Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., member of the South Korean Lotte Group, reported financial results for the fourth quarter and fiscal year ended January 29, 2012 and reaffirmed its guidance for fiscal 2013.
Fourth Quarter Fiscal 2012 Highlights Compared to the Year-Ago Period:
- Revenues increased 11,2 percent to 102,0 million USD from 91,7 million USD
- Company same store sales rose 8,3 percent, the 13th consecutive quarterly increase
- Operating income increased to 5,3 million USD from 0,9 million USD
- Net income was 143,5 million USD (2,01 USD per share), compared to a net loss of 1,5 million USD (0,02 USD per share)
- Net income in the fourth quarter of fiscal 2012 includes a non-recurring credit of 139,6 million USD (1,95 USD per share) from the reversal of valuation allowances on deferred income tax assets
- Adjusted net income was 4,0 million USD (0,06 USD per share), compared to an adjusted net loss of 1,5 million USD (0,02 USD per share); adjusted net income and EPS are non-GAAP measures
- Cash provided by operating activities increased to 10,9 million USD from 7,7 million USD
Fiscal Year 2012 Highlights Compared to Last Year:
- Revenues increased 11,4 percent to 403,2 million USD from 362,0 million USD
- Company same store sales rose 5,2 percent, the third consecutive annual increase
- Operating income increased to 25,6 million USD from 15,2 million USD
- Fiscal 2012 results include a non-operating gain of 6,2 million USD (4,7 million USD after tax or 0,06 USD per share) on the Company´s sale of its 30 percent equity interest in KK Mexico
- Net income was 166,3 million USD (2,33 USD per share), compared to 7,6 million USD (0,11 USD per share)
- Net income in fiscal 2012 includes a non-recurring credit of 139,6 million USD (1,95 USD per share) from the reversal of valuation allowances on deferred income tax assets
- Adjusted net income was 22,2 million USD (0,31 USD per share), compared to adjusted net income of 7,5 million USD (0,11 USD per share); adjusted net income and EPS are non-GAAP measures
- Cash provided by operating activities increased to 33,9 million USD from 20,5 million USD
- Total debt was reduced by 7,8 million USD to 27,6 million USD; cash at year end totalled 44,3 million USD
The Company ended the year with a total of 694 Krispy Kreme stores systemwide, a net increase of 16 shops during the quarter. As of January 29, 2012, there were 92 Company stores and 602 franchise locations.
James H. Morgan, Chairman and Chief Executive Officer: «The fourth quarter capped off an extremely successful year at Krispy Kreme and we were pleased to have generated double-digit revenue growth with substantial increases in both operating income and EPS. As pleased as we were with these results, however, we are committed to converting even more of our revenue growth into bottom line profitability. To that end, we will continue to strengthen our core doughnut line through innovative limited time offerings, complimented by an already successful coffee launch and a broader beverage program to follow. We will also build on the recent introduction of our new wholesale product offerings and continue to work on cost reductions in labor, ingredients and the store model itself».
Morgan continued: «In terms of development, our system is nearly 700 stores today and we are confident in our plan to expand Company store development strategically, while growing our franchise system significantly, both domestically and internationally. We believe that Krispy Kreme has an extraordinary market opportunity and as we look to the coming fiscal year, we are very confident that we can execute against our plan and continue to drive value for shareholders».
Fiscal 2013 Outlook
In fiscal 2013, which will be a 53-week year, the Company anticipates opening five to ten Company stores, between ten and 15 domestic franchise stores and approximately 75 international franchise stores. 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. In addition, with volatile prices for agricultural and other commodities, the Company will continue working to reduce its consumption of certain key ingredients while taking other measures to combat the rise in input costs the Company has experienced since fiscal 2011.
Based on these factors, management currently expects fiscal 2013 operating income in the range of 29 to 33 million USD, with improvements expected in each of the four business segments compared to fiscal 2012. In addition, as stated in the Company´s third quarter fiscal 2012 earnings release, management also is expressing its guidance in terms of diluted earnings per share. Management estimates diluted EPS for fiscal 2013 will be in the range of 0,21 USD to 0,24 USD; this range reflects an estimated tax rate of 45 percent compared to management´s earlier estimate of six to seven percent. The higher tax rate is a result of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012 as more fully discussed below; the amount of taxes expected to be paid in cash, which is insignificant, is unchanged from prior estimates.
Management´s estimate of fiscal 2013 adjusted EPS, which includes income tax expense only to the extent expected to be currently payable, is from 0,35 USD to 0,41 USD.
Fourth Quarter Fiscal 2012 Consolidated Results
For the fourth quarter ended January 29, 2012, revenues increased 11,2 percent to 102,0 million USD from 91,7 million USD. All four business segments reported year-over-year revenue growth.
Direct operating expenses increased to 87,9 million USD from 80,1 million USD, but as a percentage of total revenues, decreased to 86,2 percent from 87,4 percent. General and administrative expenses increased to 6,7 million USD from 6,4 million USD in the same period last year but, as a percentage of total revenues, decreased to 6,5 percent from 6,9 percent. Impairment charges and lease termination costs were 0,1 million USD compared to 2,6 million USD in the year-ago period.
Operating income increased to 5,3 million USD from 0,9 million USD.
Interest expense decreased to 0,4 million USD from 1,3 million USD, reflecting lower interest rates as a result of the January 2011 refinancing of the Company´s credit facilities, as well as reduced indebtedness. The Company recorded a charge of 1,0 million USD in the fourth quarter of fiscal 2011 for costs related to the January 2011 refinancing.
Net income was 143,5 million USD (2,01 USD per share) compared to a net loss of 1,5 million USD (0,02 USD per share), in the fourth quarter last year.
Excluding the effects of the reversal of valuation allowances on deferred tax assets and other deferred income tax effects from both years´ results, adjusted net income was 4,0 million USD (0,06 USD per share) compared to an adjusted net loss of 1,5 million USD (0,02 USD per share) in the fourth quarter last year. Adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).
Fourth Quarter Fiscal 2012 Segment Results
Company Stores revenues increased 11,0 percent to 68,6 million USD from 61,8 million USD. Same store sales at Company stores rose 8,3 percent, the thirteenth consecutive quarterly increase. On a same store basis, traffic count increased 3,6 percent in the fourth quarter of fiscal 2012 compared to a decline of 1,8 percent in the fourth quarter last year. The Company Stores segment posted an operating loss of 0,3 million USD compared to an operating loss of 1,0 million USD last year. Favourable adjustments related to self-insurance programs were 0,8 million USD in the fourth quarter this year, compared to 1,2 million USD in last year´s fourth quarter.
Domestic Franchise revenues increased 9,3 percent to 2,4 million USD from 2,2 million USD, reflecting a 10,2 percent increase in sales by domestic franchisees. Same store sales rose 7,9 percent at domestic franchise stores. Domestic Franchise segment operating income improved to 1,3 million USD from 0,8 million USD in the fourth quarter last year.
International Franchise revenues increased 22,2 percent to 6,3 million USD from 5,1 million USD, reflecting increased royalties from higher sales by international franchise stores. Total U.S. Dollar sales by international franchise stores rose 16,8 percent. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 9,5 percent, reflecting, among other things, honeymoon effects from the over 300 stores opened internationally since the beginning of fiscal 2009, as well as cannibalization as markets develop. The International Franchise segment generated operating income of 4,2 million USD, up from 3,3 million USD in the fourth quarter last year.
Total KK Supply Chain revenues (including sales to Company stores) increased 13,4 percent to 52,0 million USD from 45,8 million USD, driven by selling price increases in major product categories. KK Supply Chain generated operating income of 7,1 million USD compared to 6,9 million USD in the fourth quarter last year. KK Supply Chain has raised selling prices to recover rising input costs resulting from higher agricultural commodity prices, but generally has not marked up those higher costs. Accordingly, KK Supply Chain´s operating margin declined in the fourth quarter of fiscal 2012 compared to the fourth quarter last year.
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