News
Focus on service pushes Krispy Kreme Q2 comps up
September 3, 2009
While quick-serve burger chains have seen same-store sales fall during the recession, the donut segment is apparently thriving, with Krispy Kreme comps improving for the third straight quarter. Krispy Kreme Doughnuts Inc. has reported comps were up 5.9 percent for the second quarter ended Aug. 2, compared to a gain of 2.1 percent in the first quarter this year and a decline of 4.1 percent in the second quarter last year.
Douglas R. Muir, Krispy Kreme chief financial officer, told analysts in a conference call to investors that the comps increase could be attributed to lower gasoline prices and increased consumer activity as well as a price increase test at 24 company stores that began during the quarter. He estimated that about two points of the 5.9 percent comps increase resulted from the price test, with 4 percent representing real growth.
Overall, "shop operators are really focusing on hospitality and the customer experience and making Krispy Kreme an increasingly attractive place for customers to go," he said.
Muir also said in the earnings call that franchised-store sales were down, largely impacted by foreign currency exchange rates. International franchise stores also were "seeing evidence of the honeymoon effect. International franchisees opened a large number of stores over the past two years, and stores typically fall in sales from the very high levels often associated with new store openings as the stores mature."
Off-premises sales
Sales at off-premises locations where Kripsy Kreme donuts are sold were up 3 percent, compared to a decline of 7 percent in the same quarter last year. Year to date, off-premises sales were up 0.9 percent, compared to a decline of 8.1 percent last year. The number of off-premises locations where Kripsy Kreme donuts are sold was down 12.3 percent for the quarter, compared to a decline of 8.3 percent in the same quarter last year. Year to date, the number of off-premises locations was down 10.8 percent, compared to a decline of 7.5 percent last year.
During the quarter, off-premises locations in selected markets introduced new longer shelf-life, individually wrapped snack products, including glazed cherry and apple pies and chocolate cupcakes, in the company's off-premises distribution channels.
Revenues
Revenues for the quarter were down 12 percent at $82.7 million, compared to $94.2 million in the same period last year. Year to date, revenues were down 11 percent at $176.2 million, compared to $197.9 million last year.
The net loss for the quarter was $157,000, a significant improvement over the $1.9 million loss in the same period last year but down from a net profit of $1.9 million in the first quarter of the fiscal year. Year to date, net income was $1.7 million, down 19 percent compared to $2.1 million last year.
"Our operating results continued to improve year-over-year in the second quarter," said president and CEO Jim Morgan in a news release. "The warm summer months traditionally are a challenging time for our domestic Krispy Kreme shops, but we believe our improved results in the second quarter show that we can succeed in making our business more profitable year-round through continued implementation of our strategic initiatives."
Morgan added in a statement to investors during the company's earnings call that the company still has "a long way to go to produce the revenue growth and financial returns that we believe are achievable."
Q2 achievements
Second quarter highlights included:
- The third new company small retail concept shop opened on July 29 in the Raleigh, N.C.
- The company signed letters of intent for leases in the Raleigh, N.C., Louisville, Ky., and Columbia, S.C. markets, bringing the total new small retail concept commitments to eight.
- Three domestic franchisees opened a total of four small retail concept shops in the quarter in Texas, Arizona and New York.
- International franchisee growth continued to expand, with a net increase of 11 stores in the quarter, a decline from last year.
- The Kool Kreme soft serve test was expanded into five additional company shops, bringing the total number of Company test locations to 10, with all Krispy Kreme shops in both the Piedmont Triad, N.C., and Nashville, Tenn., markets offering Kool Kreme. Broadcast advertising in these markets includes messaging about Kool Kreme.
- The use of broadcast media has expanded beyond the Piedmont Triad, N.C., and Nashville, Tenn., markets into Huntsville, Ala., and Columbia, S.C.
- The company expanded its marketing mix beyond broadcast and print media into social and interactive media, including Facebook and Twitter, as well as a new sponsorship agreement with the NFL Carolina Panthers.
Morgan said in the earnings call that the company is confident in the success of the small retail shop concept. "The initial sales numbers for the three small retail shops we have opened are very encouraging, but it is sustained performance that counts. And it will be several quarters before we are able to make an informed assessment of these stores' results. However, we believe more numerous, but smaller, retail shops are critical to our future."
The company also sees strong potential for the Kool Kreme soft-serve menu "to provide significant operational leverage by addressing both day parts and seasonal parts challenges," Morgan said in the call.
"While there is still much work to be done to achieve sustained revenue growth and our long-term goals, we are pleased to have improved our financial performance in the second quarter and first half of fiscal 2010 compared to the same periods last year," Morgan said. "These results reflect the hard work and dedication of our team members and franchisees. We continue to believe we have the right strategies, and that the results from their implementation will be more fully reflected in our financial results in the quarters and years ahead."
A live webcast of the conference call to review second quarter results will be available at www.KrispyKreme.com. To access an archived audio replay of the call, dial (888) 203-1112 and enter the passcode 2904404. International callers may access the replay by dialing (719) 457-0820 and entering passcode 2904404. The audio replay will be available through Sept. 10, 2009.
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