SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 21, 2003
KRISPY KREME DOUGHNUTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 001-16485 56-2169715
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
370 Knollwood Street
- --------------------------------------------------------------------------------
Winston-Salem, North Carolina 27103
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (336) 725-2981
Item 12. Results of Operations and Financial Condition.
On August 21, 2003, Krispy Kreme Doughnuts, Inc. issued a press release
announcing its financial results for its second fiscal quarter ended August 3,
2003.
A copy of the press release is attached as Exhibit 99.1 to this Current
Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KRISPY KREME DOUGHNUTS, INC.
Dated: August 21, 2003 By: /s/ Randy S. Casstevens
-----------------------------------
Name: Randy S. Casstevens
Title: Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
99.1 Press Release dated August 21, 2003
EXHIBIT 99.1
KRISPY KREME EARNINGS EXCEED CONSENSUS
NET INCOME INCREASES 46.8%; SYSTEMWIDE COMP STORE SALES UP 11.3%
Winston-Salem, NC (August 21, 2003) - Krispy Kreme Doughnuts, Inc. (NYSE: KKD)
today reported financial results for the three months ended August 3, 2003, the
Company's second quarter of Fiscal 2004.
Net income for the second quarter increased 46.8% to $13.0 million compared with
$8.9 million in the second quarter of Fiscal 2003. Diluted earnings per share
increased to $0.21 in the second quarter compared with $0.15 for the same period
in Fiscal 2003.
Total company revenues, which include sales from company stores, franchise
operations, Krispy Kreme Manufacturing and Distribution (KKM&D) and Montana
Mills rose 41.1% to $161.8 million, compared with $114.6 million in the prior
year comparable period. Sales from the company stores increased 39.6% to $104.3
million; KKM&D sales increased 39.2% to $48.9 million; revenues from franchise
operations grew to $6.0 million, a 24.7% increase; and Montana Mills revenues
were $2.6 million.
Systemwide sales, including sales of company and franchise stores, advanced
27.6% to $238.5 million in the second quarter compared with $186.9 million in
the second quarter of Fiscal 2003. Sales were driven by an increase in company
store sales of 39.6% to $104.3 million and an increase in franchise store sales
of 19.6% to $134.2 million. Systemwide sales, including Krispy Kreme stores and
Montana Mills, increased 29.0% to $241.1 million in the second quarter. On a
comparable store basis, systemwide store sales increased 11.3% and company store
sales were up 15.6%.
Net income for the six months ended August 3, 2003, increased 47.5% to $26.1
million compared with $17.7 million in the same period last year. Diluted
earnings per share increased 42.0% to $0.43 in the first six months of the year
from $0.30 per share in the same period a year ago.
Total Company revenues increased 37.6% to $310.5 million compared with $225.7
million for the same period in Fiscal 2003. Sales from company stores increased
to $206.6 million, a 38.7% increase; KKM&D sales increased 33.3% to $90.2
million; franchise operations increased 21.9% to $11.0 million and Montana Mills
revenues totaled $2.6 million.
Systemwide sales, including company and franchise stores, increased 26.0% to
$466.3 million from $370.0 million for the same period in Fiscal 2003. This
increase was a result of growth in company store sales of 38.7% to $206.6
million and a 17.5% increase in franchise store sales to $259.7 million.
Systemwide sales, including Krispy Kreme stores and Montana Mills, advanced
26.7% to $468.9 million.
"Krispy Kreme had an extremely exciting second quarter that included a number of
significant events for the Company," said Scott Livengood, Chairman, President
and Chief Executive Officer. "We experienced great success when we opened our
first store outside North America in Sydney, Australia. We also set new opening
day and opening week sales records in our first store in the Boston market.
Finally, we served the first-ever Krispy Kreme doughnuts in a French-speaking
environment in Montreal, Canada and were met with great excitement when we
opened there in May."
During the quarter, 22 new Krispy Kreme stores were opened in twelve new
markets. The Company opened its first factory store outside North America,
located in the Sydney, Australia suburb of Penrith and its second commissary
outside North America, in London, England. Other new markets entered included
Montreal, Canada, El Paso, TX, Cranston, RI, Sioux Falls, SD, Lafayette, IN,
Flint, MI, Boston, MA, Corpus Christi, TX, Erie, PA, Brick, NJ, and Portland,
OR. This brings the total number of stores at the end of the second quarter to
302. The factory store, which opened in Medford, MA, a Boston suburb, set a new
opening week sales record of $506,917.
Subsequent to quarter end, the Company opened five new Krispy Kreme stores. The
Company plans to open its first factory store in Europe in the world-renowned
department store, Harrods of Knightsbridge, London in October 2003.
Further commenting on the Company's financial performance, Livengood added, "The
results of the second quarter and the initiatives we have underway create a
strong foundation for the balance of the year. Our broadening platform, which
now includes both large and small US markets, combined with our international
expansion plans will create growth opportunities for years to come."
In light of the operating performance during the first half of Fiscal 2004, the
Company today is establishing new long-term operating margin targets. These
three to five year targets are as follows: total Company operating income as a
percent of sales: 20% and Company store operations segment income as a percent
of sales: 25%. These are changes from the previous guidance of 15% and 20%,
respectively. Also, the Company indicated that based on its second quarter
performance, it now expects to earn $0.91 per fully diluted share or $0.02 above
consensus for Fiscal Year 2004. Quarterly earnings guidance is as follows: Q3 -
$0.22; Q4 - $0.26.
The Company affirmed its previously announced goals of systemwide comparable
sales of 10% for the year with quarterly variations. Additionally, the Company
reiterated its store development plans to open 77 new stores in 17 new markets
and to open 10 other units, a combination of Doughnut and Coffee Shops and/or
satellite stores during Fiscal 2004.
The Company will hold a conference call today at 9:00 a.m. Eastern Time, which
will be hosted by Scott Livengood, Chairman, President and Chief Executive
Officer, John Tate, Chief Operating Officer and Randy Casstevens, Chief
Financial Officer. The call will be
broadcast live over the Internet and can be accessed at the Investor Relations
page at www.krispykreme.com. A replay of the call will be available until 5:00
p.m. Eastern Time, August 28, 2003 by calling 888.873.2038 (domestic) or
402.220.5362 (international), and entering passcode 1564.
Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme is a leading
branded specialty retailer of premium quality doughnuts, including the Company's
signature Hot Original Glazed. Krispy Kreme currently operates 307 stores in 41
U.S. states, Canada and Australia. An estimated 7.5 million Krispy Kreme
doughnuts are made everyday and more than 2.7 billion are produced each year.
Krispy Kreme can be found on the World Wide Web at www.krispykreme.com.
# # #
Information contained in this press release, other than historical information,
may be considered forward-looking in nature and is subject to various risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
expected. Among the key factors that may have a direct bearing on Krispy Kreme's
operating results, performance or financial condition are its dependence on
franchisees to execute its store expansion strategy, supply issues, competition
and numerous other factors discussed in Krispy Kreme's periodic reports, proxy
statement and other information statements filed with the Securities and
Exchange Commission.
Krispy Kreme Doughnuts, Inc.
Summary Financial Results
For the Second Quarter Ended August 3, 2003
(All dollar amounts in thousands except per share data)
(Unaudited)
Quarter Ended
August 3, 2003 August 4, 2002 $ Change % Change
-------------- -------------- ----------- ---------
Total revenues $ 161,790 $ 114,626 $ 47,164 41.1%
Operating expenses 123,705 90,487 33,218 36.7%
General and administrative expenses 9,060 6,589 2,471 37.5%
Depreciation and amortization expenses 4,703 2,612 2,091 80.1%
-------------- -------------- -----------
Income from operations 24,322 14,938 9,384 62.8%
Interest income 215 592 (377) -63.7%
Interest expense 997 404 593 146.8%
Loss from joint ventures 802 (18) 820 -
Minority interest in consolidated joint
ventures 616 591 25 4.2%
Other expenses 343 150 193 128.7%
-------------- -------------- -----------
Income before income taxes 21,779 14,403 7,376 51.2%
Provision for income taxes 8,778 5,545 3,233 58.3%
-------------- -------------- -----------
Net income $ 13,001 $ 8,858 $ 4,143 46.8%
-------------- -------------- -----------
-------------- -------------- -----------
Diluted earnings per share $ 0.21 $ 0.15 $ 0.06 39.3%
Diluted shares outstanding 62,127 59,047 3,080 5.2%
Segment Information
Revenues
Company store operations $ 104,342 $ 74,744 $ 29,598 39.6%
Franchise operations 5,953 4,774 1,179 24.7%
KKM&D 48,881 35,108 13,773 39.2%
Montana Mills 2,614 - 2,614 -
-------------- -------------- -----------
Total revenues $ 161,790 $ 114,626 $ 47,164 41.1%
-------------- -------------- -----------
-------------- -------------- -----------
Operating Income
Company store operations $ 20,101 $ 12,122 $ 7,979 65.8%
Franchise operations 4,700 3,736 964 25.8%
KKM&D 9,671 6,060 3,611 59.6%
Montana Mills (685) - (685) -
Unallocated general and administrative expenses (9,465) (6,980) (2,485) 35.6%
-------------- -------------- -----------
Total operating income $ 24,322 $ 14,938 $ 9,384 62.8%
-------------- -------------- -----------
-------------- -------------- -----------
Operating Margins
Company store operations 19.3% 16.2% 3.1%
Franchise operations 79.0% 78.3% 0.7%
KKM&D 19.8% 17.3% 2.5%
Montana Mills -26.2% - -26.2%
Unallocated general and administrative expenses 5.9% 6.1% -0.2%
Total operating income 15.0% 13.0% 2.0%
Depreciation and Amortization Expenses
Company store operations $ 3,341 $ 2,030 $ 1,311 64.6%
Franchise operations 43 13 30 230.8%
KKM&D 747 178 569 319.7%
Montana Mills 167 - 167 -
Corporate administration 405 391 14 3.6%
-------------- -------------- -----------
Total depreciation and amortization expenses $ 4,703 $ 2,612 $ 2,091 80.1%
-------------- -------------- -----------
-------------- -------------- -----------
Systemwide Sales
Company stores $ 104,342 $ 74,744 $ 29,598 39.6%
Franchise stores 134,187 112,194 21,993 19.6%
-------------- -------------- -----------
Total Krispy Kreme stores 238,529 186,938 51,591 27.6%
Montana Mills stores 2,614 - 2,614 -
-------------- -------------- -----------
Total $ 241,143 $ 186,938 $ 54,205 29.0%
-------------- -------------- -----------
-------------- -------------- -----------
Comparable Store Sales
Company stores 15.6%
Systemwide 11.3%
Krispy Kreme Doughnuts, Inc.
Summary Financial Results
For the Six Months Ended August 3, 2003
(All dollar amounts in thousands except per share data)
(Unaudited)
Six Months Ended
August 3, 2003 August 4, 2002 $ Change % Change
-------------- -------------- ----------- ---------
Total revenues $ 310,450 $ 225,685 $ 84,765 37.6%
Operating expenses 236,185 176,849 59,336 33.6%
General and administrative expenses 17,962 14,212 3,750 26.4%
Depreciation and amortization expenses 8,804 5,158 3,646 70.7%
Arbitration Award (525) - (525) -
-------------- -------------- -----------
Income from operations 48,024 29,466 18,558 63.0%
Interest income 442 1,191 (749) -62.9%
Interest expense 1,863 508 1,355 266.7%
Loss from joint ventures 1,496 180 1,316 731.1%
Minority interest in consolidated joint ventures 1,232 1,124 108 9.6%
Other expenses 368 150 218 145.3%
-------------- -------------- -----------
Income before income taxes 43,507 28,695 14,812 51.6%
Provision for income taxes 17,366 10,976 6,390 58.2%
-------------- -------------- -----------
Net income $ 26,141 $ 17,719 $ 8,422 47.5%
Diluted earnings per share (1) $ 0.43 $ 0.30 $ 0.13 42.0%
Diluted shares outstanding 61,391 59,040 2,351 4.0%
Segment Information
Revenues
Company store operations $ 206,585 $ 148,928 $ 57,657 38.7%
Franchise operations 11,019 9,042 1,977 21.9%
KKM&D 90,232 67,715 22,517 33.3%
Montana Mills 2,614 - 2,614 -
-------------- -------------- -----------
Total revenues $ 310,450 $ 225,685 $ 84,765 37.6%
Operating Income
Company store operations $ 41,660 $ 25,707 $ 15,953 62.1%
Franchise operations 8,397 6,802 1,595 23.4%
KKM&D 16,883 11,951 4,932 41.3%
Montana Mills (685) - (685) -
Unallocated general and administrative expenses (18,756) (14,994) (3,762) 25.1%
Arbitration Award 525 - 525 -
-------------- -------------- -----------
Total operating income $ 48,024 $ 29,466 $ 18,558 63.0%
Operating Margins
Company store operations 20.2% 17.3% 2.9%
Franchise operations 76.2% 75.2% 1.0%
KKM&D 18.7% 17.6% 1.1%
Montana Mills -26.2% - -26.2%
Unallocated general and administrative expenses 6.0% 6.6% -0.6%
Arbitration Award 0.2% - 0.2%
Total operating income 15.5% 13.1% 2.4%
Depreciation and Amortization Expenses
Company store operations $ 6,275 $ 3,994 $ 2,281 57.1%
Franchise operations 86 26 60 230.8%
KKM&D 1,481 356 1,125 316.0%
Montana Mills 167 - 167 -
Corporate administration 795 782 13 1.7%
-------------- -------------- -----------
Total depreciation and amortization expenses $ 8,804 $ 5,158 $ 3,646 70.7%
Systemwide Sales
Company stores $ 206,585 $ 148,928 $ 57,657 38.7%
Franchise stores 259,749 221,068 38,681 17.5%
-------------- -------------- -----------
Total Krispy Kreme stores 466,334 369,996 96,338 26.0%
Montana Mills stores 2,614 - 2,614 -
-------------- -------------- -----------
Total $ 468,948 $ 369,996 $ 98,952 26.7%
Comparable Store Sales
Company stores 15.5%
Systemwide 11.2%
(1) In the fourth quarter of fiscal 2003, the Company accrued a pre-tax charge
of $9,075 related to an arbitration award against the Company, which was
discussed in the Company's Form 8-K filing dated February 10, 2003. In the
first quarter of fiscal 2004, the Company paid $8,550 to settle the award.
Diluted earnings per share for the six months ended August 3, 2003 of $.43
includes the effect of the reversal of the remaining accrual, $525.
Excluding the effect of the reversal of this accrual, operating income for
the six months ended August 3, 2003 would have been $47,499 and the
operating income margin would have been 15.3%. After applying the
effective tax rate of 39.9% to the $525 accrual reversal, net income for
the six month period would have been $25,826, a 45.8% increase over the
prior year quarter and diluted earnings per share would have been $.01
less than the reported $.43.
Krispy Kreme Doughnuts, Inc.
Condensed Consolidated Balance Sheets
As of August 3, 2003, May 4, 2003 and February 2, 2003
(All dollar amounts in thousands)
(Unaudited)
August 3, May 4, February
2003 2003 $ Change % Change 2, 2003 $ Change % Change
---------- -------- --------- -------- --------- --------- ---------
Cash and investments $ 28,254 $ 29,826 $(1,572) -5.3% $ 59,523 $(31,269) -52.5%
Receivables 59,790 50,407 9,383 18.6% 46,319 13,471 29.1%
Inventories 29,240 27,017 2,223 8.2% 24,365 4,875 20.0%
Property and equipment, net 240,784 220,382 20,402 9.3% 202,558 38,226 18.9%
Investments in unconsolidated
joint ventures 12,688 7,030 5,658 80.5% 6,871 5,817 84.7%
Other assets 191,216 135,021 56,195 41.6% 70,851 120,365 169.9%
---------- -------- --------- --------- ---------
Total assets $561,972 $469,683 $92,289 19.6% $410,487 $151,485 36.9%
---------- -------- --------- --------- ---------
---------- -------- --------- --------- ---------
Payables $ 26,453 $ 24,228 $ 2,225 9.2% $ 25,430 $ 1,023 4.0%
Accrued expenses 24,201 23,115 1,086 4.7% 30,056 (5,855) -19.5%
Debt 124,091 65,034 59,057 90.8% 61,389 62,702 102.1%
Other long-term obligations 24,800 22,727 2,073 9.1% 20,260 4,540 22.4%
Shareholders' equity 362,427 334,579 27,848 8.3% 273,352 89,075 32.6%
---------- -------- --------- --------- ---------
Total liabilities and
shareholders' equity $561,972 $469,683 $92,289 19.6% $410,487 $151,485 36.9%
---------- -------- --------- --------- ---------
---------- -------- --------- --------- ---------
Krispy Kreme Doughnuts, Inc.
Summary of Store Openings
Store Count Recap
Consolidated Total Joint Total
Company JVs Company Associate AD Ventures Total AD Franchise Total
---------- ------------- ---------- --------- ----- --------- --------- ---------- -------
Total End Q1 FY04 74 30 104 58 87 33 120 178 282
---------- ------------- ---------- --------- ----- --------- --------- ---------- -------
Open 3 1 4 - 5 13 18 18 22
Closed (1) - (1) - - (1) (1) (1) (2)
Transferred 7 - 7 (6) (1) - (1) (7) -
Reclassification - - - - (1) 1 - - -
---------- ------------- ---------- --------- ----- --------- --------- ---------- -------
Q2 Net 9 1 10 (6) 3 13 16 10 20
---------- ------------- ---------- --------- ----- --------- --------- ---------- -------
Total End Q2 FY04 83 31 114 52 90 46 136 188 302
---------- ------------- ---------- --------- ----- --------- --------- ---------- -------
---------- ------------- ---------- --------- ----- --------- --------- ---------- -------
Krispy Kreme Doughnuts, Inc.
Average Sales per Week
Dollars in Thousands
FY 2004 FY 2003
------------------------- -----------
Q2 Q1 Q2
----- ----- -----
Company stores $74.4 $77.4 $75.3
Area Developers $61.2 $58.0 $63.6
Associates $48.7 $52.4 $50.7
Total Franchise $57.3 $56.2 $58.8
Systemwide $63.7 $64.1 $64.4
Krispy Kreme Doughnuts, Inc.
Total Operating Weeks
FY 2004 FY 2003
------------------------- -----------
Q2 Q1 Q2
----- ----- -----
Company stores 1,396 1,336 989
Area Developers 1,617 1,505 1,196
Associates 724 732 713
Total Franchise 2,341 2,237 1,909
Systemwide 3,737 3,573 2,898