Krispy Kreme 3Q Earnings Jump Nearly 96 Percent

Krispy Kreme Doughnuts Inc. said Wednesday that higher domestic same-store sales helped boost revenue and earnings in the third quarter ended Oct. 30.

However, the quick-service operator reported continued sales erosion among international franchisees and essentially flat U.S. unit growth for the trailing 12-month period.

Quarterly net income rose 95.8 percent to $4.7 million, or 7 cents per share, compared with $2.4 million, or 3 cents a share, in the same 2010 period, according to the Winston-Salem, N.C.-based company.

Third-quarter revenue climbed 9.4 percent on a year-over-year basis to $98.7 million, benefitting from, among other things, increases in same-store sales of 4 percent at company units and 7.9 percent at domestic franchise locations.

For the quarter, domestic systemwide sales increased 10.7 percent to $132.1 million, compared with the prior year. The company said worldwide system sales, on the basis of higher net international locations and in terms of constant dollars for overseas stores, rose 8.6 percent to $224 million.

"Our third-quarter performance reflects continued progress in strengthening our financial condition and realizing our vision for the Krispy Kreme brand," chief executive James H. Morgan said in a statement. "We generated a healthy increase in revenues, recorded our twelfth consecutive quarter of positive same-store sales at company stores, and delivered substantial improvements in both profitability and operating cash flow."

For the nine months ended Oct. 30, Krispy Kreme said its net income increased 149.5 percent to $22.7 million, or 32 cents per share, compared with $9.1 million, or 13 cents a share, in the same period a year earlier. Revenue for the nine months rose 11.5 percent to $301.3 million.

At the end of the third quarter, Krispy Kreme operated 89 units and franchised 141 domestic and 448 international locations, for a systemwide total of 678 units. At the end of the same 2010 quarter, the company operated 85 locations and franchised 143 domestic and 421 international sites, for 649 total systemwide locations.

Based on results through three quarters of its fiscal 2012 and "current information," Krispy Kreme revised upward its full-year guidance for consolidated operating income — exclusive of impairment charges and lease termination costs — from $24 million to $26 million, compared with the company's earlier estimates of $22 million to $24 million.

If the company hits that fiscal 2012 operating income target, it will have boosted income by more than 25 percent compared with fiscal 2011, officials said.

Addressing the upcoming fiscal 2013 year, the company said it anticipates opening five to 10 company stores and, on the franchising front, expects to see from 10 to 15 domestic units and more than 60 international locations open.

"Although the company looks for continued organic same-store sales growth in its domestic stores, international franchise same-store sales will likely continue to be pressured by the substantial growth in international markets in recent years," company officials said in a written statement regarding fiscal 2013.

If fiscal 2013 sees such continued "pressure" on same-store sales for international franchisees, which now generate about 41 percent of Krispy Kreme's worldwide systemwide sales, it will mark the sixth year of such declines.

Same-store sales at international franchise locations, in constant dollars, fell by 12.2 percent, 11.7 percent and 9.6 percent in fiscal 2012's third, second and first quarters, respectively, the company said. Its earlier reports to securities regulators indicated that international franchisee same-store sales decreased by 8.8 percent, 24.2 percent, 23.4 percent, and 11 percent in fiscal 2011, 2010, 2009, and 2008, respectively.

"We are expanding our international franchisee pipeline to expand our geographic reach and market penetration," Morgan said.

He indicated that those international expansion moves are among several strategies for fiscal 2013, including "a number of initiatives to improve profitability in the company stores segment in the years ahead," as well as "plans to reintroduce domestic franchise marketing, and improving support to our existing franchisees throughout the world."

— Alan J. Liddle, NRN.com