Sharing the joy around the world

Press Release

Printer Friendly Version View printer-friendly version
<< Back
Krispy Kreme Reports Financial Results for the Fourth Quarter and Fiscal Year Ended January 29, 2012
Reaffirms Fiscal 2013 Guidance

WINSTON-SALEM, N.C., March 20, 2012 /PRNewswire/ -- Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the "Company") today reported financial results for the fourth quarter and fiscal year ended January 29, 2012, and reaffirmed its guidance for fiscal 2013.

Fourth Quarter Fiscal 2012 Highlights Compared to the Year-Ago Period:

  • Revenues increased 11.2% to $102.0 million from $91.7 million
  • Company same store sales rose 8.3%, the thirteenth consecutive quarterly increase
  • Operating income increased to $5.3 million from $0.9 million
  • Net income was $143.5 million ($2.01 per share), compared to a net loss of $1.5 million ($0.02 per share)
  • Net income in the fourth quarter of fiscal 2012 includes a non-recurring credit of $139.6 million ($1.95 per share) from the reversal of valuation allowances on deferred income tax assets
  • Adjusted net income was $4.0 million ($0.06 per share), compared to an adjusted net loss of $1.5 million ($0.02 per share); adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release)
  • Cash provided by operating activities increased to $10.9 million from $7.7 million

Fiscal Year 2012 Highlights Compared to Last Year:

  • Revenues increased 11.4% to $403.2 million from $362.0 million
  • Company same store sales rose 5.2%, the third consecutive annual increase
  • Operating income increased to $25.6 million from $15.2 million
  • Fiscal 2012 results include a non-operating gain of $6.2 million ($4.7 million after tax, or $0.06 per share) on the Company's sale of its 30% equity interest in KK Mexico
  • Net income was $166.3 million ($2.33 per share), compared to $7.6 million ($0.11 per share)
  • Net income in fiscal 2012 includes a non-recurring credit of $139.6 million ($1.95 per share) from the reversal of valuation allowances on deferred income tax assets
  • Adjusted net income was $22.2 million ($0.31 per share), compared to adjusted net income of $7.5 million ($0.11 per share); adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release)
  • Cash provided by operating activities increased to $33.9 million from $20.5 million
  • Total debt was reduced by $7.8 million to $27.6 million; cash at year end totaled $44.3 million

The Company ended the year with a total of 694 Krispy Kreme stores systemwide, a net increase of 16 shops during the quarter.  As of January 29, 2012, there were 92 Company stores and 602 franchise locations.

James H. Morgan, Chairman and Chief Executive Officer, commented:  "The fourth quarter capped off an extremely successful year at Krispy Kreme, and we were pleased to have generated double-digit revenue growth with substantial increases in both operating income and EPS.  As pleased as we were with these results, however, we are committed to converting even more of our revenue growth into bottom line profitability.  To that end, we will continue to strengthen our core doughnut line through innovative limited time offerings, complimented by an already successful coffee launch and a broader beverage program to follow.  We will also build on the recent introduction of our new wholesale product offerings and continue to work on cost reductions in labor, ingredients and the store model itself."  

Morgan continued, "In terms of development, our system is nearly 700 stores today and we are confident in our plan to expand Company store development strategically, while growing our franchise system significantly, both domestically and internationally.  We believe that Krispy Kreme has an extraordinary market opportunity, and as we look to the coming fiscal year, we are very confident that we can execute against our plan and continue to drive value for shareholders."

Fiscal 2013 Outlook

In fiscal 2013, which will be a 53-week year, the Company anticipates opening 5 to 10 Company stores, between 10 and 15 domestic franchise stores, and approximately 75 international franchise stores.  Although the Company looks for continued organic same store sales growth in its domestic stores, international franchise same store sales will likely remain pressured by the substantial growth in international markets in recent years.  In addition, with volatile prices for agricultural and other commodities, the Company will continue working to reduce its consumption of certain key ingredients while taking other measures to combat the rise in input costs the Company has experienced since fiscal 2011.

Based on these factors, management currently expects fiscal 2013 operating income in the range of $29 to $33 million, with improvements expected in each of the four business segments compared to fiscal 2012.  In addition, as stated in the Company's third quarter fiscal 2012 earnings release, management also is expressing its guidance in terms of diluted earnings per share.  Management estimates diluted EPS for fiscal 2013 will be in the range of $0.21 to $0.24; this range reflects an estimated tax rate of 45% compared to management's earlier estimate of 6-7%.  The higher tax rate is a result of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012 as more fully discussed below; the amount of taxes expected to be paid in cash, which is insignificant, is unchanged from prior estimates.

Management's estimate of fiscal 2013 adjusted EPS, which includes income tax expense only to the extent expected to be currently payable, is from $0.35 to $0.41.  Adjusted EPS is a non-GAAP measure; see the reconciliation of GAAP to adjusted earnings guidance in the table accompanying this release.

Fourth Quarter Fiscal 2012 Results

Consolidated Results

For the fourth quarter ended January 29, 2012, revenues increased 11.2% to $102.0 million from $91.7 million.  All four business segments reported year-over-year revenue growth.

Direct operating expenses increased to $87.9 million from $80.1 million, but as a percentage of total revenues, decreased to 86.2% from 87.4%.  General and administrative expenses increased to $6.7 million from $6.4 million in the same period last year but, as a percentage of total revenues, decreased to 6.5% from 6.9%.  Impairment charges and lease termination costs were $0.1 million compared to $2.6 million in the year-ago period.  

Operating income increased to $5.3 million from $0.9 million.

Interest expense decreased to $0.4 million from $1.3 million, reflecting lower interest rates as a result of the January 2011 refinancing of the Company's credit facilities, as well as reduced indebtedness.  The Company recorded a charge of $1.0 million in the fourth quarter of fiscal 2011 for costs related to the January 2011 refinancing.

Net income was $143.5 million ($2.01 per share) compared to a net loss of $1.5 million ($0.02 per share), in the fourth quarter last year.

Excluding the effects of the reversal of valuation allowances on deferred tax assets and other deferred income tax effects from both years' results, adjusted net income was $4.0 million ($0.06 per share) compared to an adjusted net loss of $1.5 million ($0.02 per share) in the fourth quarter last year.  Adjusted net income and EPS are non-GAAP measures (see the reconciliation of GAAP to adjusted earnings in the table accompanying this release).

Segment Results

Company Stores revenues increased 11.0% to $68.6 million from $61.8 million.  Same store sales at Company stores rose 8.3%, the thirteenth consecutive quarterly increase.  On a same store basis, traffic count increased 3.6% in the fourth quarter of fiscal 2012 compared to a decline of 1.8% in the fourth quarter last year.  The Company Stores segment posted an operating loss of $0.3 million compared to an operating loss of $1.0 million last year.  Favorable adjustments related to self-insurance programs were $0.8 million in the fourth quarter this year, compared to $1.2 million in last year's fourth quarter.

Domestic Franchise revenues increased 9.3% to $2.4 million from $2.2 million, reflecting a 10.2% increase in sales by domestic franchisees.  Same store sales rose 7.9% at domestic franchise stores.  Domestic Franchise segment operating income improved to $1.3 million from $0.8 million in the fourth quarter last year.

International Franchise revenues increased 22.2% to $6.3 million from $5.1 million, reflecting increased royalties from higher sales by international franchise stores.  Total U.S. dollar sales by international franchise stores rose 16.8%.  Adjusted to eliminate the effects of changes in foreign exchange rates, same store sales at international franchise stores fell 9.5%, reflecting, among other things, honeymoon effects from the over 300 stores opened internationally since the beginning of fiscal 2009, as well as cannibalization as markets develop.  The International Franchise segment generated operating income of $4.2 million, up from $3.3 million in the fourth quarter last year.  

Total KK Supply Chain revenues (including sales to Company stores) increased 13.4% to $52.0 million from $45.8 million, driven by selling price increases in major product categories.  KK Supply Chain generated operating income of $7.1 million compared to $6.9 million in the fourth quarter last year.  KK Supply Chain has raised selling prices to recover rising input costs resulting from higher agricultural commodity prices, but generally has not marked up those higher costs.  Accordingly, KK Supply Chain's operating margin declined in the fourth quarter of fiscal 2012 compared to the fourth quarter last year.

Impairment Charges and Lease Termination Costs

Impairment charges and lease termination costs were $0.1 million compared to $2.6 million in the fourth quarter last year.

Loss on refinancing of debt

Results for the fourth quarter of fiscal 2011 include a charge of $1.0 million related to the refinancing of the Company's credit facilities, most of which was non-cash.

Income Taxes

The Company has $139.6 million of net deferred tax assets, which, prior to the fourth quarter of fiscal 2012, had been subject to a 100% valuation allowance because the Company was unable to conclude that realization of such assets was more likely than not.  In light of the Company's substantially improved performance over the past two years, in the fourth quarter of fiscal 2012 the Company concluded that it is more likely than not that the Company will continue to generate taxable income in future years and that a substantial portion of the deferred tax assets will be realized.  Accordingly, as required by GAAP, in the fourth quarter of fiscal 2012 the Company reversed $139.6 million of the valuation allowance, representing the portion of the deferred tax assets expected to be realized, with the related credit to earnings reflected in income tax expense for the quarter.

While the reversal of a portion of the valuation allowance had a positive effect on the Company's results of operations in the fourth quarter, the reversal is expected to have the effect of reducing the Company's earnings in subsequent years as a result of an increase in the provision for income taxes in such future periods.  This negative effect on earnings in subsequent periods is expected to occur because the reversal of the valuation allowance reflects the recognition of previously generated, but not recognized, income tax benefits in fiscal 2012 when the reversal was recorded.  Absent the reversal of the valuation allowance, such tax benefits would have been recognized in the future periods in which their realization is expected to occur upon the generation of taxable income.

Accordingly, subsequent to fiscal 2012, the Company's effective income tax rate, which currently bears little or no relationship to pretax income, is expected to more closely reflect the blended federal and state income tax rates in jurisdictions in which the Company operates.  Notwithstanding the expected increase in the Company's effective income tax rate as a result of the reversal of a portion of the valuation allowance, the Company's cash payments for income taxes are expected to remain insignificant for the foreseeable future because of the Company's substantial net operating loss carryovers.

Conference Call

Management will host a conference call to review fourth quarter and fiscal 2012 results as well as management's outlook for fiscal 2013 this afternoon at 4:30 p.m. Eastern.  A live webcast of the conference call will be available at the Company's website at www.krispykreme.com.  The call also can be accessed live by dialing (800) 510-0146 or, for international callers, by dialing (617) 614-3449.  A replay will be available after the call and can be accessed by dialing (888) 286-8010, or (617) 801-6888 for international callers; the passcode is 67273477.  The audio replay will be available through March 27, 2012.  A transcript of the conference call also will be available at the Company's website.

About Krispy Kreme

Krispy Kreme is a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, including its signature Original Glazed® doughnut.  Headquartered in Winston-Salem, N.C., the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937.  Today, Krispy Kreme shops can be found in over 690 locations in 21 countries around the world.  Connect with Krispy Kreme at KrispyKreme.com, and on Facebook, Foursquare, Twitter and YouTube.

Defined Terms

"Honeymoon effect" means the common pattern for many start-up restaurants in which a flurry of activity due to start-up publicity and natural curiosity is followed by a decline during which a steady repeat customer base develops.  "Cannibalization" means the tendency for new stores to become successful, in part or in whole, by "shifting" sales from existing stores in the same market.  

Information contained in this press release, other than historical information, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on management's beliefs, assumptions and expectations of our future economic performance, considering the information currently available to management.  These statements are not statements of historical fact.  Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements.  The words "believe," "may," "could," "will," "should," "would," "anticipate," "estimate," "expect," "intend," "objective," "seek," "strive" or similar words, or the negative of these words, identify forward-looking statements.  Factors that could contribute to these differences include, but are not limited to:  the quality of Company and franchise store operations; our ability, and our dependence on the ability of our franchisees, to execute on our and their business plans; our relationships with our franchisees; our ability to implement our international growth strategy; our ability to implement our new domestic small shop operating model; political, economic, currency and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients and the price of motor fuel; our relationships with wholesale customers; our ability to protect our trademarks and trade secrets; changes in customer preferences and perceptions; risks associated with competition; risks related to the food service industry, including food safety and protection of personal information; compliance with government regulations relating to food products and franchising; and increased costs or other effects of new government regulations relating to healthcare benefits.  These and other risks and uncertainties, which are described in more detail in the Company's most recent Annual Report on Form 10-K and other reports and statements filed with the United States Securities and Exchange Commission, are difficult to predict, involve uncertainties that may materially affect actual results and may be beyond the Company's control, and could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.  New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company.  Any forward-looking statement speaks only as of the date on which such statement is made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.


KRISPY KREME DOUGHNUTS, INC.















CONSOLIDATED STATEMENT OF OPERATIONS




















Three Months Ended



Year Ended




January 29,


January 30,


January 29,


January 30,




2012 


2011 


2012 


2011 




(In thousands, except per share amounts)















Revenues

$

101,957


$

91,678


$

403,217


$

361,955

Operating expenses:













Direct operating expenses (exclusive of depreciation














expense shown below)


87,880



80,093



346,434



313,475


General and administrative expenses


6,673



6,361



22,188



21,870


Depreciation expense


2,002



1,770



8,235



7,389


Impairment charges and lease termination costs


113



2,584



793



4,066

Operating income


5,289



870



25,567



15,155

Interest income


35



43



166



207

Interest expense


(390)



(1,336)



(1,666)



(6,359)

Loss on refinancing of debt


-



(1,022)



-



(1,022)

Equity in income (losses) of equity method franchisees


(53)



176



(122)



547

Gain on sale of interest in equity method franchisee


-



-



6,198



-

Other non-operating income and (expense), net


(46)



82



215



329

Income (loss) before income taxes


4,835



(1,187)



30,358



8,857

Provision for income taxes


(138,707)



279



(135,911)



1,258

Net income (loss)

$

143,542


$

(1,466)


$

166,269


$

7,599















Earnings (loss) per common share:













Basic

$

2.06


$

(0.02)


$

2.40


$

0.11


Diluted

$

2.01


$

(0.02)


$

2.33


$

0.11















Weighted average shares outstanding:













Basic


69,542



68,649



69,145



68,337


Diluted


71,567



68,649



71,497



69,922



















KRISPY KREME DOUGHNUTS, INC.









CONSOLIDATED BALANCE SHEET













January 29,


January 30,



2012 


2011 




(In thousands)


ASSETS

CURRENT ASSETS:






Cash and cash equivalents

$

44,319


$

21,970

Receivables


21,616



20,261

Receivables from equity method franchisees


655



586

Inventories


16,497



14,635

Deferred income taxes


10,540



15

Other current assets


3,613



5,955


Total current assets


97,240



63,422

Property and equipment


75,466



71,163

Investments in equity method franchisees


-



1,663

Goodwill and other intangible assets


23,776



23,776

Deferred income taxes


129,053



-

Other assets


9,413



9,902


Total assets

$

334,948


$

169,926




LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:






Current maturities of long-term debt

$

2,224


$

2,513

Accounts payable


10,494



9,954

Accrued liabilities


28,800



28,379


Total current liabilities


41,518



40,846

Long-term debt, less current maturities


25,369



32,874

Other long-term obligations


18,935



19,778









Commitments and contingencies














SHAREHOLDERS' EQUITY:






Preferred stock, no par value


-



-

Common stock, no par value


377,539



370,808

Accumulated other comprehensive loss


(336)



(34)

Accumulated deficit


(128,077)



(294,346)


Total shareholders' equity


249,126



76,428



Total liabilities and shareholders' equity

$

334,948


$

169,926














KRISPY KREME DOUGHNUTS, INC.


CONSOLIDATED STATEMENT OF CASH FLOWS



Year Ended


January 29,


January 30,


2012 


2011 



(In thousands)

CASH FLOW FROM OPERATING ACTIVITIES:






Net income

$

166,269


$

7,599

Adjustments to reconcile net income to net cash provided by operating activities:






 Depreciation expense


8,235



7,389

 Deferred income taxes


(139,403)



(95)

 Impairment charges


60



3,304

 Accrued rent expense


465



(77)

 Loss on disposal of property and equipment


414



621

 Gain on sale of interest in equity method franchisee


(6,198)



-

 Share-based compensation


6,699



5,147

 Provision for doubtful accounts


(374)



32

 Amortization of deferred financing costs


422



1,561

 Equity in (income) losses of equity method franchisees


122



(547)

 Other


553



(330)

Change in assets and liabilities:






 Receivables


(862)



(2,604)

 Inventories


(1,862)



(314)

 Other current and non-current assets


585



(2,506)

 Accounts payable and accrued liabilities


(168)



1,445

 Other long-term obligations


(1,096)



(117)

     Net cash provided by operating activities


33,861



20,508

CASH FLOW FROM INVESTING ACTIVITIES:






Purchase of property and equipment


(11,884)



(9,694)

Proceeds from disposals of property and equipment


44



2,949

Proceeds from sale of interest in equity method franchisee


7,723



-

Escrow deposit


1,800



(1,800)

Other investing activities


(207)



(27)

    Net cash used for investing activities


(2,524)



(8,572)

CASH FLOW FROM FINANCING ACTIVITIES:






Proceeds from issuance of long-term debt


-



35,000

Repayment of long-term debt


(8,991)



(43,257)

Deferred financing costs


(29)



(1,348)

Proceeds from exercise of stock options


1,036



-

Proceeds from exercise of warrants


-



5

Repurchase of common shares


(1,004)



(581)

     Net cash used for financing activities


(8,988)



(10,181)

Net increase in cash and cash equivalents


22,349



1,755

Cash and cash equivalents at beginning of year


21,970



20,215

Cash and cash equivalents at end of year

$

44,319


$

21,970

Supplemental schedule of non-cash investing and financing activities:






     Assets acquired under capital leases

$

1,197


$

197





KRISPY KREME DOUGHNUTS, INC.

















SEGMENT INFORMATION















Three Months Ended


Year Ended






January 29,


January 30,


January 29,


January 30,






2012 


2011 


2012 


2011 






(In thousands)

Revenues:













Company Stores:














On-premises sales

$

32,852


$

28,357


$

126,003


$

114,084



Wholesale sales


35,732



33,415



145,654



131,757





Company Stores revenues


68,584



61,772



271,657



245,841


Domestic Franchise


2,418



2,213



9,463



8,527


International Franchise


6,259



5,124



22,621



18,282


KK Supply Chain:














Total revenues


51,952



45,796



206,453



181,594



Less – intersegment sales elimination


(27,256)



(23,227)



(106,977)



(92,289)




External KK Supply Chain revenues


24,696



22,569



99,476



89,305





Total revenues

$

101,957


$

91,678


$

403,217


$

361,955

















Operating income (loss):













Company Stores

$

(267)


$

(1,024)


$

284


$

(4,238)


Domestic Franchise


1,260



804



3,737



3,498


International Franchise


4,161



3,327



15,054



12,331


KK Supply Chain


7,086



6,852



30,160



30,213



Total segment operating income


12,240



9,959



49,235



41,804


Unallocated general and administrative expenses


(6,838)



(6,505)



(22,875)



(22,583)


Impairment charges and lease termination costs


(113)



(2,584)



(793)



(4,066)



Consolidated operating income

$

5,289


$

870


$

25,567


$

15,155

















Depreciation expense:













Company Stores

$

1,611


$

1,377


$

6,593


$

5,641


Domestic Franchise


54



54



219



220


International Franchise


2



2



6



7


KK Supply Chain


170



193



730



808


Corporate administration


165



144



687



713



Total depreciation expense

$

2,002


$

1,770


$

8,235


$

7,389





KRISPY KREME DOUGHNUTS, INC.











STORE COUNT
















NUMBER OF STORES






DOMESTIC


INTERNATIONAL


TOTAL











Number of stores at January 29, 2012







Company:








Factory


72


-


72


Satellite


20


-


20



Total Company


92


-


92

Franchise:








Factory


102


118


220


Satellite


40


342


382



Total franchise


142


460


602




Total systemwide


234


460


694


























NUMBER OF STORES






COMPANY


FRANCHISE


TOTAL

Quarter ended January 29, 2012







October 30, 2011


89


589


678

Opened


3


26


29

Closed


-


(13)


(13)

January 29, 2012


92


602


694











Quarter ended January 30, 2011







October 31, 2010


85


564


649

Opened


1


22


23

Closed


(1)


(25)


(26)

January 30, 2011


85


561


646





KRISPY KREME DOUGHNUTS, INC.


SELECTED OPERATING STATISTICS




Three Months Ended


Year Ended



January 29,


January 30,


January 29,


January 30,



2012 

2011 

2012 

2011 














Systemwide sales (in thousands):(1)

















Company stores

$

68,047



$

61,388



$

269,676



$

244,324



Domestic Franchise stores


65,477




59,430




261,979




238,890



International Franchise stores


104,320




89,342




383,508




325,192



International Franchise stores,

  in constant dollars(2)


104,320




89,761




383,508




339,550




































Change in same store sales:(3)

















Company stores


8.3

%



2.2

%



5.2

%



4.0

%


Domestic Franchise stores


7.9




4.6




6.6




4.5



International Franchise stores


(8.8)




(7.8)




(6.4)




(8.8)



International Franchise stores,

  in constant dollars(2)


(9.5)




(11.1)




(10.8)




(13.9)



















Change in same store customer count - Company stores  (retail only)


3.6

%



(1.8)

%



0.6

%



1.8

%


















Company stores wholesale sales:(4)

















Grocers/mass merchants:

















 Change in average weekly

    number of doors


(0.5)

%



5.0

%



2.6

%



0.5

%


 Change in average weekly

   sales per door


10.6




7.3




12.7




7.4



Convenience stores:

















 Change in average weekly

   number of doors


(10.2)

%



2.5

%



(5.9)

%



(3.1)

%


 Change in average weekly

   sales per door


14.2




0.5




10.7




(1.0)






















(1)  Systemwide sales, a non-GAAP financial measure, include the sales by both Company and franchise stores but exclude sales among Company and franchise stores.  The Company believes systemwide sales data are useful in assessing the overall performance of the Krispy Kreme brand and, ultimately, the performance of the Company. The Company's consolidated financial statements appearing elsewhere herein include sales by Company stores, sales to franchisees by the KK Supply Chain business segment, and royalties and fees received from franchise stores based on their sales, but exclude sales by franchise stores to their customers.

(2)  Computed on a pro forma basis assuming the average rate of exchange between the U.S. dollar and each of the foreign currencies in which the Company's international franchisees conduct business had been the same in the comparable prior year period.  

(3)  The change in "same store sales" represents the aggregate on-premises sales (including fundraising sales) during the current year period for all stores which had been open for more than 56 consecutive weeks during the current year period (but only to the extent such sales occurred in the 57th or later week of each store's operation) divided by the aggregate on-premises sales of such stores for the comparable weeks in the preceding year period.  Once a store has been open for at least 57 consecutive weeks, its sales are included in the computation of same stores sales for all subsequent periods.  In the event a store is closed temporarily (for example, for remodeling) and has no sales during one or more weeks, such store's sales for the comparable weeks during the earlier or subsequent period are excluded from the same store sales computation.  The change in "same store customer count" is similarly computed, but is based upon the number of retail transactions reported in the Company's point-of-sale system.

(4)  For Company wholesale sales, "average weekly number of doors" represents the average number of customer locations to which product deliveries are made during a week by Company Stores, and "average weekly sales per door" represents the average weekly sales to each such location by Company Stores.    

KRISPY KREME DOUGHNUTS, INC.

NON-GAAP FINANCIAL INFORMATION



The Company has net deferred income tax assets of approximately $139.6 million, of which approximately $90 million relates to federal and state net operating loss carryovers.  The Company's federal net operating loss carryovers total approximately $240 million.

In the quarter ended January 29, 2012, the Company reversed approximately $139.6 million of valuation allowances against those deferred income tax assets because management concluded that realization of such assets was more likely than not.  While such reversal, which was required by GAAP, increased the Company's earnings by $139.6 million in fiscal 2012, the reversal is expected to have the effect of reducing the Company's earnings in years after fiscal 2012 as a result of an increase in the provision for income taxes in such years.  This negative effect on earnings after fiscal 2012 is expected to occur because the reversal of the valuation allowance resulted in the recognition in fiscal 2012 of income tax benefits expected to be realized in later years; absent the reversal of the valuation allowance, any such tax benefits would have been recognized when realized in future periods upon the generation of taxable income.  Accordingly, in years after fiscal 2012, the Company's effective income tax rate, which in fiscal 2012 and earlier years bore little or no relationship to pretax income, is expected to more closely reflect the blended federal and state income tax rates in jurisdictions in which the Company operates.

Because of the expected increase in the Company's effective income tax rate resulting from the reversal of the valuation allowance, the Company's income tax expense after fiscal 2012 is not expected to be comparable to income tax expense in fiscal 2012 and earlier years.  In addition, until such time as the Company's net operating loss carryovers are exhausted or expire, GAAP income tax expense is expected to substantially exceed the amount of cash income taxes payable by the Company.

In addition, in the second quarter of fiscal 2012, the Company realized a pretax gain of $6.2 million ($4.7 million after tax, or $.06 per share) on the sale of its 30% ownership interest in KK Mexico, an equity method investee.  The Company does not expect to realize similar gains in the future.

The following non-GAAP financial information and related reconciliation to GAAP measures are provided to assist the reader in understanding the effects of the above transactions and events, which are expected to be non-recurring, on the Company's results of operations for fiscal 2012, and to facilitate comparisons of fiscal 2012 results with the Company's financial results for earlier years.  In addition, the non-GAAP financial information is intended to illustrate the material difference between the Company's income tax expense and income taxes currently payable.   This non-GAAP performance measure is consistent with other measurements made by management in the operation of the business which do not consider income taxes except to the extent to which those taxes currently are payable, for example, capital allocation decisions and incentive compensation measurements that are made on a pretax basis.





Management's


Historical Periods




Earnings Guidance


Three Months Ended


Year Ended




Year Ending February 3, 2013


January 29,


January 30,


January 29,


January 30,




From


To


2012 


2011 


2012 


2011 




(In thousands, except per share amounts)





















Net income, as reported

$

15,000


$

17,200


$

143,542


$

(1,466)


$

166,269


$

7,599

Provision for deferred income taxes


10,200



12,000



(139,562)



(5)



(139,403)



(95)

Gain on sale of interest in KK Mexico


















  (net of income taxes of $1,492)


-



-



-



-



(4,706)



-

Adjusted net income

$

25,200


$

29,200


$

3,980


$

(1,471)


$

22,160


$

7,504



















Adjusted earnings per common share:


















  Basic

$

0.36


$

0.42


$

0.06


$

(0.02)


$

0.32


$

0.11

  Diluted

$

0.35


$

0.41


$

0.06


$

(0.02)


$

0.31


$

0.11



















Weighted average shares outstanding:


















  Basic


69,600



69,600



69,542



68,649



69,145



68,337

  Diluted


71,600



71,600



71,567



68,649



71,497



69,922




SOURCE Krispy Kreme Doughnuts, Inc.

Media - Brian K. Little, +1-336-726-8825, blittle@krispykreme.com, or Investor Relations - Anita K. Booe, +1-336-703-6902, abooe@krispykreme.com