Krispy Kreme creating buzz with licensed coffee

by Monica Watrous    View Me on Google+
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WINSTON-SALEM, N.C. — Licensed coffee and digital media are two ways in which Krispy Kreme Doughnuts, Inc. aims to build brand awareness outside of its shops.

“Key to building and maintaining long-term top-of-mind consumer awareness is building greater connectivity to Krispy Kreme by making our products more convenient and available in a variety of venues outside our shops,” said Jim Morgan, executive chairman, during a June 2 call with financial analysts. “Examples of this are ready-to-drink bottled coffees, bagged coffee, bagged ground coffee, and by the end of the year, K-Cup portion packs through our partnership with Keurig Green Mountain. We believe that by making more of our products accessible to customers outside of our shops, and in channels where they customarily buy coffee, we can build trial usage … that could also translate into higher coffee and same-store sales at our domestic shops.”

The ready-to-drink, bagged and K-Cup products represent Krispy Kreme’s initial entries into brand licensing, with additional lines planned in the coming quarters and years.

To improve its digital presence, Krispy Kreme in May tapped VML, a Kansas City-based marketing agency, to help build brand engagement on a global scale.

“We think enhancing our global presence through new and existing digital, social and interactive media channels is critical to worldwide customer engagement, and will help keep Krispy Kreme top of mind,” Mr. Morgan said.

The chain also is focused on expanding its international footprint, marking the opening of its 600th international store last month with a new unit in Puerto Rico, in addition to growing its freestanding small factory models in the United States.

“To date, we have opened 10 of the new small freestanding shops, including two in the first quarter,” said Doug Muir, executive vice-president and chief financial officer. “Generally, we continue to be very pleased with the revenue results we are seeing. The two shops we previously identified as revenue under-performers continue to reside in that camp. But so far, none of the other new freestanding shops have joined that group, and we continue to have some outstanding over-achievers.”

Continued weather headwinds dampened an otherwise successful first quarter for Krispy Kreme.

For the period ended May 4, the company reported net income of $9,656,000, equal to 15c per share on the common stock, up 21% from $7,999,000, or 12c per share, in the comparable period.

Revenues increased $121,580,000, up 0.8% from $120,625,000.

System-wide domestic same-store sales rose 2.3%, reflecting a 1.5% decline at company shops due in part to winter weather, which was offset by a gain of 4.5% in same-store sales at domestic franchised units.

The company has lowered its full-year outlook based on first-quarter performance and higher-than-anticipated costs related to a new enterprise resource planning system and executive management succession. Krispy Kreme in May named Tony Thompson as president and chief executive officer, effective June 1, to succeed Mr. Morgan in that role. Mr. Morgan has stayed on as executive chairman.

For fiscal 2015, Krispy Kreme now projects adjusted earnings per share to range between 69c and 74c, down from an original guidance of 73c to 79c.

After opening at $19.06 per share on June 2, Krispy Kreme’s share price closed at $19. The stock opened at $16.86 on June 3 and was down to $16.20 in mid-morning trading.
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