Krispy Kreme loses $27 million in quarter

by Jeff Gelski
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WINSTON-SALEM, N.C. – Krispy Kreme Doughnuts, Inc. suffered a net loss of $27 million for the second quarter ended July 29, which compared to a net loss of $4.6 million in the previous year’s second quarter. Revenues dropped 7.5% to $104.1 million from $112.6 million. Average weekly sales per store fell almost 3% in the second quarter to $37,500.

"After several years of progress on our turnaround, second-quarter results did not meet our expectations," said Daryl Brewster, president and chief executive officer, when the results were reported Sept. 6. "We are taking steps to transform the company and improve its performance."

The steps include closing or improving underperforming company shops, planning to divest an underutilized manufacturing facility in the Krispy Kreme supply chain, realigning company stores and franchise management, and continuing to expand internationally. Krispy Kreme is developing a strategy to re-franchise certain geographic markets, primarily markets outside the company’s traditional base in the Southeast.

In the second quarter, impairment charges and lease termination costs added up to $22.1 million, which compared to $382,000 in the previous year’s second quarter. Charges for the current year’s second quarter included about $10.6 million arising from the decision to divest the company’s manufacturing and distribution facility in Illinois.

Krispy Kreme systemwide in the second quarter opened 19 stores (3 factory stores and 16 satellites) and closed 12 stores (5 factory stores and 7 satellites). The company had 411 stores (299 factory stores and 112 satellites) at the end of the second quarter.

Krispy Kreme prepaid $5 million of the balance outstanding under its term loan in the second quarter. Total prepayments for the six months ended July 29 were $14.3 million. The maximum additional indebtedness permitted under the term loan financial covenants was about $8 million on July 29.

The company anticipates an additional prepayment of about $5 million will be needed in the third quarter to comply with the financial covenants. The company’s consolidated balance sheet reflects cash of about $25 million and indebtedness of about $96 million.

For the six months ended July 29, Krispy Kreme reported a net loss of $34.4 million, which compared to a net loss of $10.6 million in the previous year’s six-month period. Sales dropped to $215 million from $231.9 million.

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