was 12.9 million USD compared to 11.7 million USD last year, while adjusted net income was 12.1 million USD (0.18 USD per share) compared to 11.2 million USD (0.16 USD per share).
Q3/2015 Segment Results
Company Stores´ revenues increased 10.3 percent to 82.6 million USD. Same store sales at Company shops rose 3.3 percent compared to an increase of 4.4 percent in the third quarter last year. Company Stores operating income was 2.2 million USD compared to 2.6 million USD last year.
Domestic Franchise revenues increased 8.2 percent to 3.3 million USD. Total sales by domestic franchisees rose 5.2 percent, while same store sales at Domestic Franchise shops increased 3.9 percent. Exclusive of a 1.7 million USD gain from the sale of leasehold interests in the third quarter last year, Domestic Franchise segment operating income improved to 2.0 million USD from 1.5 million USD.
International Franchise revenues increased 10.4 percent to 6.9 million USD, driven principally by higher royalties. Sales by international franchise stores rose 10.9 percent to 120 million USD (12.4 percent excluding the effects of foreign exchange rate changes). Constant currency same store sales at international franchise stores fell 2.9 percent in the quarter. International Franchise segment operating income was 5.0 million USD compared to 4.4 million USD in the third quarter last year.
KK Supply Chain revenues (including sales to Company stores) rose 5.6 percent to 61.6 million USD; external KK Supply Chain revenues rose slightly to 30.2 million USD. KK Supply Chain generated operating income of 9.5 million USD in the third quarter of fiscal 2015 compared to 9.1 million USD last year. KK Supply Chain operating income in the third quarter of fiscal 2015 includes approximately 0.7 million USD of realized and unrealized losses on agricultural derivative positions.
Outlook
Based on year-to-date results and other current information, management is reaffirming its forecast of adjusted net income for fiscal 2015 of between 48 million USD and 51 million USD (0.69 USD to 0.74 USD per share). Achievement of this forecast would represent a year-over-year increase in adjusted earnings per share of between 13 percent and 21 percent from the 0.61 USD reported for fiscal 2014 which was, in turn, up 30 percent from fiscal 2013. Adjusted net income, adjusted income tax expense and adjusted EPS are non-GAAP measures.
