Krispy Kreme Doughnuts CEO Discusses F2Q13 Results - Earnings Call Transcript

Krispy Kreme Doughnuts, Inc (KKD)

F2Q13 Earnings Call

August 22, 2012 4:30 pm ET

Executives

Anita Booe - Director of Investor Relations

James Morgan - Chairman of the Board, President, Chief Executive Officer

Douglas Muir - Chief Financial Officer, Executive Vice President

Analysts

Michael Gallo - CL King

Will Slabaugh - Stephens Inc.

Tony Brenner - Roth Capital Partners

Conrad Lyon - B. Riley & Company

Nick Setyan - Wedbush Securities

Howard Rosencrans - Value Advisory

Presentation

Operator

Good day, ladies and gentlemen and welcome to the second quarter 2013 Krispy Kreme Doughnuts Incorporated earnings conference call. My name is Chris and I will be your conference moderator for today. Presently, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

At this time, I will now like turn the conference over to your presenter for today. Ms. Anita Booe, you may proceed.

Anita Booe

Good afternoon, and welcome to the Krispy Kreme second quarter conference call. My name is Anita Booe and I am the Director of Investor Relations. On the call with me today are Jim Morgan, President and Chief Executive Officer and Doug Muir, Executive Vice President and Chief Financial Officer.

Some of the information in today's press release and statements on today's call includes forward looking statements that reflect our expectations or beliefs about the future including but not limited to our expectations and beliefs regarding financial performance. We cannot assure you that we will achieve or realize these expectations.

Like any such statements, they are subject to a number of factors, risks, and uncertainties that could cause actual results to differ materially from our expectations or beliefs. These factors include items discussed today and in our SEC filings, including our annual report on Form 10-K fiscal 2012. Please note that all of our SEC filings can be found on our website www.krispykreme.com.

I would now like to turn the call over to Jim.

James Morgan

Thank you, Anita, and good afternoon everyone. We had an excellent second quarter and appreciate the opportunity to talk through our results as well as discuss our long term vision for the brand and the company.

Operating income grew an impressive 87% as all of our business segments delivered improved performances while adjusted earnings per share doubled from $0.06 to $0.12 on a 4.3% increase in revenues. Revenues were aided by a 5.4% increase in same store sales at company stores, the 15th consecutive quarterly increase.

Substantially all of our top line growth was driven by higher traffic from our quarterly marketing promotions including National Doughnut Day in June and our 75th birthday celebrations in July. We had no benefit of pricing in the second quarter comps.

We have said since last fall that we thought we could achieve comp store growth even without pricing and this quarter's results suggest that belief was well founded. We think that continued comp improvement is possible but we would encourage you not to assume it is going to be this strong for the rest of the year. For now, we are maintaining low single digit guidance for company same store sales which is more in line with out year-to-date results.

In the wholesale channel, we posted an increase in average weekly sales per door and declines in average number of doors in both of our wholesale channels. Weekly sales per door in both channels benefitted principally from higher volume. While door declines reflect customer store closures and product offering decisions, as well as ongoing route rationalization.

We are certainly pleased with our second quarter results and we remain energized by the task ahead of us given what we view as a significant untapped opportunity for Krispy Kreme. With that in mind, let's now talk about our commitment to the initiatives that we believe will substantially increase revenues, improve margins and expand the Krispy Kreme domestic and international franchise system while growing shareholder value over the long term.

We have recently completed significant nationwide domestic consumer research which confirmed several findings.

First, we have a great deal of untapped potential for doughnuts and sugar remained close to that core offering.

Second, we have unique opportunity to create more doughnut use occasions as consumers tell us that they just need more excuses to eat Krispy Kreme doughnuts.

Third, consumers are willing to eat doughnuts anytime during the day or night.

Fourth, we are viewed as a special brand that gives an equally special reward.

Fifth, we are considered an American classic and they continue to love the Krispy Kreme brand whether they are active users, lapse users or non users.

Sixth, guests enjoy Krispy Kreme's entire sensory experience including the smell, Doughnut Theatre, the paper hats and everything that happens in our shops as well as the anticipation of going and the memory of the visit itself.

Seventh, hot doughnuts remain one of the most important brand energizers.

Therefore our immediate focus in our domestic shops is building on our core doughnut offerings continuing to enhance the doughnut experience and creating more doughnut use occasions. Examples of this are the second quarter execution of National Doughnut Day and the 75th birthday celebration both of which generated significant traffic in addition to simple daily use occasions like after school and late night doughnut runs.

The research said more customers will buy more doughnuts if we give them an excuse and opportunity to do so and those second quarter promotions suggest the research is accurate. We believe we can drive incremental doughnut use occasions like these without complicating store operations and without any additional store investments.

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