June 9, 2008 / 1:31 PM / 10 years ago

UPDATE 1-Krispy Kreme posts Q1 profit; shares rise

(Recasts, adds details, background, share movement)

June 9 (Reuters) - Krispy Kreme Doughnuts Inc KKD.N posted a profit for the first quarter as the doughnut shop chain’s turnaround efforts helped in trimming costs, sending its shares up more than 8 percent.

The company, which has lost more than a half of its market value over the past year as it shut more stores and revamped its management to turn around its business, however warned of more store closures by its franchisees in future, adding the number of such closures may be “significant.”

The company, once a Wall Street favorite, said it posted a net profit of $4.0 million, or 6 cents per share, for its first quarter ended on May 4, compared with a net loss of $7.4 million, or 12 cents a share, a year ago.

Revenue at the Winston-Salem, North Carolina-based company fell about 7 percent to $103.6 million for the quarter.

The latest first-quarter results were helped by a $930,000 non-cash gain from the disposal of equity interests in two franchisees and a net credit in impairment and lease termination costs of $645,000, among others.

Systemwide sales, which includes sales by both company and franchise stores, rose about 2.4 percent, helped by its international franchisees.

Krispy Kreme went public in 2001 with a successful offering, but in recent years struggled with restatements, investigations into its past accounting and a decline in doughnut sales that sent some of its franchisees into bankruptcy.

The company, which competes with privately held Dunkin’ Brands Inc and larger rivals Starbucks Corp (SBUX.O) and Tim Hortons THI.TO THI.N, said late last year it expected franchisees to close a significant number of stores, a move that would have hurt royalties and supply chain revenue.

Krispy Kreme, which closed 31 stores in fiscal 2008, had warned in April it might not open a “significant” number of stores in the United States in the near future.

Daryl Brewster stepped down as CEO early this year after the company’s turnaround efforts failed to materialize under his leadership. He was replaced by Chairman James Morgan.

Shares of the company were up 28 cents at $3.70 in trading before the bell. They had closed at $3.42 Friday on the New York Stock Exchange. (Reporting by Dhanya Skariachan in Bangalore; Editing by Gopakumar Warrier)

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