Add
KKD to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| KKD > SEC Filings for KKD > Form 10-Q on 12-Jun-2009 | All Recent SEC Filings |
12-Jun-2009
Quarterly Report
Krispy Kreme is a leading branded retailer and wholesaler of high-quality doughnuts and packaged sweets. The Company's principal business, which began in 1937, is owning and franchising Krispy Kreme doughnut stores at which over 20 varieties of high-quality doughnuts, including the Company's Original GlazedŽ doughnut, are made, sold and distributed together with complementary products, and where a broad array of coffees and other beverages are offered.
As of May 3, 2009, there were 536 Krispy Kreme stores operated systemwide in the United States, Australia, Bahrain, Canada, Indonesia, Japan, Kuwait, Lebanon, Malaysia, Mexico, the Philippines, Puerto Rico, Qatar, Saudi Arabia, South Korea, the United Arab Emirates and the United Kingdom. The ownership and location of those stores is as follows:
Domestic International Total
Number of stores at May 3, 2009:
Company 91 - 91
Franchise 130 315 445
Total 221 315 536
|
Of the 536 total stores, 277 were factory stores and 259 were satellite stores.
Factory stores (stores which contain a doughnut-making production line) often support multiple sales channels to more fully utilize production capacity and reach various consumer segments. These sales channels are comprised of on-premises sales (sales to customers visiting factory and satellite stores) and off-premises sales (sales to convenience stores, grocery stores/mass merchants and other food service and institutional accounts). Satellite stores, all of which serve only the on-premises distribution channel and which are supplied with doughnuts from a nearby factory store, consist primarily of the hot shop, fresh shop and kiosk formats. Hot shops contain doughnut heating equipment that allows customers to have a hot doughnut experience throughout the day. Fresh shops and free-standing kiosks do not contain doughnut heating equipment.
The Company generates revenues from four distinct sources: sales to on-premises and off-premises customers through stores operated by the Company, referred to as Company Stores; franchise fees and royalties from domestic franchise stores, referred to as Domestic Franchise; franchise fees and royalties from international franchise stores, referred to as International Franchise; and a vertically integrated supply chain, referred to as KK Supply Chain.
In the first quarter of fiscal 2010, the Company began disaggregating the results of operations of its franchise business into domestic and international components in its internal financial reporting. The Company has made the corresponding changes to its segment reporting, and now reports the revenues and expenses associated with its domestic and international franchise operations as separate segments, consistent with the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information." The Company's segment disclosures continue to be consistent with the way in which management views and evaluates the business. Amounts previously reported for the franchise segment for the first quarter of fiscal 2009 have been restated to conform to the new disaggregated segment presentation.
Franchisees opened 24 stores and closed nine stores in the first quarter of fiscal 2010. Royalty revenues and most of KK Supply Chain revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees' operations has a direct effect on the Company's revenues, results of operations and cash flows.
The following discussion of the Company's financial condition and results of operations should be read together with the Company's consolidated financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
The following table presents the Company's operating results for the first
quarter of fiscal 2010 and 2009 expressed as a percentage of total revenues
(percentage amounts may not add to totals due to rounding).
Three Months Ended
May 3, May 4,
2009 2008
Revenues 100.0 % 100.0 %
Operating expenses:
Direct operating expenses (exclusive of depreciation and amortization shown below) 82.4 86.3
General and administrative expenses 6.8 6.6
Depreciation and amortization expense 2.1 2.2
Impairment charges and lease termination costs 2.5 (0.6 )
Other operating (income) and expense, net - 0.1
Operating income 6.2 % 5.4 %
|
Data on the number of factory stores (including commissaries) appear in the table below.
NUMBER OF FACTORY STORES
DOMESTIC INTERNATIONAL
COMPANY FRANCHISE FRANCHISE TOTAL
Three months ended May 3, 2009:
FEBRUARY 1, 2009 83 104 94 281
Opened 1 - 3 4
Closed (4 ) (2 ) (2 ) (8 )
Converted to satellite stores - - - -
MAY 3, 2009 80 102 95 277
Three months ended May 4, 2008:
FEBRUARY 3, 2008 97 118 80 295
Opened - - 4 4
Closed - (5 ) (1 ) (6 )
Converted to satellite stores (4 ) - - (4 )
MAY 4, 2008 93 113 83 289
|
Data on the number of satellite stores appear in the table below.
NUMBER OF SATELLITE STORES
DOMESTIC INTERNATIONAL
COMPANY FRANCHISE FRANCHISE TOTAL
Three months ended May 3, 2009:
FEBRUARY 1, 2009 10 28 204 242
Opened 1 1 20 22
Closed - (1 ) (4 ) (5 )
Converted from factory stores - - - -
MAY 3, 2009 11 28 220 259
Three months ended May 4, 2008:
FEBRUARY 3, 2008 8 27 119 154
Opened - - 24 24
Closed - (1 ) - (1 )
Converted from factory stores 4 - - 4
MAY 4, 2008 12 26 143 181
|
NUMBER OF STORES
DOMESTIC INTERNATIONAL
COMPANY FRANCHISE FRANCHISE TOTAL
FACTORY STORES:
Domestic 80 102 - 182
International - - 95 95
Total factory stores 80 102 95 277
SATELLITE STORES:
Hot shops 11 13 24 48
Fresh shops - 15 146 161
Kiosks - - 50 50
Total satellite stores 11 28 220 259
|
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 appearing elsewhere herein 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.
The table below presents average weekly sales per store (which represents, on a Company and systemwide basis, total sales of all stores divided by the number of operating weeks for both factory and satellite stores). In addition, the table presents fiscal 2010 systemwide average weekly sales per store on a pro forma basis assuming the average rate of exchange between the U.S. dollar and each of the foreign currencies in which the Company's international franchisees conducts business had been the same in the first quarter of fiscal 2010 as in the first quarter of fiscal 2009. Store operating weeks represent, on a Company and systemwide basis, the aggregate number of weeks in a period that both factory and satellite stores were in operation.
Three Months Ended
May 3, May 4,
2009 2008
(Dollars in thousands)
Average weekly sales per store (1):
Company $ 54.3 $ 53.7
Systemwide $ 28.3 $ 35.3
Systemwide, exclusive of the effects of changes in
foreign currency rates $ 30.1 $ 35.3
Store operating weeks:
Company 1,209 1,339
Systemwide 6,543 5,699
____________________
|
(1) Excludes sales between Company and franchise stores.
THREE MONTHS ENDED MAY 3, 2009 COMPARED TO THREE MONTHS ENDED MAY 4, 2008
Systemwide sales for the first quarter of fiscal 2010 decreased approximately 8.0% compared to the first quarter of fiscal 2009. Exclusive of the effects of changes in foreign currency exchange rates, systemwide sales decreased 2.3%. The systemwide sales decrease reflects a 7.6% decrease in franchise store sales and an 8.8% decrease in Company Stores sales. Adjusted to exclude the effects of changes in foreign currency exchange rates, franchise sales rose 1.3%. Systemwide average weekly sales per store are lower than Company average weekly sales per store principally because satellite stores, which generally have lower average weekly sales than factory stores, have to date been operated almost exclusively by franchisees. In addition, the increasing percentage of total stores which are satellite stores has the effect of reducing the overall systemwide average weekly sales per store.
Total revenues decreased 9.9% to $93.4 million for the three months ended May 3, 2009 from $103.6 million for the three months ended May 4, 2008. The decrease was comprised of an 8.8% decrease in Company Stores revenues to $65.9 million, a 0.2% increase in Domestic Franchise revenues to $2.1 million, a 13.2% decrease in International Franchise revenues to $3.9 million, and a 13.3% decrease in KK Supply Chain revenues to $21.6 million.
Revenues by business segment (expressed in dollars and as a percentage of total revenues) are set forth in the table below (percentage amounts may not add to totals due to rounding).
Three Months Ended
May 3, May 4,
2009 2008
(Dollars in thousands)
REVENUES BY BUSINESS SEGMENT:
Company Stores $ 65,857 $ 72,182
Domestic Franchise 2,051 2,046
International Franchise 3,878 4,466
KK Supply Chain:
Total revenues 44,858 50,719
Less - intersegment sales elimination (23,224 ) (25,772 )
External KK Supply Chain revenues 21,634 24,947
Total revenues $ 93,420 $ 103,641
PERCENTAGE OF TOTAL REVENUES:
Company Stores 70.5 % 69.6 %
Domestic Franchise 2.2 2.0
International Franchise 4.2 4.3
KK Supply Chain 23.2 24.1
Total revenues 100.0 % 100.0 %
|
Company Stores Revenues. Company Stores revenues decreased 8.8% to $65.9 million in the first quarter of fiscal 2010 from $72.2 million in the first quarter of fiscal 2009. The decrease reflects a 9.7% decline in store operating weeks, partially offset by a 1.1% increase in average weekly sales per store. The decrease in store operating weeks reflects the refranchising or closure of 13 Company factory stores and three Company satellite stores since the beginning of the first quarter of fiscal 2009. The Company continuously reviews the performance of its stores and may decide to refranchise or close additional locations.
On-premises sales (which include fundraising sales) comprised approximately 49% and 46% of total Company Stores revenues in the first quarter of fiscal 2010 and 2009, respectively, with the balance comprised of off-premises sales.
The following table sets forth statistical data with respect to on- and off-premises sales by Company stores. The change in "same store sales" is computed by dividing the aggregate on-premises sales (including fundraising sales) during the current year period for all stores which had been open for more than 56 consecutive weeks during the current year period (but only to the extent such sales occurred in the 57th or later week of each store's operation) by the aggregate on-premises sales of such stores for the comparable weeks in the preceding year period. Once a store has been open for at least 57 consecutive weeks, its sales are included in the computation of same stores sales for all subsequent periods. In the event a store is closed temporarily (for example, for remodeling) and has no sales during one or more weeks, such store's sales for the comparable weeks during the earlier or subsequent period are excluded from the same store sales computation. For off-premises sales, "average weekly number of doors" represents the average number of customer locations to which product deliveries are made during a week, and "average weekly sales per door" represents the average weekly sales to each such location.
Three Months Ended
May 3, May 4,
2009 2008
ON-PREMISES:
Change in same store sales 2.1 % 1.2 %
OFF-PREMISES:
Change in average weekly number of doors (9.4 )% (6.7 )%
Change in average weekly sales per door (1.2 )% (8.6 )%
|
Domestic Franchise Revenues. Domestic Franchise revenues consist principally of royalties payable to the Company by domestic franchisees based upon the domestic franchisees' sales and initial franchise fees earned by the Company in connection with new store openings by domestic franchisees. The components of Domestic Franchise revenues are as follows:
Three Months Ended
May 3, May 4,
2009 2008
(In thousands)
Royalties $ 1,997 $ 1,977
Development and franchise fees - 2
Other 54 67
Total Domestic Franchise revenues $ 2,051 $ 2,046
|
Domestic royalty revenues were flat at $2.0 million in the first quarter of fiscal 2010 and in the first quarter of fiscal 2009. Sales by domestic franchise stores, as reported by the domestic franchisees, were approximately $58 million in the first quarter of fiscal 2010 and $64 million in the first quarter of fiscal 2009. In the first quarter of fiscal 2009, the Company did not recognize as revenue approximately $160,000 of domestic uncollected royalties which accrued during the first quarter of 2009 because the Company did not believe collection of these royalties was reasonably assured.
Domestic franchisees opened one store and closed three stores in the first quarter of fiscal 2010. Royalty revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees' operations has a direct effect on the Company's revenues, results of operations and cash flows.
International Franchise Revenues. International Franchise revenues consist principally of royalties payable to the Company by international franchisees based upon the international franchisees' sales and initial franchise fees earned by the Company in connection with new store openings by international franchisees. The components of International Franchise revenues are as follows:
Three Months Ended
May 3, May 4,
2009 2008
(In thousands)
Royalties $ 3,470 $ 3,762
Development and franchise fees 408 645
Other - 59
Total International Franchise revenues $ 3,878 $ 4,466
|
International royalty revenues fell to $3.5 million in the first quarter of fiscal 2010 from $3.8 million in the first quarter of fiscal 2009. Sales by international franchise stores, as reported by the franchisees, were approximately $62 million in the first quarter of fiscal 2010 and $65 million in the first quarter of fiscal 2009. Changes in the rates of exchange between the U.S. dollar and the foreign currencies in which the Company's international franchisees do business reduced sales by international franchisees measured in U.S. dollars by approximately $12 million in the first quarter of fiscal 2010 compared to the first quarter of last year, and a generally stronger U.S. dollar adversely affected international royalty revenues by approximately $700,000 compared to the first quarter of fiscal 2009.
International franchisees opened 23 stores and closed six stores in the first quarter of fiscal 2010. Royalty revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees' operations has a direct effect on the Company's revenues, results of operations and cash flows.
KK Supply Chain Revenues. KK Supply Chain revenues before intersegment sales elimination decreased 11.6% to $44.9 million in the first quarter of fiscal 2010 from $50.7 million in the first quarter of fiscal 2009. The most significant reason for the decrease in revenues was lower unit sales of mixes, ingredients and supplies by KK Supply Chain resulting from lower sales by Company and Domestic Franchise stores. The decline in KK Supply Chain revenues also reflects selling price reductions for doughnut mixes and certain other ingredients instituted by KK Supply Chain in fiscal 2010 in order to pass along to Company and franchise stores reductions in the Company's cost of flour and shortening. In addition, an increasing percentage of franchisee sales is attributable to sales by franchisees outside North America. Many of the ingredients and supplies used by international franchisees are acquired locally instead of from KK Supply Chain.
Franchisees opened 24 stores and closed nine stores in the first quarter of fiscal 2010. A significant majority of KK Supply Chain's revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees' operations has a direct effect on the Company's revenues, results of operations and cash flows.
Direct Operating Expenses
Direct operating expenses, which exclude depreciation and amortization
expense, were 82.4% of revenues in the first quarter of fiscal 2010 compared to
86.3% of revenues in the first quarter of fiscal 2009. Direct operating expenses
by business segment (expressed in dollars and as a percentage of applicable
segment revenues) are set forth in the table below. Such operating expenses are
consistent with the segment operating income data set forth in Note 8 to the
consolidated financial statements appearing elsewhere herein.
Three Months Ended
May 3, May 4,
2009 2008
(Dollars in thousands)
DIRECT OPERATING EXPENSES BY BUSINESS SEGMENT:
Company Stores $ 61,421 $ 70,792
Domestic Franchise 850 905
International Franchise 1,443 1,144
KK Supply Chain:
Total direct operating expenses 36,293 42,570
Less - intersegment eliminations (23,039 ) (25,932 )
KK Supply Chain direct operating expenses, less intersegment eliminations 13,254 16,638
Total direct operating expenses $ 76,968 $ 89,479
DIRECT OPERATING EXPENSES AS A PERCENTAGE OF SEGMENT
REVENUES:
Company Stores 93.3 % 98.1 %
Domestic Franchise 41.4 % 44.2 %
International Franchise 37.2 % 25.6 %
KK Supply Chain (before intersegment eliminations) 80.9 % 83.9 %
Total direct operating expenses 82.4 % 86.3 %
|
Company Stores Direct Operating Expenses. Company Stores direct operating expenses as a percentage of Company Stores revenues decreased to 93.3% in the first quarter of fiscal 2010 from 98.1% in the first quarter of fiscal 2009. The decrease reflects lower costs of doughnut mix and certain other ingredients resulting from price decreases instituted by KK Supply Chain in the first quarter of fiscal 2010. In addition, decreased delivery costs resulting from lower gasoline prices favorably affected costs in the first quarter of fiscal 2010 compared to the first quarter of last year.
|
|