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Krispy Kreme Announces Fourth Quarter and Fiscal 2007 Annual Results
WINSTON-SALEM, N.C., April 12 /PRNewswire-FirstCall/ -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) today reported financial results for the fourth quarter and fiscal year ended January 28, 2007, and plans to file with the Securities and Exchange Commission its Annual Report on Form 10-K. The Annual Report will be available at http://www.sec.gov/. Revenues for the fourth quarter decreased 8.2% to $112.2 million compared to $122.2 million in the fourth quarter of last year. Company Stores sales decreased 11.2% to $79.2 million, revenues from franchise operations increased 34.0% to $5.8 million, and Krispy Kreme Supply Chain ("KK Supply Chain," formerly called "Krispy Kreme Manufacturing and Distribution") revenues decreased 5.2% to $27.2 million. Fourth quarter systemwide sales decreased 6.4% from the fourth quarter of last year. Systemwide average weekly sales per store increased approximately 2% from the prior year period to approximately $39,500 per store, and Company Store average weekly sales per store increased to approximately $54,100 per store. The higher Company Store average weekly sales per store data reflect, among other things, store closures (including those formerly operated by consolidated franchisees) and the related shift in off-premises doughnut production into a fewer number of factory stores. Excluding the stores formerly operated by consolidated franchisees, Company Store average weekly sales per store increased approximately 9% versus the prior comparable period. The net loss for the fourth quarter was $24.4 million, or $0.39 per diluted share, compared to a net loss of $37.7 million, or $0.61 per diluted share, in the comparable period last year. The net loss for the quarter includes a charge related to the settlement of litigation of approximately $16.0 million, representing the increase from October 29, 2006 to January 28, 2007 in the estimated fair value of the securities issued by the Company on March 2, 2007 in connection with the previously announced settlement of the class action litigation and partial settlement of the shareholder derivative action. During the fourth quarter, the Company recorded a $2.1 million provision for doubtful accounts substantially all of which relates to receivables from franchisees. Also during the quarter, the Company recorded a $1.3 million charge related to the proposed settlement of certain wage and hour complaints lodged against the Company. During the quarter, 28 new Krispy Kreme stores, comprised of 12 factory stores and 16 satellites, were opened systemwide, and 14 stores, comprised of 9 factory stores and 5 satellites, were closed. This brings the total number of stores systemwide at year-end to 395, consisting of 296 factory stores and 99 satellites. For fiscal 2007, revenues decreased 15.1% to $461.2 million compared to $543.4 million in fiscal 2006. Company Stores sales decreased 18.1% to $326.2 million, revenues from franchise operations increased 14.6% to $21.1 million and KK Supply Chain sales to franchise stores decreased 10.0% to $113.9 million. Systemwide sales decreased 11.9% compared to fiscal 2006. The net loss for fiscal 2007 was $42.2 million, or $0.68 per diluted share, compared with a net loss of $135.8 million, or $2.20 per diluted share, in fiscal 2006. Impairment charges and lease termination costs were $12.5 million and $55.1 million, in fiscal 2007 and 2006, respectively, and litigation settlement costs were $16.0 million compared to $35.8 million, respectively. In fiscal 2007 and 2006, the Company incurred professional fees, net of anticipated insurance recoveries, of approximately $9.0 million and $31.8 million, respectively, associated with internal and external investigations, litigation and the interim management firm engaged by the Company in January 2005. The fiscal 2007 amount includes a credit of $2.3 million recorded in the fourth quarter resulting from reimbursements from insurance companies of costs and expenses in excess of amounts previously estimated. "We have made progress during the past year, including resolving important legal matters, restoring positive cash flow, getting current with our financials, and closing a new senior secured credit facility," said Daryl Brewster, President and Chief Executive Officer of Krispy Kreme Doughnuts, Inc. "Additionally, we've seen stability in our overall average unit volume, developed a pipeline for new products and seen growth internationally utilizing a flexible real estate model." Krispy Kreme management will host a conference call to review fourth quarter and fiscal 2007 results on April 12, 2007 at 4:30 p.m. (ET). A live webcast of the conference call will be available at http://www.krispykreme.com/investorrelations.html and http://www.streetevents.com/. An archived audio replay will be available shortly following the conference call. To access the telephone replay dial 1-888-286-8010 and enter the passcode number 88142729. International callers may access the replay by dialing 1- 617-801-6888 and entering passcode 88142729. The audio replay will be available through April 26, 2007. The conference call webcast will be archived and accessible for one month. Systemwide sales, a non-GAAP financial measure, include sales by both Company and franchise stores. The Company believes systemwide sales data are useful in assessing the overall performance of the Krispy Kreme brand and, ultimately, the performance of the Company. The Company's consolidated financial statements include sales by Company stores, sales to franchisees by the KK Supply Chain business segment, and royalties and fees received from franchisees, but exclude sales by franchise stores to their customers. Information contained in this press release, other than historical information, should be considered forward-looking. Forward-looking statements are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on Krispy Kreme's operating results, performance or financial condition are the outcome of pending governmental investigations, including by the Securities and Exchange Commission and the United States Attorney's Office for the Southern District of New York; potential indemnification obligations and limitations of our director and officer liability insurance; material weaknesses in our internal control over financial reporting; our ability to implement remedial measures necessary to improve our processes and procedures; negative publicity; significant changes in our management; our ability, and our dependence on the ability of our franchisees, to execute our and their business plans; our ability to implement our international growth strategy; currency, economic, political and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients; compliance with governmental regulations relating to food products and franchising; our relationships with wholesale customers; our ability to protect our trademarks; restrictions on our operations contained in our senior secured credit facilities; changes in customer preferences and perceptions; risks associated with competition; and other factors discussed in Krispy Kreme's Annual Report on Form 10-K for fiscal 2007 and other periodic reports filed with the Securities and Exchange Commission. KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
January 28, January 29,
2007 2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $36,242 $16,980
Receivables 26,769 26,677
Accounts and notes receivable -- equity method
franchisees 834 12,151
Inventories 21,006 23,761
Insurance recovery receivable 34,967 34,967
Deferred income taxes - 848
Other current assets 12,000 31,641
Total current assets 131,818 147,025
Property and equipment 168,654 205,579
Non-current portion of notes receivable --
equity method franchisees - 42
Investments in equity method franchisees 3,224 8,601
Goodwill and other intangible assets 28,934 30,291
Deferred income taxes 20 -
Other assets 16,842 19,317
Total assets $349,492 $410,855
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ - $54
Current maturities of long-term debt 1,730 4,432
Book overdraft - 60
Accounts payable 7,874 8,897
Accrued litigation settlement 86,772 70,800
Deferred income taxes 20 -
Other accrued liabilities 38,474 69,676
Total current liabilities 134,870 153,919
Long-term debt, less current maturities 105,966 118,241
Deferred income taxes - 848
Other long-term obligations 29,694 29,176
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 10,000 shares
authorized; none issued and outstanding - -
Common stock, no par value; 300,000 shares
authorized; 62,670 and 61,841 shares issued
and outstanding 310,942 298,255
Accumulated other comprehensive income 1,266 1,426
Accumulated deficit (233,246) (191,010)
Total shareholders' equity 78,962 108,671
Total liabilities and shareholders' equity $349,492 $410,855
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Year Ended
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2007 2006 2007 2006
Revenues $112,188 $122,246 $461,195 $543,361
Operating expenses:
Direct operating expenses
(exclusive of depreciation and
amortization shown below) 99,054 108,849 389,379 474,591
General and administrative
expenses 7,642 17,060 48,860 67,727
Depreciation and amortization
expense 4,932 6,520 21,046 28,920
Impairment charges and lease
termination costs 5,959 25,344 12,519 55,062
Settlement of litigation 15,972 - 15,972 35,833
Operating (loss) (21,371) (35,527) (26,581) (118,772)
Interest income 459 299 1,627 1,110
Interest expense (4,969) (4,986) (20,334) (20,211)
Equity in (losses) of equity
method franchisees 82 (578) (842) (4,337)
Minority interests in results of
consolidated franchisees - 2,696 - 4,181
Other income and (expense), net 1,813 739 5,105 1,493
(Loss) before income taxes (23,986) (37,357) (41,025) (136,536)
Provision for income taxes
(benefit) 430 370 1,211 (776)
Net (loss) (24,416) (37,727) (42,236) (135,760)
(Loss) per common share:
Basic $(.39) $(.61) $(.68) $(2.20)
Diluted $(.39) $(.61) $(.68) $(2.20)
KRISPY KREME DOUGHNUTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
January 28, January 29,
2007 2006
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) (42,236) (135,760)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 21,046 28,920
Deferred income taxes (12) (1,888)
Impairment charges 10,762 53,734
Settlement of litigation 15,972 35,833
Accrued rent expense 1,029 374
(Gain) loss on disposal of property and equipment 1,786 (1,807)
(Gain) on sale of interests in equity method
franchisees (7,308) -
Share-based compensation 9,849 6,862
Provision for doubtful accounts 3,390 6,033
Amortization of deferred financing costs 2,925 2,544
Minority interests in results of consolidated
franchisees - (4,181)
Equity in losses of equity method franchisees 842 4,337
Cash distributions from equity method franchisees - 453
Other 407 295
Change in assets and liabilities:
Receivables 501 2,252
Inventories 2,558 4,123
Other current and non-current assets 6,850 (2,971)
Accounts payable and accrued liabilities (9,054) 435
Other long-term obligations 2,801 2,277
Net cash provided by operating activities 22,108 1,865
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,005) (10,381)
Proceeds from disposals of property and equipment 9,663 7,330
Acquisition of franchisees and interest therein, net
of cash acquired - 428
Investments in and advances to equity method
franchisees (818) (12,219)
Recovery of investments in and advances to franchise
investee 2,500 2,542
Proceeds from sale of interests in equity method
franchisees 9,591 -
Acquisition of stores from franchisee (2,900) -
Decrease in other assets 14 612
Net cash provided by (used for) investing activities 14,045 (11,688)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of short-term debt 2,984 2,274
Repayment of short-term debt (3,038) (2,220)
Issuance of long-term debt - 120,000
Repayment of long-term debt (14,936) (108,475)
Net (repayments) under revolving credit lines - (1,606)
Deferred financing costs (427) (9,472)
Proceeds from exercise of stock options - 154
Net change in book overdraft (60) (8,420)
Collection of notes receivable secured by common stock - 197
Cash received from minority interests - 7,706
Net cash provided by (used for) financing activities (15,477) 138
Effect of exchange rate changes on cash (1) (10)
Cash balances of subsidiaries at date of
deconsolidation (1,413) (1,011)
Net increase (decrease) in cash and cash equivalents 19,262 (10,706)
Cash and cash equivalents at beginning of period 16,980 27,686
Cash and cash equivalents at end of period $36,242 $16,980
KRISPY KREME DOUGHNUTS, INC.
SELECTED OPERATING STATISTICS
(Dollars in thousands)
Three Months Ended Year Ended
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2007 2006 2007 2006
Year over year percentage
change in systemwide sales (1) (6.4)% (17.1)% (11.9)% (16.6)%
Average weekly sales per factory
store(2)
Company $55.6 $47.3 $54.6 $48.5
Systemwide $50.7 $45.9 $49.6 $46.3
Factory store operating weeks (3)
Company 1,417 1,863 5,905 8,112
Systemwide 3,792 4,464 15,742 19,136
Average weekly sales per store (4)
Company $54.1 $46.6 $52.9 $47.7
Systemwide $39.5 $38.5 $39.5 $41.4
Store operating weeks (5)
Company 1,456 1,890 6,092 8,260
Systemwide 4,869 5,320 19,767 21,383
Revenues:
Company Stores $79,186 $89,202 $326,199 $398,450
Franchise 5,756 4,294 21,075 18,394
KK Supply Chain 52,382 57,046 219,991 253,367
Intersegment sales eliminations (25,136) (28,296) (106,070) (126,850)
Total revenues $112,188 $122,246 $461,195 $543,361
Operating income (loss):
Company Stores $(1,267) $(2,306) $2,585 $(3,681)
Franchise 3,788 3,019 16,354 13,232
KK Supply Chain 6,013 6,613 33,310 32,154
Unallocated general and
administrative expenses (7,974) (17,509) (50,339) (69,582)
Impairment charges and lease
termination costs (5,959) (25,344) (12,519) (55,062)
Settlement of litigation (15,972) - (15,972) (35,833)
Total operating (loss) $(21,371) $(35,527) $(26,581) (118,772)
Depreciation and amortization
expense:
Company Stores $3,720 $5,159 $15,979 $23,416
Franchise 24 32 119 145
KK Supply Chain 856 880 3,469 3,504
Corporate administration 332 449 1,479 1,855
Total depreciation and
amortization expense $4,932 $6,520 $21,046 $28,920
(1) Systemwide sales, a non-GAAP financial measure, include the sales by
both Company and franchise stores. The Company believes systemwide
sales data is useful in assessing the overall performance of the
Krispy Kreme brand and, ultimately, the performance of the Company.
(2) Represents, on a Company and systemwide basis, total sales of all
stores divided by the number of operating weeks for factory stores.
(3) Represents, on a Company and systemwide basis, the aggregate number of
operating weeks for factory stores.
(4) Represents, on a Company and systemwide basis, total sales of all
stores divided by the number of operating weeks for both factory
stores and satellites.
(5) Represents, on a Company and systemwide basis, the aggregate number of
operating weeks for both factory stores and satellite stores.
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