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KKD - Krispy Kreme Reports Financial Results for the Second Quarter of Fiscal 2013

Management Targets High End of Full Year Outlook
PR NewswirePress Release: Krispy Kreme Doughnut Corporation – 31 minutes ago


WINSTON-SALEM, N.C., Aug. 22, 2012 /PRNewswire/ -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the second quarter of fiscal 2013, ended July 29, 2012. The Company also reaffirmed its outlook for the full fiscal year and is targeting the high end of its previously announced range.

Second Quarter Fiscal 2013 Highlights Compared to the Year-Ago Period:

Revenues increased 4.3% to $102.1 million from $98.0 million
Company same store sales rose 5.4%, the fifteenth consecutive quarterly increase
Operating income rose 87% to $9.2 million from $4.9 million
Adjusted net income rose 95% to $8.2 million ($0.12 per share) from $4.2 million ($0.06 per share); adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash and, in the second quarter of fiscal 2012, exclude the after-tax gain on the sale of the Company's 30% equity interest in KK Mexico; adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release)
Net income was $4.9 million ($0.07 per share) compared to $8.8 million ($0.12 per share) in the second quarter last year; net income for the second quarter of fiscal 2013 reflects a substantially higher book income tax rate compared to the second quarter of fiscal 2012 as more fully described below; net income for the second quarter of fiscal 2012 included an after-tax gain on the sale of the Company's 30% equity interest in KK Mexico of $4.7 million ($0.06 per share)
Cash provided by operating activities was $12.6 million compared to $7.6 million in the second quarter last year
The Company completed its $20 million share repurchase in the quarter, purchasing 2,858,000 shares at an average price of $6.35; cumulatively, the Company purchased 3,113,000 shares at an average price of $6.42

The Company ended the second quarter of fiscal 2013 with a total of 711 Krispy Kreme stores systemwide, a net increase of 19 shops during the quarter. As of July 29, 2012, there were 93 Company stores and 618 franchise locations.

President and Chief Executive Officer James H. Morgan commented: "We were very pleased with our quarterly performance, as we drove both solid same store sales growth and increased guest traffic. The top-line momentum translated into significant year-over-year increases in both operating income and adjusted earnings per share. The period was highlighted by our 75th Birthday celebration and by National Doughnut Day, each of which provided consumers another reason to visit Krispy Kreme and create some lasting joyful memories." Morgan continued, "Based on our performance to date, we are reiterating our operating income guidance for the full year of $29 to $33 million, although we now believe the high end of that range is increasingly achievable."

Full Year Outlook

Management expects fiscal 2013 operating income of between $29 and $33 million, compared to $25.6 million in fiscal 2012, and fiscal 2013 adjusted EPS, which includes income tax expense only the extent currently payable in cash, of between $0.36 and $0.42, compared to $0.31 in fiscal 2012; adjusted EPS for fiscal 2012 also excludes the gain on the sale of the Company's 30% equity interest in KK Mexico. Adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).

Management expects fiscal 2013 GAAP EPS of between $0.22 and $0.25, reflecting an estimated tax rate of 45%. The higher tax rate compared to fiscal 2012 is a result of the required reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012, as described in the Company's March 20, 2012 earnings release and in the Company's annual report on Form 10-K filed on March 30, 2012. Because the Company has substantial net operating loss carryovers, the amount of taxes payable in cash is expected to remain insignificant for the foreseeable future.

The expected range for both fiscal 2013 adjusted and GAAP EPS is $0.01 per share higher than management's previous guidance and reflects the completion of the $20 million share repurchase.

Second Quarter Fiscal 2013 Results

Consolidated Results

For the second quarter ended July 29, 2012, revenues increased 4.3% to $102.1 million from $98.0 million.

Direct operating expenses were unchanged at $85.7 million, but as a percentage of total revenues fell to 83.9% from 87.5%. General and administrative expenses decreased to $4.8 million from $4.9 million in the year-ago period and, as a percentage of total revenues, decreased to 4.7% from 5.0%.

Operating income increased to $9.2 million from $4.9 million.

Adjusted net income was $8.2 million ($0.12 per share) compared to $4.2 million ($0.06 per share) in the second quarter last year. Adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash and, in the second quarter of last year, exclude the gain on the sale of the Company's 30% equity interest in KK Mexico. Adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).

Net income was $4.9 million ($0.07 per share) compared to $8.8 million ($0.12 per share), in the second quarter last year. Last year's results included an after tax gain of $4.7 million ($0.06 per share) on the sale of the Company's interest in KK Mexico. In addition, net income and EPS for the second quarter of fiscal 2013 reflect a book tax rate of 45% compared to a rate of 12% in the second quarter last year (exclusive of the KK Mexico gain). The increase reflects the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012. Accordingly, net income and EPS for the second quarter of fiscal 2013 are not comparable to those for the second quarter of fiscal 2012.

Segment Results

Company Stores revenues increased 5.1% to $69.3 million from $66.0 million. Same store sales at Company stores rose 5.4%, the fifteenth consecutive quarterly increase, and were driven by higher traffic. The Company Stores segment posted operating income of $338,000 compared to an operating loss of $1.0 million in the second quarter last year.

Domestic Franchise revenues rose 3.4% to $2.4 million from $2.3 million, reflecting higher royalties partially offset by lower initial franchise fees. Total sales by domestic franchisees rose 7.3%, while same store sales increased 6.7%. Domestic Franchise segment operating income improved to $1.3 million compared to $216,000 in the second quarter last year. Last year's results included a charge of $820,000 for estimated payments under a lease guarantee related to a franchisee whose franchise agreements were terminated in the second quarter of fiscal 2012.

International Franchise revenues increased 8.0% to $5.8 million from $5.4 million, driven by higher royalty revenues. Sales by international franchise stores rose 7.1%. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 10.0%, reflecting, among other things, honeymoon effects from the substantial number of international store openings in recent years, as well as cannibalization as markets develop. The International Franchise segment generated operating income of $4.2 million, up from $3.4 million in the second quarter last year.

KK Supply Chain revenues (including sales to Company stores) rose 2.2% to $51.5 million from $50.3 million in the same period last year. External KK Supply Chain revenues rose 1.3% to $24.6 million from $24.3 million in the year-ago period. KK Supply Chain generated operating income of $8.4 million in the second quarter of fiscal 2013, up from $7.7 million in the second quarter last year. This year's results reflect favorable mark-to-market adjustments on agricultural derivatives of approximately $1.1 million.

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