Krispy Kreme Doughnuts, Inc. (KKD)

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Krispy Kreme Doughnuts Inc. (KKD)

F4Q08 (Qtr End 02/03/08) Earnings Call

April 17, 2008 4:30 pm ET

Executives

Brian Little - Director of Corporate Communications

Jim Morgan - President and CEO

Doug Muir - CFO

Analysts

Andrew Wolf - BB&T Capital Markets

John Ivankoe - J.P. Morgan

Presentation

Operator

Welcome to the fourth quarter 2008 Krispy Kreme Doughnuts Earnings Call. My name is Erika, and I'll be your coordinator for today. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr. Brian Little, Director of Corporate Communications. You may proceed, Mr. Little.

Brian Little

Thank you, Erika. Welcome everyone to the Krispy Kreme fourth quarter and fiscal 2008 earnings conference call. Also on the call today are Jim Morgan, Krispy Kreme's President and Chief Executive Officer and Doug Muir, Krispy Kreme's Chief Financial Officer. During today's call Jim will comment on company performance during FY '08 and Doug will review fourth quarter and year-end financial results. As is always the case, we will ask the operator to open the lines and take your questions following their remarks.

I'd like to first remind listeners that a copy of our earnings announcement released this morning including financial tables is available in the "New Release" section under Investor Relations at our website krispykreme.com. This conference call is being webcast and will be archived and available on our website for one year. A transcript of our conference call today will also be available at our company website. All SEC filings and press releases are accessible there as well. Investors and Analysts are directed to these online public resources for the most up-to-date company information. Krispy Kreme Investor Relations can be reached via e-mail at ir@krispykreme.com.

Today's responses as well as prepared remarks should be considered forward looking in nature, and are subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Key factors that may have a direct bearing on Krispy Kreme's operating results, performance or financial condition are discussed in Krispy Kreme's Form 10-K for fiscal 2008 and other periodic reports filed with US Securities and Exchange Commission.

With that, I will now turn the call over to Jim Morgan, President and Chief Executive Officer, Jim?

Jim Morgan

Thank you, Brian. Good afternoon, everyone. I too would like to welcome each of you to today's conference call. As many of you know this is my first quarterly call since taken over as President and CEO, so I am particularly looking forward to sharing my thoughts with you this afternoon.

I spent my first several months meeting with our management team, employees, franchisees and other parties who are truly interested in the long-term success of Krispy Kreme. One thing that I have learned over the past few months is that there are many others out there who share my belief and excitement about our future and the possibilities that lie ahead for our company.

I've also learned that we do have much more work to do in order to deliver the financial performance we believe is possible, but we are committed to that task. While our fiscal 2008 financial results were not what we would have liked, the year was not without any successes. Doug will address the financial results in more detail in a few minutes.

We are well aware that important challenges still exist in key areas of our business, but we believe over time there are many more opportunities than there are challenges. Our goal is to successfully address the challenges without sacrificing any of the opportunities, while at the same time becoming a leaner, stronger, more profitable organization.

Let me now make specific comments on each of our major business segments.

Our wholesale, our off-premises business; it's particularly vulnerable to the rising fuel costs, the increase in the cost of agricultural commodities and the shrinking margins that our off-premise customers are facing. Nevertheless, we are committed to revitalizing our off-premise business. Even though we may approach it in a very different manner long-term, it remains our goal to have more Krispy Kreme branded products in even more retail locations nationwide over the long-term.

As far as our company stores are concerned, because many of our stores are also sort of wholesale customers, they too are being negatively impacted by the pressures affecting the off-premises business. However, our goal for company stores is very simple and clear to improve them. We are currently addressing everything from physical appearance to increase the change from the details that enhance service and that enhance the overall customer experience.

Also we are talking on already successful international hub and spoke model and applying its principles in our company store markets. Early results from three factory stores recently converted to hot shops satellites are very encouraging. Hot shops satellites still provide the Hot Original Glazed doughnut experience by using our tunnel over technology.

Supplying the smaller satellite Krispy Kreme stores from Krispy Kreme factory stores improves the utilization of the factory store and significantly enhances the return on the satellite shop which is smaller, simpler to operate and less costly to build, stay up and run than a factory store. We plan to begin construction of new satellite stores during the course of this year.

We are committed to being a world-class franchisor with a limited company store footprint. As a result of this vision, the opportunity exists to re-franchise many of our company stores that lay outside of our traditional base in the southeast. This should in time increase the portion of our revenues derived from mix sales and royalty. Two such refranchising opportunities are currently underway, but this in essence will be a multi-year process.

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