Professor Michael Lord Comments on Krispy Kreme’s Earnings Results

9.3.2010 Faculty News, General, News Release

Krispy Kreme reports $2M in net income
Originally Posted Sept. 3 | by Richard Craver
Reposted from the Winston-Salem Journal

Krispy Kreme Doughnuts Inc.'s bid for its first profitable year since 2004 gained momentum in its second quarter with the posting of $2.2 million in net income yesterday.

The company also said it has raised its operating-income outlook for fiscal year 2011 for a second time to a range of $13 million to $17 million. The range is up from $10 million to $13 million on April 15.

Those projections exclude impairment charges and lease-termination costs.

The company had a loss of $157,000 a year ago. The second quarter ended Aug. 1.

Diluted earnings were 3 cents a share, compared with no earnings a year ago.

James Morgan, the company's chairman, chief executive and president, has stressed caution since the 2008 shareholders meeting about when Krispy would return to profitability. At that time, he said that there likely will be some "unevenness" in quarterly performance for up to two years.

Morgan said in a statement that "our transition is an ongoing process, and we are confident we can build an even stronger foundation for the future by continuing to both invest in our businesses and support our domestic and international franchisees."

"We believe that we are only beginning to unlock the potential of the Krispy Kreme brand," the statement said.

Michael Lord, an associate professor of management at Wake Forest University, said that the overall results were solid, with "some good signs of continuing progress."

Krispy added 17 stores in the second quarter for a total of 633 — 84 company stores and 549 franchisees. Overall revenues were up 6.3 percent to $87.9 million.

"If Krispy Kreme can keep its expenses under control and keep registering some steady growth, the scaling up should start turning into greater profits," Lord said.

Here are highlights of the second-quarter report for Krispy Kreme Doughnuts Inc.:

• NET INCOME IN SECOND QUARTER: $2.2 million. The company lost $157,000 a year ago.

• DILUTED EARNINGS: 3 cents, compared with no earnings a year ago.

• AVERAGE EARNINGS FORECAST: Coverage has been dropped by most analysts.

• NOTEWORTHY: The company raised its operating-income outlook for the second time for fiscal year 2011.

• SHARE PRICE: Rose 12 cents to close at $4.24 yesterday.