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KKD > SEC Filings for KKD > Form 10-Q on 14-Jun-2013All Recent SEC Filings

Show all filings for KRISPY KREME DOUGHNUTS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for KRISPY KREME DOUGHNUTS INC


14-Jun-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of the Company's financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein.

Results of Operations

   The following table sets forth operating metrics for the three months ended
May 5, 2013 and April 29, 2012.

                                       23

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                                                                         Three Months Ended
                                                                    May 5,               April 29,
                                                                     2013                  2012
Change in Same Store Sales (on-premises sales only):
    Company stores                                                      11.4   %               2.1   %
    Domestic Franchise stores                                           11.3   %               5.8   %
    International Franchise stores                                     (11.0 ) %              (7.9 ) %
    International Franchise stores, in constant dollars(1)              (7.3 ) %              (7.4 ) %

Change in Same Store Customer Count - Company stores
    (retail sales only)                                                 10.3   %               1.3   %

Average guest check - Company stores (retail sales only)       $        7.33         $        7.14

Wholesale Metrics (Company stores only):
    Average weekly number of doors served:
        Grocery/mass merchants                                         5,370                 5,603
        Convenience stores                                             4,481                 4,600

    Average weekly sales per door:
        Grocery/mass merchants                                 $         366         $         316
        Convenience stores                                               266                   248

Systemwide Sales (in thousands):(2)
    Company stores                                             $      81,121         $      72,805
    Domestic Franchise stores                                         80,986                71,972
    International Franchise stores                                   110,255               104,920
    International Franchise stores, in constant dollars(3)           110,255               101,514

Average Weekly Sales Per Store (in thousands):(4) (5)
    Company stores:
        Factory stores:
           Commissaries - wholesale                            $       203.2         $       181.9
           Dual-channel stores:
               On-premises                                              40.3                  35.6
               Wholesale                                                50.9                  46.9
                  Total                                                 91.2                  82.5
           On-premises only stores                                      40.4                  35.1
           All factory stores                                           80.0                  72.5
        Satellite stores                                                23.4                  21.3
        All stores                                                      67.5                  61.3

    Domestic Franchise stores:
        Factory stores                                         $        54.3         $        47.7
        Satellite stores                                                18.6                  18.0

    International Franchise stores:
        Factory stores                                         $        40.8         $        41.1
        Satellite stores                                                10.4                  11.7


(1) Represents the change in International Franchise same store sales computed by reconverting franchise store sales in each foreign currency to U.S. dollars at a constant rate of exchange for each period.
(2) Excludes sales among Company and franchise stores.
(3) Represents International Franchise store sales computed by reconverting International Franchise store sales for the three months ended April 29, 2012 to U.S. dollars based upon the weighted average of the exchange rates prevailing in the three months ended May 5, 2013.
(4) Includes sales between Company and franchise stores.
(5) Metrics for the three months ended May 5, 2013 and April 29, 2012 include only stores open at the respective period end.

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 (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. Once a store has been open for at least 57 consecutive weeks, its sales are included in the computation of same store 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. The change in same store customer count is similarly computed, but is based upon the number of retail transactions reported in the Company's point-of-sale system.

For wholesale sales, "average weekly number of doors" represents the average number of customer locations to which product deliveries were made during a week, and "average weekly sales per door" represents the average weekly sales to each such location.

Systemwide sales, a non-GAAP financial measure, include sales by both Company and franchise Krispy Kreme stores. The Company believes systemwide sales data are useful in assessing consumer demand for the Company's products, the overall success of the Krispy Kreme brand and, ultimately, the performance of the Company. All of the Company's royalty revenues are computed as percentages of sales made by the Company's domestic and international franchisees, and substantially all of KK Supply Chain's external sales of doughnut mixes and other ingredients ultimately are determined by demand for the Company's products at franchise stores. Accordingly, sales by the Company's franchisees have a direct effect on the Company's royalty and KK Supply Chain revenues, and therefore on the Company's profitability. 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 franchise stores based on their sales, but exclude sales by franchise stores to their customers.

The following table sets forth data about the number of systemwide stores as of May 5, 2013 and April 29, 2012.

                                                    May 5,     April 29,
                                                     2013        2012
Number of Stores Open At Period End:
    Company stores:
        Factory:
           Commissaries                                  7             7
           Dual-channel stores                          34            35
           On-premises only stores                      33            30
        Satellite stores                                21            20
               Total Company stores                     95            92

    Domestic Franchise stores:
        Factory stores                                 102           102
        Satellite stores                                44            40
           Total Domestic Franchise stores             146           142

    International Franchise stores:
        Factory stores                                 121           115
        Satellite stores                               411           343
           Total International Franchise stores        532           458

               Total systemwide stores                 773           692


The following table sets forth data about the number of store operating weeks for the three months ended May 5, 2013 and April 29, 2012.

                                            Three Months Ended
                                           May 5,     April 29,
                                            2013        2012
Store Operating Weeks:
    Company stores:
        Factory stores:
           Commissaries                        91            91
           Dual-channel stores                448           455
           On-premises only stores            413           390
        Satellite stores                      266           260

    Domestic Franchise stores:(1)
        Factory stores                      1,307         1,314
        Satellite stores                      560           519

    International Franchise stores:(1)
        Factory stores                      1,385         1,313
        Satellite stores                    5,132         4,268

(1) Metrics for the three months ended May 5, 2013 and April 29, 2012 include only stores open at the respective period end.

The following table sets forth the types and locations of Company stores as of May 5, 2013.

                                    Number of Company Stores
                         Factory
       State             Stores      Hot Shops     Fresh Shops     Total
Alabama                        3             -               -         3
District of Columbia           -             1               -         1
Florida                        4             -               -         4
Georgia                        7             5               -        12
Indiana                        3             1               -         4
Kansas                         2             -               -         2
Kentucky                       3             1               -         4
Louisiana                      1             -               -         1
Maryland                       2             -               -         2
Michigan                       3             -               -         3
Mississippi                    1             -               -         1
Missouri                       1             -               -         1
New York                       -             -               1         1
North Carolina                13             4               -        17
Ohio                           6             -               -         6
South Carolina                 5             3               -         8
Tennessee                     10             3               -        13
Texas                          3             -               -         3
Virginia                       6             2               -         8
West Virginia                  1             -               -         1
Total                         74            20               1        95


Changes in the number of Company stores during the three months ended May 5, 2013 and April 29, 2012 are summarized in the table below.

                                                   Number of Company Stores
                                       Factory
                                       Stores       Hot Shops     Fresh Shops     Total
Three months ended May 5, 2013
February 3, 2013                         76                20               1       97
Opened                                    1                 -               -        1
Closed                                    -                 -               -        -
Transferred to Domestic Franchise        (3 )               -               -       (3 )
May 5, 2013                              74                20               1       95

Three months ended April 29, 2012
January 29, 2012                         72                19               1       92
Opened                                    -                 -               -        -
Closed                                    -                 -               -        -
April 29, 2012                           72                19               1       92


The following table sets forth the types and locations of domestic franchise stores as of May 5, 2013.

                         Number of Domestic Franchise Stores
                   Factory
    State          Stores      Hot Shops     Fresh Shops     Total
Alabama                  5             3               -         8
Arizona                  1             3               -         4
Arkansas                 2             -               -         2
California              15             1               4        20
Colorado                 2             -               -         2
Connecticut              1             -               3         4
Florida                 12             7               1        20
Georgia                  5             3               -         8
Hawaii                   1             -               -         1
Idaho                    1             -               -         1
Illinois                 3             -               -         3
Iowa                     1             -               -         1
Kansas                   1             -               -         1
Louisiana                2             -               -         2
Mississippi              3             1               -         4
Missouri                 4             1               -         5
Nebraska                 1             -               1         2
Nevada                   3             -               2         5
New Jersey               -             1               -         1
New Mexico               1             1               1         3
North Carolina           7             1               -         8
Oklahoma                 2             -               -         2
Oregon                   2             -               -         2
Pennsylvania             4             3               1         8
South Carolina           6             2               1         9
Tennessee                1             -               -         1
Texas                    7             2               -         9
Utah                     2             -               -         2
Washington               6             -               -         6
Wisconsin                1             1               -         2
Total                  102            30              14       146


Changes in the number of domestic franchise stores during the three months ended May 5, 2013 and April 29, 2012 are summarized in the table below.

                                                         Number of Domestic Franchise Stores
                                          Factory
                                          Stores            Hot Shops         Fresh Shops            Total
Three months ended May 5, 2013
February 3, 2013                                 99                 29                 14                 142
Opened                                            -                  1                  -                   1
Closed                                            -                  -                  -                   -
Transferred from Company Stores                   3                  -                  -                   3
May 5, 2013                                     102                 30                 14                 146

Three months ended April 29, 2012
January 29, 2012                                102                 25                 15                 142
Opened                                            1                  2                  -                   3
Closed                                           (1 )               (1 )               (1 )                (3 )
April 29, 2012                                  102                 26                 14                 142


The types and locations of international franchise stores as of May 5, 2013 are summarized in the table below.

                                               Number of International Franchise Stores
                             Fiscal
                           Year First       Factory
      Country             Store Opened      Stores       Hot Shops      Fresh Shops      Kiosks        Total
Australia                     2004                5              1                6            6           18
Bahrain                       2009                1              -                1            -            2
Canada                        2002                4              -                2            -            6
China                         2010                1              -                1            -            2
Dominican Republic            2011                1              -                2            -            3
India                         2013                1              -                -            -            1
Indonesia                     2007                1              -                3            7           11
Japan                         2007               17              -               27            -           44
Kuwait                        2007                2              -                5            6           13
Lebanon                       2009                2              -                5            1            8
Malaysia                      2010                2              -                1            5            8
Mexico                        2004                7              1               37           54           99
Philippines                   2007                6              3               25            8           42
Puerto Rico                   2009                5              -                -            -            5
Qatar                         2008                2              -                -            -            2
Saudi Arabia                  2008               10              -               68           21           99
South Korea                   2005               34              -               37            -           71
Thailand                      2011                3              2                2            2            9
Turkey                        2010                1              -               11            7           19
United Arab Emirates          2008                2              -                8            5           15
United Kingdom                2004               14              2               30            9           55
Total                                           121              9              271          131          532


Changes in the number of international franchise stores during the three months ended May 5, 2013 and April 29, 2012 are summarized in the table below.

                                                    Number of International Franchise Stores
                                       Factory
                                       Stores       Hot Shops     Fresh Shops       Kiosks         Total
Three months ended May 5, 2013
February 3, 2013                          120               9            257           123           509
Opened                                      3               -             16             8            27
Closed                                     (2 )             -             (2 )           -            (4 )
May 5, 2013                               121               9            271           131           532

Three months ended April 29, 2012
January 29, 2012                          118              11            226           105           460
Opened                                      -               -             14             6            20
Closed                                     (3 )             -            (10 )          (9 )         (22 )
Change in store type                        -               -             (7 )           7             -
April 29, 2012                            115              11            223           109           458

Three months ended May 5, 2013 compared to three months ended April 29, 2012

Overview

Total revenues rose by 11.2% to $120.6 million for the three months ended May 5, 2013 compared to $108.5 million for the three months ended April 29, 2012. Consolidated operating income increased to $15.2 million from $10.8 million and consolidated net income was $8.0 million compared to $6.0 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 5,              April 29,
                                                              2013                 2012
                                                                (Dollars in thousands)
Revenues by business segment:
    Company Stores                                      $     81,921         $      73,341
    Domestic Franchise                                         2,871                 2,633
    International Franchise                                    6,445                 6,027
    KK Supply Chain:
        Total revenues                                        59,811                53,785
        Less - intersegment sales elimination                (30,423 )             (27,290 )
           External KK Supply Chain revenues                  29,388                26,495
               Total revenues                           $    120,625         $     108,496

Segment revenues as a percentage of total revenues:
    Company Stores                                              67.9   %              67.6   %
    Domestic Franchise                                           2.4                   2.4
    International Franchise                                      5.3                   5.6
    KK Supply Chain (external sales)                            24.4                  24.4
                                                               100.0   %             100.0   %

Segment operating results:
    Company Stores                                      $      5,314         $       2,948
    Domestic Franchise                                         1,439                 1,569
    International Franchise                                    4,531                 4,494
    KK Supply Chain                                           10,239                 8,477
        Total segment operating income                        21,523                17,488
    General and administrative expenses                       (6,055 )              (6,458 )
    Corporate administrative depreciation expense               (276 )                (165 )
    Impairment charges and lease termination costs                (8 )                 (31 )
           Consolidated operating income                      15,184                10,834
    Interest income                                               61                    27
    Interest expense                                            (437 )                (398 )
    Equity in losses of equity method franchisees                (53 )                 (50 )
    Other non-operating income and (expense), net                 (5 )                  78
    Income before income taxes                                14,750                10,491
    Provision for income taxes                                 6,751                 4,465
    Consolidated net income                             $      7,999         $       6,026

Adjusted Net Income

The Company has approximately $206 million of federal net operating loss carryovers, as well as loss carryovers for state income tax purposes. Until such time as the Company's net operating loss carryovers are exhausted or expire, GAAP income tax expense is expected to substantially exceed the amount of cash income taxes payable by the Company.


The following non-GAAP financial information and related reconciliation to GAAP measures are provided to assist the reader in understanding the material difference between the Company's income tax expense and income taxes currently payable. These non-GAAP performance measures are consistent with other measurements made by management in the operation of the business which do not consider income taxes except to the extent to which those taxes currently are payable, for example, capital allocation decisions and incentive compensation measurements that are made on a pretax basis.

                                                 Three Months Ended
                                              May 5,             April 29,
                                               2013                 2012
                                           (In thousands, except per share
                                                      amounts)
Net income, as reported                  $          7,999       $      6,026
Provision for deferred income taxes                 6,105              4,234
Adjusted net income                      $         14,104       $     10,260

Adjusted earnings per common share:
    Basic                                $           0.21       $       0.15
    Diluted                              $           0.20       $       0.14

Weighted average shares outstanding:
    Basic                                          67,012             69,562
    Diluted                                        70,578             71,888

Results of Operations

A discussion of the revenues and operating results of each of the Company's four business segments follows, together with a discussion of income statement line items not associated with specific segments.


  Company Stores

   The components of Company Stores revenues and expenses (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).

                                                                                    Percentage of Total Revenues
. . .
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