Article

Krispy Kreme plans to accelerate coffee program

Company's shares jump 4 percent after big Q4 profit reported.

March 22, 2012 by Alicia Kelso — Editor, QSRWeb.com

Krispy Kreme Doughnuts Inc. has announced its full year 2012 results, including a net income of $166.3 million compared to $7.6 million the prior year.

Revenue jumped more than 11 percent, while company same-store sales rose 5.2 percent.

The fourth quarter provided a big lift for the company, with same-store sales up 8.3 percent, marking the 13th consecutive quarterly increase. Revenues jumped 11.2 percent and net income was $143.5 million, compared to a net loss of $1.5 million the year prior.

James H. Morgan, chairman and CEO, said in the company's earnings call that he is pleased with the generation of double-digit revenue growth and substantial increases in operating income.

"I could not be more pleased with or proud of our team members and franchisees. What they've accomplished this past year truly blows me away," he said. "As pleased as we are with these results, however, we are committed to converting even more of our revenue growth into bottom line profitability."

Profitability strategies

To do that, Krispy Kreme plans on strengthening its core doughnut line through limited time offerings, accelerating its fledgling but successful coffee line, and expanding its beverage program overall.

"The goal is to broaden the number of consumer occasions and a broader beverage line will help drive traffic," Morgan said.

The signature coffee line was introduced in August and includes house, house decaf and dark roast blends.

The company, which turns 75 this year, pulls in about 4 percent of its in-store transactions from its signature coffee line, and expects to triple that by 2015.

Ken May, president and COO, said coffee is the big focus right now within his department, and the company plans to increase promotions of the line to give people additional reasons to visit more often.

"I have a handwritten note outside of my office door that says 'coffee, coffee, coffee,'" he said. "In my opinion, we've done a good job so far of putting the platform out there and it's very good. Customers like it. It's been well received."

Krispy Kreme also plans to sharpen its focus on a smaller shop model, designed to reduce investment costs, improve company store operations, and update store designs to be relevant and current.

Additionally, the company is set on expanding its footprint both domestically and internationally through its franchise system. Morgan said the company is committed to having 900 units in operation by the end of 2017, and agreements are currently in place for 270 units in nine different countries.

Markets eyed by the company include Russia, India, China and Central and South America, on top of its current 20-country portfolio.

As of Jan. 29, the Krispy Kreme system included 694 stores, 92 company-owned and 602 franchised units.

"If you look at the penetration our competition has, the opportunity to expand is astronomical," Morgan said. "We believe that Krispy Kreme has an extraordinary market opportunity, and as we look to the coming fiscal year, we are very confident we can execute against our plan."

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