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Krispy Kreme Announces Second Fiscal Quarter 2007 Revenues of Approximately $110 Million

Posted on: Monday, 11 September 2006, 18:00 CDT

WINSTON-SALEM, N.C., Sept. 11 /PRNewswire-FirstCall/ -- Krispy Kreme Doughnuts, Inc. announced today that on a preliminary basis it expects to report revenues of approximately $110 million for the second quarter of fiscal 2007, which ended July 30, 2006, compared to revenues of approximately $140 million for the second quarter of fiscal 2006. The decrease in revenues reflects a decline in the number of Company stores as well as lower sales to franchisees by the Company's Manufacturing and Distribution segment.

Systemwide sales fell approximately 15% in the second quarter of fiscal 2007 compared to the second quarter of the prior year primarily due to an approximately 17% decrease in the number of factory stores to 303 (total stores, including satellites, decreased approximately 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 8% and 5% in Company stores and systemwide, respectively, compared to the second 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 7% for Company stores and decreased approximately 8% systemwide, compared to the second quarter of fiscal 2006. Systemwide average sales per store declined while Company average sales per store rose principally because the growth in satellite stores, which have lower average sales than factory stores, largely has been concentrated in franchise stores and not in Company stores. 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 continue to make progress in Krispy Kreme's turnaround," said Daryl Brewster, President and Chief Executive Officer. "In the past quarter we resolved several legal disputes with franchisees. We reduced our guarantees of franchisee obligations from approximately $22 million to approximately $14 million and successfully executed pricing to offset rising input costs. In the United States, we saw signs of stability in company stores as evidenced by average weekly sales trends. We also advanced our international expansion plans with the signing of franchisees in six new markets."

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 second quarter of fiscal 2007.

Financial Position

The Company believes that cash flow from operations, combined with other anticipated cash inflows, will be sufficient to meet its liquidity needs. As of July 30, 2006, the Company's cash balance was approximately $28 million and its indebtedness was approximately $121 million (including capital lease obligations), compared to approximately $16 million and $123 million, respectively, at January 29, 2006. The January amounts exclude amounts relating to Glazed Investments, its sole consolidated franchisee at the time. As of July 30, 2006, the Company had no consolidated franchisees.

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 295 Krispy Kreme factory stores and 90 satellites operating systemwide in the United States of America, Australia, Canada, Hong Kong, Indonesia, Mexico, South Korea and the United Kingdom. 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 the pending formal investigation by the United States Securities and Exchange Commission and the investigation by the United States Attorney's Office for the Southern District of New York, the pending shareholder class action, the pending shareholder derivative action, the pending ERISA class action, further actions by the Special Committee, our auditors' ongoing review of our financial statements, actions taken by lenders to the Company and its joint ventures and actions taken by our franchisees, dependence on the ability of our franchisees to execute on their business plans, supply issues, changes in consumer preferences and perceptions, the failure of new products or cost saving initiatives to contribute to financial results in the timeframe or amount currently estimated and numerous other factors discussed in Krispy Kreme's periodic reports and proxy statements filed with the Securities and Exchange Commission.

Contact: James Golden Joele Frank, Wilkinson Brimmer Katcher (212) 355-4449 ext. 121

Krispy Kreme Doughnuts, Inc.

CONTACT: James Golden of Joele Frank, Wilkinson Brimmer Katcher forKrispy Kreme Doughnuts, Inc., +1-212-355-4449 ext. 121

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

Source: PRNewswire-FirstCall

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