Krispy Kreme Reports Financial Results For The Third Quarter Of Fiscal 2013
RAISES OUTLOOK FOR FISCAL 2013
PROVIDES PRELIMINARY GUIDANCE FOR FISCAL 2014
WINSTON-SALEM, N.C., Nov. 19, 2012 /PRNewswire/ -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the third quarter of fiscal 2013, ended October 28, 2012. The Company also raised its outlook for fiscal 2013 and provided preliminary guidance for fiscal 2014.
Third Quarter Fiscal 2013 Highlights Compared to the Year-Ago Period:
Revenues increased 8.5% to $107.1 million from $98.7 million
Company same store sales rose 6.8%, the sixteenth consecutive quarterly increase
Operating income rose 66% to $9.2 million from $5.6 million
Adjusted net income rose 76% to $8.3 million ($0.12 per share) from $4.7 million ($0.07 per share); adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash; adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release)
Net income was $5.0 million ($0.07 per share) compared to $4.7 million ($0.07 per share) in the third quarter last year; net income for the third quarter of fiscal 2013 reflects a substantially higher book income tax rate compared to the third quarter of fiscal 2012 as more fully described below
Cash provided by operating activities was $15.0 million compared to $10.2 million in the third quarter last year
The Company ended the third quarter of fiscal 2013 with a total of 731 Krispy Kreme shops systemwide, a net increase of 20 shops during the quarter. As of October 28, 2012, there were 96 Company stores and 635 franchise locations.
President and Chief Executive Officer James H. Morgan commented: "We commend the entire Krispy Kreme family for their accomplishments in the third quarter. Their efforts enabled us to deliver extraordinary results, including healthy revenue gains, robust same store sales, and substantial growth in both adjusted net income and operating cash flow. We have now generated positive same store sales for an impressive sixteen consecutive quarters. Even more important, our Company Stores segment has emerged as a strong contributor to our overall profitability due to the solid foundation that has been laid over the past four years by our operations team and those who support them, as well as the outstanding effort of our marketing group."
Morgan continued, "While we are pleased with our near-term achievements, our management focus is always centered on how best to position ourselves over the long term. Our decision making process and capital deployment is designed to build on Krispy Kreme's 75-year legacy so that we can create sustainable long-term value for our shareholders. By executing on our strategies, we are confident that we can continue to successfully grow the Company while at the same time realizing our brand mission to touch and enhance lives through the joy that is Krispy Kreme."
Morgan concluded, "Given our strong third quarter and year-to-date performance, we are pleased to be increasing our earnings outlook for fiscal 2013 and projecting continued double digit earnings growth for fiscal 2014."
Third Quarter Fiscal 2013 Results
For the third quarter ended October 28, 2012, revenues increased 8.5% to $107.1 million from $98.7 million.
Direct operating expenses increased to $90.2 million from $85.9 million, but as a percentage of total revenues fell to 84.2% from 87.0%. General and administrative expenses increased slightly to $5.1 million from $4.9 million in the year-ago period and, as a percentage of total revenues, decreased to 4.7% from 5.0%.
Operating income increased to $9.2 million from $5.6 million.
Adjusted net income was $8.3 million ($0.12 per share) compared to $4.7 million ($0.07 per share) in the third quarter last year. Adjusted net income and adjusted EPS reflect income tax expense only to the extent currently payable in cash. Adjusted net income and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).
Net income was $5.0 million ($0.07 per share) compared to $4.7 million ($0.07 per share), in the third quarter last year. Net income and EPS for the third quarter of fiscal 2013 reflect a book tax rate of 43% compared to a rate of 9% in the third quarter last year. The increase reflects the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012. Accordingly, net income and EPS for the third quarter of fiscal 2013 are not comparable to those for the third quarter of fiscal 2012.
Company Stores revenues increased 7.2% to $72.5 million from $67.6 million. Same store sales at Company stores rose 6.8%, the sixteenth consecutive quarterly increase, and were driven by higher traffic. The Company Stores segment posted operating income of $2.0 million compared to an operating loss of $574,000 in the third quarter last year.
Domestic Franchise revenues rose 7.3% to $2.5 million from $2.3 million, reflecting higher royalties. Total sales by domestic franchisees rose 6.1%, while same store sales increased 5.0%. Domestic Franchise segment operating income improved to $1.2 million compared to $1.1 million in the third quarter last year.
International Franchise revenues increased 12.1% to $6.0 million from $5.4 million, driven by higher royalties. Sales by international franchise stores rose 12.6%. Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 7.7%, reflecting, among other things, honeymoon effects from the substantial number of international store openings in recent years, as well as cannibalization as markets develop. The International Franchise segment generated operating income of $4.3 million, up from $3.3 million in the third quarter last year.
KK Supply Chain revenues (including sales to Company stores) rose 5.1% to $52.8 million from $50.3 million in the same period last year. External KK Supply Chain revenues rose 11.4% to $26.1 million from $23.4 million in the year-ago period. KK Supply Chain generated operating income of $7.3 million in the third quarter of fiscal 2013, up from $7.0 million in the third quarter last year.
Given the Company's third quarter and fiscal year-to-date results, along with other current information, it is raising its fiscal 2013 outlook for consolidated operating income to between $34 million and $36 million from the previous forecast of between $29 million and $33 million. The Company currently forecasts adjusted earnings per share for fiscal 2013 of between $0.44 and $0.47. The Company noted that fiscal 2013 is a 53-week year and the fourth quarter will therefore have 14 weeks instead of 13. In order to facilitate comparisons, the preceding Company guidance for fiscal 2013 does not reflect the anticipated, but irregularly occurring, benefit of the extra week.
For fiscal 2014, the Company anticipates opening 5 to 10 Company stores, between 10 and 15 domestic franchise stores, and more than 75 international franchise stores. Although the Company looks for continued organic same store sales growth in its domestic stores, international franchise same store sales will likely continue to be pressured by the substantial growth in international markets in recent years.
Based on these factors, the Company's preliminary fiscal 2014 guidance is for operating income in the range of $38 million to $42 million and adjusted EPS for fiscal 2014 of between $0.49 and $0.55 per share. The foregoing adjusted EPS range reflects estimated adjusted income tax expense of $2 million; adjusted income tax expense consists solely of taxes currently payable in cash. Because the Company has substantial net operating loss carryovers, the amount of taxes payable in cash is expected to remain insignificant for the foreseeable future.
Adjusted net income, adjusted income tax expense and adjusted EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).
The Company will host a conference call to review financial results for the third quarter of fiscal 2013 as well as its outlook this afternoon at 4:30 p.m. (ET)