Milling & Baking News - March 16, 2004 - 19

F I N A N C I A L

Krispy Kreme's earnings soar,
but concerns arise over margins
WINSTON-SALEM, N.C. - Krispy
Kreme Doughnuts, Inc. rounded out its
fiscal year ended Feb. 1 with another
strong quarter of profit growth despite
declining profit margins at companyowned stores.
The donut chain said last week that net
earnings in its fiscal fourth quarter rose
45.3% to $16.4 million, equal to 26c per
share on the common stock, compared
with $11.3 million, or 19c per share, in the
same quarter a year ago. Last year's results exclude a $5.7-million charge related
to an arbitration award the company paid
in an ownership dispute with its northern
California franchisee.
Revenue in the quarter rose 35.7% to
$185.5 million compared with $136.7
million a year ago. System-wide store
sales, including the company's Montana
Mills concept, rose 26.6%, with comparable-store sales up 9.1%.
The quarter's results pushed earnings
for fiscal 2004 to $57.1 million, or 92c
per share, meeting market expectations
excluding a 1c-per-share adjustment for

the arbitration award. In fiscal 2003, the
company earned $39.1 million, or 66c per
share, excluding the arbitration payment.
Revenue in fiscal 2004 increased 35.4%
to $665.6 million compared with $491.5
million the previous year. System-wide
sales rose 27.4%, with
comp sales rising 10.2%.
In spite of the continued strong revenue and
earnings growth, results
from the latest quarter
spooked the investment
community, even though the period's
earnings met market expectations.
That is because for the first time in
three years, operating profit margins
fell at company-owned stores, which account for two-thirds of Krispy Kreme's
revenues.
Those margins in the quarter equaled
17.4%, compared with 20.3% in the
fourth quarter of fiscal 2003. For the entire fiscal year that figure equaled 18.9%,
compared with 18.2% the previous year.
The fourth-quarter decline fed worries

that new-store openings, and not operational improvement, explain the company's continued earnings improvement.
Krispy Kreme's shares fell as much as 9%,
or $3.53, to $34.63 per share after the company released its earnings March 10.
Krispy Kreme opened 35 new outlets
in the quarter, including 31 factory stores
and four satellite sites. Overall, the company added 99 new stores in fiscal 2004,
pushing its total to 394.
However, the chain's
average
system-wide
weekly sales on a perunit basis fell in the
fourth quarter to $60,100
from $63,700 last year,
a decline of 5.7%. Average per-unit
weekly sales fell even further at company-owned stores, dropping $6,800 to
$69,100, a decline of 9%.
Krispy Kreme reiterated that it expects
to open about 120 new stores in fiscal
2005, as it projects comp sales to rise
5% to 10% and system-wide sales to rise
about 25%. The company still anticipates
earnings of $1.16 to $1.18 per share during the year, representing an expected
26% to 28% increase from the recently
completed year. MBN

�������� �� ������� ������ ������� ����
�������������������������������������
������������������������������������
�����������������������������������
������������������������������������
����������������������������������
bakingbusiness.com/world-grain.com

R E S U L T S

������������������������������������

�������������������������������������
Milling & Baking News, March 16, 2004 / 19

http://www.bakingbusiness.com/world-grain.com

Milling & Baking News - March 16, 2004

Table of Contents for the Digital Edition of Milling & Baking News - March 16, 2004