Krispy Kreme suffers $42 million loss in fiscal '07

by Eric Schroeder
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WINSTON-SALEM, N.C. — Krispy Kreme Doughnuts, Inc. sustained a loss of $42,236,000 in the fiscal year 2007 ended Jan. 28, according to a Form 10-K filed April 12 with the Securities and Exchange Commission. The results compared with a loss of $135,760,000 in fiscal 2006.

Net revenues for fiscal 2007 were $461,195,000, down from $543,361,000 in fiscal 2006.

"We have made progress during the past year, including resolving important legal matters, restoring positive cash flow, getting current with our financials, and closing a new senior secured credit facility," said Daryl Brewster, president and chief executive officer. "Additionally, we’ve seen stability in our overall average unit volume, developed a pipeline for new products and seen growth internationally utilizing a flexible real estate model."

Average weekly sales per stores system-wide were $39,500 in fiscal 2007, which compared with $41,400 in fiscal 2006. During fiscal 2007 the company opened 30 new franchise factory stores, but closed nine company factory stores and 48 franchise factory stores, resulting in a loss of 27 stores. At the end of fiscal 2007 Krispy Kreme operated 296 factory stores, consisting of 108 company stores, 145 area developer franchise stores and 43 associate franchise stores.

In its April 12 S.E.C. filing, Krispy Kreme said system-wide sales for fiscal 2007 decreased 11.9% compared to fiscal 2006, reflecting a 4.6% decrease in average weekly sales per store and a 7.6% decrease in store operating weeks. The system-wide sales decrease reflects an 18.1% decrease in company stores sales and a 7% decrease in franchise store sales, the company said.

Even while closing a number of stores in the United States, Krispy Kreme has stepped up its presence in international markets. During fiscal 2007 the company opened 60 international stores while closing five.

"Based upon our continued research and experience with our international stores, we are focusing additional international development efforts primarily on opportunities in potential markets in Asia and the Middle East," Krispy Kreme said. "We are focusing on these two geographic areas because of their favorable population demographics, relatively high levels of consumer sweet goods consumption and the popularity of Western brands in these markets."

General and administrative expenses totaled $48.9 million in fiscal 2007, which compared with $67.7 million in fiscal 2006. The company sustained impairment charges and lease termination costs of $12.5 million in 2007, down sharply from $55.1 million in fiscal 2006.

Krispy Kreme, which was late in filing financials for fiscal 2006, said it still has "extensive work remaining" to correct its material weaknesses in internal control over financial reporting. Until it has corrected these efforts, the company said it is at risk for being unable to file future periodic reports with the S.E.C. in a timely fashion.

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