Krispy Kreme Doughnuts, Inc. (KKD)

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Krispy Kreme Doughnuts, Inc. (KKD)

F2Q10 Earnings Call

September 3, 2009 4:30 pm ET


Brian K. Little - Director Corporate Communications

James H. Morgan - President and Chief Executive Officer

Douglas R. Muir - Chief Financial Officer


Buzz Zaino - Royce & Associates



Good day ladies and gentlemen and welcome to the second quarter fiscal 2010 Krispy Kreme Doughnuts earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host today, Brian Little.

Brian K. Little

Good afternoon everyone. Welcome to the Krispy Kreme 2010 second quarter earnings conference call. Again, my name is Brian Little. I am the Director of Corporate Communications for Krispy Kreme. On the call with me today are: Jim Morgan, President and Chief Executive Officer; Doug Muir, Executive Vice President and Chief Financial Officer; and joining us for the first time today is Anita K. Booe. She is the new Director of Investor Relations for Krispy Kreme.

As usual, during the call today, Mr. Morgan will comment on the company’s performance and Mr. Muir will give an overview of the financial results released earlier today. Following those comments, the operator will open the lines to take your questions.

Now as a reminder, a copy of our earnings announcement is available in the News Release section under the Investor Relations tab of our Web site,

Also, this conference call is being Web cast and will be archived on our Web site for one year. A transcript of this conference call will also be available there.

Investors, analysts, and shareholders are directed to these online public resources for the most up-to-date company information. Krispy Kreme Investor Relations can be reached via email at

As always, our comments today 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 2009 and other periodic reports filed with the U.S. Securities and Exchange Commission.

I will now turn the call over to Mr. Morgan.

James H. Morgan

Good afternoon everyone and welcome to today's call. As we mentioned in last quarter's call, in the summer we face a seasonal slowdown, which historically makes the second quarter our most challenging one. Because of this I am gratified that we reported substantially improved results in the July quarter compared to last year. While we are pleased with the improvements in our operating results, we still have a long way to go to produce the revenue growth and financial returns that we believe are achievable.

We are committed to building a business that generates consistent and predictable earnings. Although our access to achieve the long-term goal may result in some short-term unevenness in our financial results, we intend to manage the business by focusing on our strategic initiatives in order to achieve superior and sustainable returns over the long term.

Our strategic initiatives are the core principles that guide every operational decision made at Krispy Kreme. We remain focused on them and continue to believe that fiscal 2010 will be the year where it becomes apparent that we have begun to seize the opportunities that lead us to a bright and successful future.

Our team members and franchisees remain dedicated to the success of our brand and our progress to date is due in large part to their enthusiasm, their loyalty, and their commitment to excellence.

Our franchisees, and we, continue to share our expertise with each other as part of our ongoing efforts to communicate and develop best practices. We know that the success of our economy is directly tied to the success of our franchisees and we remain committed to maintaining a positive relationship with them, built on mutual respect and dedication to each other, and to this incredibly powerful brand.

With this as an overview, I would now like to update you on our progress in the quarter. We continued to move in the right direction. I will now speak to just a few of the specific accomplishments.

First, the measured growth of our international business continued through the second quarter as we had net openings of 11 stores for the quarter, bringing us to 28 net openings for the year. As we had previously indicated, we do not expect the number of new openings this year to match last year's number.

This year, we remain intent on absorbing the substantial international growth of the past two years and building on the commitment we have made to our international franchisees by dedicating additional resources to operational and marketing support.

Second, in the U.S. the excitement among our franchisees about our potential is growing. Franchisees in Texas, Arizona, and New York opened a total of four new small retail locations in the second quarter. We think domestic franchisees will continue to make these commitments as long as we, as a franchisor, commit our own resources to opening new locations and to validating the small retail shop concept.

Third, on the company store side, we opened another small retail shop, which is located in Raleigh, North Carolina, market. We have signed lease agreements for stores in Louisville, Kentucky, Columbia, South Carolina, and Raleigh, North Carolina, and we are now negotiating on two additional Raleigh sites. That should take us to a total of eight commitments, most of which result in openings this year.

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