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KKD > SEC Filings for KKD > Form 10-Q on 13-Sep-2013All Recent SEC Filings

Show all filings for KRISPY KREME DOUGHNUTS INC

Form 10-Q for KRISPY KREME DOUGHNUTS INC


13-Sep-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 and six months
ended August 4, 2013 and July 29, 2012.

                                                                       Three Months Ended                       Six Months Ended
                                                                 August 4,            July 29,           August 4,            July 29,
                                                                    2013                2012                2013                2012
Change in Same Store Sales (on-premises sales only):
    Company stores                                                    10.0   %             5.4   %            10.8   %             3.7   %
    Domestic Franchise stores                                         11.5   %             6.7   %            11.4   %             6.2   %
    International Franchise stores                                   (13.0 ) %           (12.7 ) %           (12.0 ) %           (10.3 ) %
    International Franchise stores, in constant dollars(1)            (8.6 ) %           (10.0 ) %            (7.9 ) %            (8.7 ) %

Change in Same Store Customer Count - Company stores
    (retail sales only)                                                7.5   %             6.6   %             9.0   %             3.8   %

Average guest check - Company stores (retail sales only)      $       7.68        $       7.43        $       7.49        $       7.27

Wholesale Metrics (Company stores only):
    Average weekly number of doors served:
        Grocery/mass merchant                                        5,283               5,586               5,327               5,595
        Convenience store                                            4,503               4,470               4,492               4,535

    Average weekly sales per door:
        Grocery/mass merchant                                 $        353        $        322        $        359        $        319
        Convenience store                                              262                 246                 264                 247

Systemwide Sales (in thousands):(2)
    Company stores                                            $     74,893        $     68,710        $    156,014        $    141,515
    Domestic Franchise stores                                       78,616              69,532             159,602             141,504
    International Franchise stores                                 102,971             102,437             213,226             207,357
    International Franchise stores, in constant dollars(3)         102,971              97,914             213,226             199,447

Average Weekly Sales Per Store (in thousands):(4) (5)
    Company stores:
        Factory stores:
           Commissaries - wholesale                           $      203.4        $      179.9        $      203.3        $      180.9
           Dual-channel stores:
               On-premises                                            34.8                30.4                37.9                32.9
               Wholesale                                              50.4                45.6                51.1                45.5
                  Total                                               85.2                76.0                89.0                78.4
           On-premises only stores                                    37.2                32.9                38.9                34.2
           All factory stores                                         75.1                68.5                78.0                70.5
        Satellite stores                                              20.7                18.5                22.0                19.9
        All stores                                                    62.5                57.6                65.0                59.5

    Domestic Franchise stores:
        Factory stores                                        $       51.9        $       46.7        $       53.1        $       47.3
        Satellite stores                                              18.1                16.6                18.3                17.3

    International Franchise stores:
        Factory stores                                        $       38.3        $       39.8        $       39.7        $       40.6
        Satellite stores                                               9.3                11.1                 9.9                11.4


(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 and six months ended July 29, 2012 to U.S. dollars based upon the weighted average of the exchange rates prevailing in the three and six months ended August 4, 2013.
(4) Includes sales between Company and franchise stores.
(5) Metrics for the three and six months ended August 4, 2013 and July 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 August 4, 2013 and July 29, 2012.

                                                    August 4,     July 29,
                                                      2013          2012
Number of Stores Open At Period End:
    Company stores:
        Factory:
           Commissaries                                     7            7
           Dual-channel stores                             31           36
           On-premises only stores                         34           30
        Satellite stores                                   21           20
               Total Company stores                        93           93

    Domestic Franchise stores:
        Factory stores                                    105          101
        Satellite stores                                   45           40
           Total Domestic Franchise stores                150          141

    International Franchise stores:
        Factory stores                                    119          118
        Satellite stores                                  427          359
           Total International Franchise stores           546          477

               Total systemwide stores                    789          711


The following table sets forth data about the number of store operating weeks for the three and six months ended August 4, 2013 and July 29, 2012.

                                             Three Months Ended          Six Months Ended
                                           August 4,     July 29,     August 4,     July 29,
                                             2013          2012         2013          2012
Store Operating Weeks:
    Company stores:
        Factory stores:
           Commissaries                           91           91           182          182
           Dual-channel stores                   430          468           878          936
           On-premises only stores               427          384           840          761
        Satellite stores                         273          260           539          520

    Domestic Franchise stores:(1)
        Factory stores                         1,320        1,309         2,627        2,610
        Satellite stores                         576          520         1,136        1,039

    International Franchise stores:(1)
        Factory stores                         1,359        1,323         2,705        2,623
        Satellite stores                       5,391        4,494        10,497        8,723

(1) Metrics for the three and six months ended August 4, 2013 and July 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 August 4, 2013.

                                    Number of Company Stores
                         Factory
       State             Stores      Hot Shops     Fresh Shops     Total
Alabama                        3             -               -         3
District of Columbia           -             1               -         1
Florida                        5             -               -         5
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                14             4               -        18
Ohio                           6             -               -         6
South Carolina                 5             3               -         8
Tennessee                     10             3               -        13
Virginia                       5             2               -         7
West Virginia                  1             -               -         1
Total                         72            20               1        93


Changes in the number of Company stores during the three and six months ended August 4, 2013 and July 29, 2012 are summarized in the table below.

                                                  Number of Company Stores
                                      Factory
                                       Stores      Hot Shops     Fresh Shops     Total
Three months ended August 4, 2013
May 5, 2013                               74              20               1       95
Opened                                     2               -               -        2
Closed                                    (1 )             -               -       (1 )
Transferred to Domestic Franchise         (3 )             -               -       (3 )
August 4, 2013                            72              20               1       93

Six months ended August 4, 2013
February 3, 2013                          76              20               1       97
Opened                                     3               -               -        3
Closed                                    (1 )             -               -       (1 )
Transferred to Domestic Franchise         (6 )             -               -       (6 )
August 4, 2013                            72              20               1       93

Three months ended July 29, 2012
April 29, 2012                            72              19               1       92
Opened                                     1               -               -        1
Closed                                     -               -               -        -
July 29, 2012                             73              19               1       93

Six months ended July 29, 2012
January 29, 2012                          72              19               1       92
Opened                                     1               -               -        1
Closed                                     -               -               -        -
July 29, 2012                             73              19               1       93


The following table sets forth the types and locations of domestic franchise stores as of August 4, 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             2               4        21
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                   10             2               -        12
Utah                     2             -               -         2
Washington               6             -               -         6
Wisconsin                1             1               -         2
Total                  105            31              14       150


Changes in the number of domestic franchise stores during the three and six months ended August 4, 2013 and July 29, 2012 are summarized in the table below.

                                              Number of Domestic Franchise Stores
                                      Factory
                                       Stores      Hot Shops      Fresh Shops       Total
Three months ended August 4, 2013
May 5, 2013                              102             30               14         146
Opened                                     -              1                -           1
Closed                                     -              -                -           -
Transferred from Company Stores            3              -                -           3
August 4, 2013                           105             31               14         150

Six months ended August 4, 2013
February 3, 2013                          99             29               14         142
Opened                                     -              2                -           2
Closed                                     -              -                -           -
Transferred from Company Stores            6              -                -           6
August 4, 2013                           105             31               14         150

Three months ended July 29, 2012
April 29, 2012                           102             26               14         142
Opened                                     -              -                -           -
Closed                                    (1 )            -                -          (1 )
July 29, 2012                            101             26               14         141

Six months ended July 29, 2012
January 29, 2012                         102             25               15         142
Opened                                     1              2                -           3
Closed                                    (2 )           (1 )             (1 )        (4 )
July 29, 2012                            101             26               14         141


The types and locations of international franchise stores as of August 4, 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
Dominican Republic           2011               1             -               2          -         3
India                        2013               1             -               1          1         3
Indonesia                    2007               1             -               4          8        13
Japan                        2007              17             -              28          -        45
Kuwait                       2007               1             -               6          6        13
Lebanon                      2009               2             -               5          1         8
Malaysia                     2010               2             -               1          5         8
Mexico                       2004               8             1              37         58       104
Philippines                  2007               6             3              27          8        44
Puerto Rico                  2009               5             -               -          -         5
Qatar                        2008               2             -               -          -         2
Saudi Arabia                 2008              10             -              69         21       100
South Korea                  2005              33             -              40          -        73
Thailand                     2011               3             2               2          2         9
Turkey                       2010               1             -              11          8        20
United Arab Emirates         2008               2             -               8          5        15
United Kingdom               2004              14             2              30          9        55
Total                                         119             9             280        138       546


Changes in the number of international franchise stores during the three and six months ended August 4, 2013 and July 29, 2012 are summarized in the table below.

                                                  Number of International Franchise Stores
                                      Factory
                                       Stores      Hot Shops     Fresh Shops       Kiosks       Total
Three months ended August 4, 2013
May 5, 2013                              121               9            271          131         532
Opened                                     1               -             11            7          19
Closed                                    (2 )             -             (3 )          -          (5 )
Change in store type                      (1 )             -              1            -           -
August 4, 2013                           119               9            280          138         546

Six months ended August 4, 2013
February 3, 2013                         120               9            257          123         509
Opened                                     4               -             27           15          46
Closed                                    (4 )             -             (5 )          -          (9 )
Change in store type                      (1 )             -              1            -           -
August 4, 2013                           119               9            280          138         546

Three months ended July 29, 2012
April 29, 2012                           115              11            223          109         458
Opened                                     4               -             14            6          24
Closed                                     -               -             (4 )         (1 )        (5 )
Change in store type                      (1 )             -              1            -           -
July 29, 2012                            118              11            234          114         477

Six months ended July 29, 2012
January 29, 2012                         118              11            226          105         460
Opened                                     4               -             28           12          44
Closed                                    (3 )             -            (14 )        (10 )       (27 )
Change in store type                      (1 )             -             (6 )          7           -
July 29, 2012                            118              11            234          114         477

Three months ended August 4, 2013 compared to three months ended July 29, 2012

Overview

Total revenues rose by 10.4% to $112.7 million for the three months ended August 4, 2013 compared to $102.1 million for the three months ended July 29, 2012. Consolidated operating income increased to $10.6 million from $9.2 million, and consolidated net income was $4.7 million compared to $4.9 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
                                                           August 4,             July 29,
                                                              2013                 2012
                                                              (Dollars in thousands)
Revenues by business segment:
    Company Stores                                      $     75,689         $     69,338
    Domestic Franchise                                         2,799                2,430
    International Franchise                                    6,057                5,781
    KK Supply Chain:
        Total revenues                                        57,201               51,465
        Less - intersegment sales elimination                (29,017 )            (26,899 )
           External KK Supply Chain revenues                  28,184               24,566
               Total revenues                           $    112,729         $    102,115

Segment revenues as a percentage of total revenues:
    Company Stores                                              67.1   %             67.9   %
    Domestic Franchise                                           2.5                  2.4
    International Franchise                                      5.4                  5.7
    KK Supply Chain (external sales)                            25.0                 24.1
                                                               100.0   %            100.0   %

Segment operating results:
    Company Stores                                      $      1,790         $        338
    Domestic Franchise                                         1,526                1,329
    International Franchise                                    4,239                4,162
    KK Supply Chain                                            8,999                8,392
        Total segment operating income                        16,554               14,221
    General and administrative expenses                       (5,655 )             (4,770 )
    Corporate depreciation and amortization expense             (295 )               (162 )
    Impairment charges and lease termination costs                (4 )                (55 )
           Consolidated operating income                      10,600                9,234
    Interest income                                               70                   61
    Interest expense                                            (354 )               (420 )
. . .
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