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Krispy Kreme Announces First Quarter 2007 Revenues of Approximately $116 Million

Posted on: Tuesday, 13 June 2006, 09:01 CDT

WINSTON-SALEM, N.C., June 13 /PRNewswire-FirstCall/ -- Krispy Kreme Doughnuts, Inc. announced today that on a preliminary basis it expects to report revenues of approximately $116 million for the first quarter of fiscal 2007, which ended April 30, 2006, compared to revenues of approximately $153 million for the first quarter of fiscal 2006. The decrease in revenues principally reflects a decrease in the number of Company stores, lower sales to franchisees from the Company's Manufacturing and Distribution segment, and lower royalties and fees from franchisees.

Systemwide sales fell approximately 17% in the first quarter of fiscal 2007 compared to the first quarter of the prior year primarily due to a 19% decrease in the number of factory stores to approximately 310 (total stores, including satellites, decreased 6%). Average weekly sales per factory store (which is computed by dividing sales from all factory and satellite stores by the number of factory stores in operation) increased approximately 10% and 2% in Company stores and systemwide, respectively, compared to the first quarter of fiscal 2006. Average weekly sales per store (which is computed by dividing sales from all factory and satellite stores by the aggregate number of all such stores in operation) increased approximately 10% for Company stores and decreased approximately 11% systemwide, compared to the first quarter of fiscal 2006. The average sales per unit data reflect, among other things, store closures and the related shift in off-premises doughnut production into a smaller number of stores.

Systemwide sales data include sales at all Company and franchise locations. Systemwide sales is a non-GAAP financial measure; however, the Company believes systemwide sales information is useful in assessing the overall performance of the Krispy Kreme brand and, ultimately, the performance of the Company.

"We are taking steps to turn around the Company," said Daryl Brewster, President and Chief Executive Officer. "We have filed our fiscal 2005 financial statements. We have reached an initial settlement of the ERISA class action. We continue to see growth in our international markets, including two new international development agreements. We are also seeing signs of stability in the United States."

The Company noted that its financial results continue to be adversely affected by the substantial costs associated with the legal and regulatory matters previously disclosed by the Company. The Company expects to report a net loss for the first quarter of fiscal 2007.

Financial Position

The Company ceased consolidation of its sole remaining consolidated franchisee, Glazed Investments, in early February 2006 when Glazed filed for bankruptcy protection. Substantially all of Glazed's assets subsequently were sold to another of the Company's franchisees which is continuing the business, and Glazed's affairs are being wound up. The Company believes that the amount, if any, it will be required to pay pursuant to its guarantee of a portion of certain of Glazed's indebtedness will not be significant. Such indebtedness totaled approximately $13 million.

The Company believes that cash flow from operations, combined with other anticipated cash inflows, will be sufficient to meet its liquidity needs. As of April 30, 2006, the Company's cash balance was approximately $19 million and its indebtedness was approximately $121 million (including capital lease obligations), compared to approximately $20 million and $122 million, respectively, at January 29, 2006. The January amount excludes any amount relating to Glazed Investments, its sole consolidated franchisee at the time. As of April 30, 2006, the Company had no consolidated franchisees. In May 2006, the Company sold for cash its notes receivable from Krispy Kreme Australia for their par balance of approximately $3.8 million and entered into a definitive agreement to sell its interest in Krispy Kreme UK for approximately $5.6 million cash. The Company's unused borrowing capacity under its credit facilities is expected to have declined during the quarter due to a reduction in the operating earnings (as defined in the credit facilities) on which such availability depends. The Company's operating plan for fiscal 2007 does not forecast any additional borrowings under these credit facilities.

About Krispy Kreme

Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme is a leading branded retailer and wholesaler of high-quality doughnuts, including its signature Hot Original Glazed.(TM) There are currently approximately 310 Krispy Kreme factory stores and 85 satellites operating systemwide in 43 U.S. states, Australia, Canada, Mexico, South Korea and the United Kingdom. Additional information on Krispy Kreme can be found on the Internet at http://www.krispykreme.com/.

Information contained in this press release, other than historical information, should be considered forward-looking. Forward-looking statements are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on Krispy Kreme's operating results, performance or financial condition are the outcome of pending governmental investigations, including by the Securities and Exchange Commission and the United States Attorney's Office for the Southern District of New York, and a review by the Department of Labor; the outcome of shareholder derivative and class action litigation; potential indemnification obligations and limitations of the Company's director and officer liability insurance; material weaknesses in the Company's internal control over financial reporting; the Company's ability to implement remedial measures necessary to improve its processes and procedures; continuing negative publicity; significant changes in the Company's management; the quality of franchise store operations; the Company's ability, and its dependence on the ability of its franchisees, to execute on the Company's and their business plans; disputes with franchisees, including pending litigation with some of them; the Company's ability to implement its international growth strategy; currency, economic, political and other risks associated with international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients; compliance with governmental regulations relating to food products and franchising; relationships with wholesale customers; the Company's ability to protect its trademarks; risks associated with high levels of indebtedness; restrictions on operations contained in the Company's senior secured credit facilities; the Company 's ability to meet its ongoing liquidity needs; changes in customer preferences and perceptions; risks associated with competition; and other factors discussed in Krispy Kreme's Annual Report on Form 10-K for fiscal 2005 and in Forms 12b-25 and other periodic reports filed with the Securities and Exchange Commission.

Contact: Laura Smith Joele Frank, Wilkinson Brimmer Katcher (212) 355-4449 ext. 154

Krispy Kreme Doughnuts, Inc.

CONTACT: Laura Smith, Joele Frank, Wilkinson Brimmer Katcher,+1-212-355-4449 ext. 154

Web site: http://www.krispykreme.com/

Source: PRNewswire-FirstCall

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