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

Show all filings for KRISPY KREME DOUGHNUTS INC

Form 10-Q for KRISPY KREME DOUGHNUTS INC


13-Dec-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 nine
months ended November 3, 2013 and October 28, 2012.

                                                                       Three Months Ended                      Nine Months Ended
                                                                November 3,         October 28,         November 3,         October 28,
                                                                    2013                2012                2013                2012
Change in Same Store Sales (on-premises sales only):
    Company stores                                                     3.7   %             6.8   %             8.4   %             4.7   %
    Domestic Franchise stores                                         10.7   %             5.0   %            11.2   %             5.8   %
    International Franchise stores                                    (8.7 ) %            (8.3 ) %           (10.9 ) %            (9.6 ) %
    International Franchise stores, in constant dollars(1)            (3.1 ) %            (7.7 ) %            (6.4 ) %            (8.4 ) %

Change in Same Store Customer Count - Company stores
    (retail sales only)                                                1.3   %             8.4   %             6.5   %             5.3   %

Average guest check - Company stores (retail sales only)      $       7.59        $       7.43        $       7.52        $       7.33

Wholesale Metrics (Company stores only):
    Average weekly number of doors served:
       Grocery/mass merchant                                         5,146               5,644               5,266               5,611
       Convenience store                                             4,503               4,466               4,496               4,512

    Average weekly sales per door:
       Grocery/mass merchant                                  $        342        $        311        $        354        $        316
       Convenience store                                               256                 247                 261                 247

Systemwide Sales (in thousands):(2)
    Company stores                                            $     74,227        $     71,884        $    230,241        $    213,399
    Domestic Franchise stores                                       77,725              68,950             237,327             210,454
    International Franchise stores                                 107,827             103,536             321,053             310,893
    International Franchise stores, in constant dollars(3)         107,827              98,221             321,053             297,643

Average Weekly Sales Per Store (in thousands):(4) (5)
    Company stores:
       Factory stores:
           Commissaries - wholesale                           $      203.5        $      179.9        $      203.3        $      180.6
           Dual-channel stores:
              On-premises                                             36.9                34.3                37.6                33.3
              Wholesale                                               47.8                43.5                50.0                44.8
                  Total                                               84.7                77.8                87.6                78.1
           On-premises only stores                                    36.4                34.4                37.7                34.3
           All factory stores                                         72.8                69.8                75.7                70.3
       Satellite stores                                               20.8                19.6                21.5                19.8
       All stores                                                     62.0                58.8                64.3                59.3

Domestic Franchise stores:
    Factory stores                                            $       49.8        $       46.7        $       52.0        $       47.2
    Satellite stores                                                  17.6                15.7                18.1                16.7

International Franchise stores:
    Factory stores                                            $       39.4        $       39.9        $       39.8        $       40.7
    Satellite stores                                                   9.8                10.7                 9.9                11.2


(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 nine months ended October 28, 2012 to U.S. dollars based upon the weighted average of the exchange rates prevailing in the three and nine months ended November 3, 2013.
(4) Includes sales between Company and franchise stores.
(5) Metrics for the three and nine months ended November 3, 2013 and October 28, 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 November 3, 2013 and October 28, 2012.

                                                    November 3,     October 28,
                                                       2013            2012
Number of Stores Open At Period End:
    Company stores:
       Factory:
           Commissaries                                       7               7
           Dual-channel stores                               31              37
           On-premises only stores                           37              31
       Satellite stores                                      19              21
              Total Company stores                           94              96

    Domestic Franchise stores:
       Factory stores                                       106             101
       Satellite stores                                      49              41
           Total Domestic Franchise stores                  155             142

    International Franchise stores:
       Factory stores                                       123             119
       Satellite stores                                     440             374
           Total International Franchise stores             563             493

              Total systemwide stores                       812             731


The following table sets forth data about the number of store operating weeks for the three and nine months ended November 3, 2013 and October 28, 2012.

                                               Three Months Ended               Nine Months Ended
                                           November 3,     October 28,     November 3,     October 28,
                                              2013            2012            2013            2012
Store Operating Weeks:
    Company stores:
       Factory stores:
           Commissaries                             91              91             273             273
           Dual-channel stores                     403             477           1,281           1,413
           On-premises only stores                 464             395           1,330           1,156
       Satellite stores                            252             269             765             789

    Domestic Franchise stores:(1)
       Factory stores                            1,352           1,303           3,979           3,887
       Satellite stores                            611             518           1,747           1,531

    International Franchise stores:(1)
       Factory stores                            1,356           1,331           4,035           3,902
       Satellite stores                          5,560           4,655          15,927          13,190

(1) Metrics for the three and nine months ended November 3, 2013 and October 28, 2012 include only stores open at the respective period end.

The following table sets forth the types and locations of Company stores as of November 3, 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                        9             4               -        13
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                 6             2               -         8
Tennessee                     10             3               -        13
Virginia                       5             2               -         7
West Virginia                  1             -               -         1
Total                         75            18               1        94


Changes in the number of Company stores during the three and nine months ended November 3, 2013 and October 28, 2012 are summarized in the table below.

                                                      Number of Company Stores
                                        Factory
                                         Stores       Hot Shops       Fresh Shops      Total
Three months ended November 3, 2013
August 4, 2013                              72               20                 1        93
Opened                                       2                -                 -         2
Closed                                       -               (1 )               -        (1 )
Change in store type                         1               (1 )               -         -
November 3, 2013                            75               18                 1        94

Nine months ended November 3, 2013
February 3, 2013                            76               20                 1        97
Opened                                       5                -                 -         5
Closed                                      (1 )             (1 )               -        (2 )
Change in store type                         1               (1 )               -         -
Transferred to Domestic Franchise           (6 )              -                 -        (6 )
November 3, 2013                            75               18                 1        94

Three months ended October 28, 2012
July 29, 2012                               73               19                 1        93
Opened                                       1                -                 -         1
Closed                                       -                -                 -         -
Transferred from Domestic Franchise          1                1                 -         2
October 28, 2012                            75               20                 1        96

Nine months ended October 28, 2012
January 29, 2012                            72               19                 1        92
Opened                                       2                -                 -         2
Closed                                       -                -                 -         -
Transferred from Domestic Franchise          1                1                 -         2
October 28, 2012                            75               20                 1        96


The following table sets forth the types and locations of domestic franchise stores as of November 3, 2013.

                         Number of Domestic Franchise Stores
                   Factory
    State          Stores      Hot Shops     Fresh Shops     Total
Alabama                  5             3               -          8
Arizona                  1             4               -          5
Arkansas                 2             -               -          2
California              15             6               3         24
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                   11             2               -         13
Utah                     2             -               -          2
Washington               6             -               -          6
Wisconsin                1             -               1          2

Total 106 35 14 155


Changes in the number of domestic franchise stores during the three and nine months ended November 3, 2013 and October 28, 2012 are summarized in the table below.

                                                 Number of Domestic Franchise Stores
                                        Factory
                                         Stores      Hot Shops      Fresh Shops       Total
Three months ended November 3, 2013
August 4, 2013                             105             31               14          150
Opened                                       1              4                -            5
Closed                                       -              -                -            -
November 3, 2013                           106             35               14          155

Nine months ended November 3, 2013
February 3, 2013                            99             29               14          142
Opened                                       1              6                -            7
Closed                                       -              -                -            -
Transferred from Company Stores              6              -                -            6
November 3, 2013                           106             35               14          155

Three months ended October 28, 2012
July 29, 2012                              101             26               14          141
Opened                                       1              2                -            3
Closed                                       -              -                -            -
Transferred to Company Stores               (1 )           (1 )              -           (2 )
October 28, 2012                           101             27               14          142

Nine months ended October 28, 2012
January 29, 2012                           102             25               15          142
Opened                                       2              4                -            6
Closed                                      (2 )           (1 )             (1 )         (4 )
Transferred to Company Stores               (1 )           (1 )              -           (2 )
October 28, 2012                           101             27               14          142


The types and locations of international franchise stores as of November 3, 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             -               3          1         5
Indonesia                    2007               1             -               4          8        13
Japan                        2007              17             -              30          -        47
Kuwait                       2007               1             -               6          6        13
Lebanon                      2009               1             -               1          -         2
Malaysia                     2010               2             -               1          6         9
Mexico                       2004               9             1              38         62       110
Philippines                  2007               6             3              28          7        44
Puerto Rico                  2009               5             -               -          -         5
Qatar                        2008               2             -               -          -         2
Russia                       2014               2             -               -          -         2
Saudi Arabia                 2008              10             -              69         21       100
Singapore                    2014               2             -               -          -         2
South Korea                  2005              33             -              45          -        78
Thailand                     2011               3             2               2          4        11
Turkey                       2010               1             -              12          9        22
United Arab Emirates         2008               2             -               8          5        15
United Kingdom               2004              14             2              29          9        54
Total                                         123             9             287        144       563


Changes in the number of international franchise stores during the three and nine months ended November 3, 2013 and October 28, 2012 are summarized in the table below.

                                                         Number of International Franchise Stores
                                          Factory
                                          Stores        Hot Shops     Fresh Shops        Kiosks           Total
Three months ended November 3, 2013
August 4, 2013                                119               9            280             138             546
Opened                                          5               -             11               8              24
Closed                                         (1 )             -             (5 )            (1 )            (7 )
Change in store type                            -               -              1              (1 )             -
November 3, 2013                              123               9            287             144             563

Nine months ended November 3, 2013
February 3, 2013                              120               9            257             123             509
Opened                                          9               -             38              23              70
Closed                                         (5 )             -            (10 )            (1 )           (16 )
Change in store type                           (1 )             -              2              (1 )             -
November 3, 2013                              123               9            287             144             563

Three months ended October 28, 2012
July 29, 2012                                 118              11            234             114             477
Opened                                          3               -             18               5              26
Closed                                         (2 )             -             (3 )            (5 )           (10 )
October 28, 2012                              119              11            249             114             493

Nine months ended October 28, 2012
January 29, 2012                              118              11            226             105             460
Opened                                          7               -             46              17              70
Closed                                         (5 )             -            (17 )           (15 )           (37 )
Change in store type                           (1 )             -             (6 )             7               -
October 28, 2012                              119              11            249             114             493

Three months ended November 3, 2013 compared to three months ended October 28, 2012

Overview

Total revenues rose by 6.7% to $114.2 million for the three months ended November 3, 2013 compared to $107.1 million for the three months ended October 28, 2012. Consolidated operating income increased to $11.7 million from $9.2 million, and consolidated net income was $6.8 million compared to $5.0 million for the three months ended November 3, 2013 and October 28, 2012, respectively.

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
                                                          November 3,          October 28,
                                                              2013                 2012
                                                              (Dollars in thousands)
Revenues by business segment:
    Company Stores                                      $     74,886         $     72,493
    Domestic Franchise                                         3,026                2,498
    International Franchise                                    6,205                6,024
    KK Supply Chain:
        Total revenues                                        58,304               52,825
        Less - intersegment sales elimination                (28,190 )            (26,753 )
           External KK Supply Chain revenues                  30,114               26,072
              Total revenues                            $    114,231         $    107,087

Segment revenues as a percentage of total revenues:
. . .
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