Big plans ahead for smaller Krispy Kreme stores

by Jeff Gelski
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WINSTON-SALEM, N.C. — Krispy Kreme Doughnuts, Inc. plans to open another 10 to 15 small free-standing company stores this fiscal year. Increasing consumer awareness of Krispy Kreme coffee will be another priority.

Krispy Kreme so far has opened 8 smaller company stores in the United States.

“Looking at the revenue of those eight locations, two of them appear to be home runs, four more are above our expectations, and two are not doing as well as we planned,” said Doug Muir, executive vice-president and chief financial officer, in a March 12 earnings conference call. “On balance, though, we are very pleased with our results so far.”

Krispy Kreme


Mr. Muir said the average Krispy Kreme free-standing store achieves about $35,000 a week in sales.

“If these (smaller) stores do $30,000 a week, they will generate wonderful returns,” he said.

Jim Morgan, chairman, president and chief executive officer, added, “We are accelerating our growth domestically with the small factory store model embraced by our franchisees, and which we believe is a positive factor in attracting new domestic franchisees.”

Mr. Morgan said the company was not yet pleased with the amount of revenue being brought in by coffee and other beverages at Krispy Kreme stores. Since the chain has only about 250 stores in the United States, consumers may not find it convenient to find a store for a morning coffee purchase, he said.

Krispy Kreme thus has made its coffee available at other retail locations. The company introduced packaged Krispy Kreme ground coffee in 40-oz bags at about 100 Sam’s Clubs locations in the Southeast, Mr. Morgan said. Ready-to-drink varieties of Krispy Kreme glazed iced coffee and Krispy Kreme mocha iced coffee are available at more than 900 Wal-Mart locations in the United States. Mr. Morgan added Krispy Kreme signed a multi-year partnership to bring Krispy Kreme signature coffee to the Keurig brewing system by the end of this year.

“If we can get (consumers) accustomed to drinking our coffee at home, we think it will become a bigger part of their life when they visit our store,” Mr. Morgan said. “So we’ve decided in that area — excuse the old phrase — but maybe the tail’s supposed to wag the dog there, and by getting (coffee) plentiful and very visible in what could end up being thousands of locations, it may increase the awareness and therefore the success in the 250-plus locations.”

In the 2014 fiscal year ended Feb. 2, company same-store sales for Krispy Kreme rose 6.7%, marking the fifth consecutive annual increase.

Net income in the fiscal year was $34,256,000, or 51c per share, which compared with $20,779,000, or 31c per share, in the previous fiscal year. Net income in the recently completed fiscal year reflects credits totaling $10.3 million, or 14c per share, in income tax expense. Revenues in the fiscal year increased 8% to $460,331,000 from $435,843,000. Excluding the effects of refranchising stores, revenues rose 9.3%.

The 2014 fiscal year included 52 weeks as compared to 53 weeks in the previous fiscal year. The fourth quarter included 13 weeks as compared to 14 weeks in the fourth quarter of the previous year.

In the fourth quarter, Krispy Kreme reported net income of $14,760,000, or 22c per share, which compared with $4,780,000, or 7c per share, in the previous year’s fourth quarter. Revenues of $112,746,000 in the fourth quarter compared with $118,145,000 in the previous year’s fourth quarter.

In fiscal 2015, Krispy Kreme’s management expects adjust net income will be in the range of $51 million to $55 million and adjusted e.p.s. will range from 73c to 79c per share based on a forecasted 70 million diluted shares outstanding.

In fiscal 2015, the company’s domestic franchisees will open between 20 and 25 Krispy Kreme shops, including both small factory and satellite locations. Krispy Kreme forecasts international franchisees will open about 85 locations. Allowing for anticipated normal shop closings across the system, management estimates total system-wide store count will rise over 10% in fiscal 2015.
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