Professor Michael Lord believes Krispy Kreme has put the worst behind them

6.4.2010 Article, Business Analytics, Faculty News

Krispy's 1Q profit for '11 gives hope
Positive performance persuades company to raise its forecast
Originally Posted on Friday, June 4, 2010 | By Richard Craver
Reposted from The Winston-Salem Journal

Krispy Kreme Doughnuts Inc.'s bid for its first profitable year since 2004 has gotten off to a promising start.

The company reported yesterday that it more than doubled its profit in its first quarter of fiscal 2011 to $4.5 million. The quarter ended May 2.

Diluted earnings were up 3 cents to 6 cents a share.

Because of the company's financial difficulties in recent years, coverage of its stock has been dropped by most analysts. The company released the report after the market closed. Its share price slipped 2 cents to finish at $3.69.

The quarterly performance included a 3.4 percent increase in company same-store sales, but a 1.4 percent decline in overall revenues to $92.1 million.

Still, it was enough to persuade Krispy to raise its forecast for operating income for the full fiscal year. The forecast, excluding impairment charges and lease-termination costs, now ranges from $11 million to $15 million, compared with the range of $10 million to $13 million provided April 15.

"These latest results are consistent with Krispy Kreme's stabilization of its core operations," said Michael Lord, an associate professor of management at Wake Forest University. "It's more evidence that they appear to have put the worst behind them. The results also reflect the continued promise of international growth, even if there are some uneven numbers."

Jim Morgan, the chairman, president and chief executive of Krispy, said that for the past three fiscal years, the first quarter has been its best for operating income.

"We view fiscal 2011 as a period of continued investment in our business and execution of our strategic plan," he said.

Another sign of Krispy's corporate turnaround is that it added 34 stores in the first quarter for a total of 616 — 83 company stores and 533 franchisees.

Revenue from its company stores was down 5 percent to $62.5 million. Revenue from domestic franchises was up 7 percent to $2.2 million, while revenue from international franchises was up 23 percent to nearly $4.8 million.

Revenue from its supply chain rose 2.3 percent to $45.9 million, driven by price increases in major product categories.

"We are working diligently to further improve company operations while providing better support for our franchise partners, both domestically and internationally," Morgan said.

"These efforts are critical to building a strong foundation for our business and should position us for accelerated growth in both revenues and earnings over the long term."