Krispy Kreme Doughnuts, Inc. (KKD)

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Krispy Kreme Doughnuts, Inc. (KKD)

Q2 2009 Earnings Call

September 11, 2008 4:30 pm ET


Brian Little - Director, Corporate Communications

James Morgan – President & CEO

Douglas Muir - CFO


John Ivankoe – JP Morgan

Analyst – Ramsey Asset Management



Good day ladies and gentlemen and welcome to the second quarter fiscal 2009 Krispy Kreme Doughnuts earnings conference call. (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; please proceed.

Brian Little

Good afternoon everyone. Welcome to the Krispy Kreme fiscal 2009 second quarter earnings conference call. On the call with me today are James Morgan, Krispy Kreme's President and Chief Executive Officer; and Doug Muir, Krispy Kreme’s Chief Financial Officer.

During today’s call, Mr. Morgan will address the company’s performance for the second quarter and Mr. Muir will give an overview of the second quarter results released earlier today. Following our prepared remarks we will ask the Operator to open the lines to take your questions.

I’d like to first remind everyone that a copy of our earnings announcement including financial tables is available in the News Release section under the Investor Relations tab at our website, This conference call is being webcast and will be archived on our website for one year. A transcript of this conference call will also be available at our 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 email at

Our responses today as well as our 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 the US Securities and Exchange Commission.

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

James Morgan

Thank you Brian and good afternoon everyone. Welcome once more to our second quarter conference call. As we commented to you in our conference call last quarter, we expected that our financial results would be somewhat uneven in the near-term as we continue to make the necessary organizational adjustments and investments to improve and grow the business over the long-term.

July is historically our toughest quarter and a weakening economy, rising fuel and agricultural commodity prices combined and adversely affected us. Nevertheless we believe very strongly that it is our task to operate successfully despite the external challenges that may arise and I continue to believe that we are on right track strategically and I remain confident about the future of Krispy Kreme.

I might note that one reason for my increased confidence over these past few months, one of several reasons, is my getting to know the employee base better and if there’s one thing I’m sure of now, we do have the people in place at all levels of this company, throughout the company that can lead this company’s success.

It’s a committed and dedicated group of individuals. I also believe however that we have to move more rapidly, at the same time thoughtfully, to implement our key strategic initiatives in order to achieve the positive long-term results that we believe are possible. And using that as a lead-in let me outline our strategic initiatives for you in a little bit more detail.

First, small retail shops, we are going to build new small retail concept shops in select company markets in order to bring our signature doughnuts closer to consumers and to establish the economics of the domestic hub and spoke model. We expect the economics of these shops to be very attractive simply because they are less expensive to open and operate then our traditional factory stores.

Moreover, supplying smaller satellite Krispy Kreme stores from Krispy Kreme factory stores improves the utilization of the factory store as well and significantly enhances the return on those stores. As a part of this project we have actively searching in North Carolina and Tennessee for suitable sites for new company satellite store locations.

We began our search in Raleigh, North Carolina and Nashville, Tennessee and we’ll be expanding that search to include the Piedmont Triad and Charlotte, North Caroline markets as well as Memphis, Tennessee.

In addition we expect to meet our previously stated goal of opening the first of these locations during this fiscal year. I might remind you that these type shops have already proven to be successful in our international markets and we believe they will set the stage as a model for future domestic growth.

Point number two, shop operations. We are now bringing intense focus to the basics of shop operations in order to improve both the consumer experience and our financial results. The best example of this was in early June, we hired a QSR veteran with 25 years of QSR operations experience to spearhead our efforts to deliver an outstanding experience at all of our shops, improve our training tools, and ensure that we consistently execute the QSR basics.

Number three, broader menu offerings. We continue to develop, test and deploy new menu offerings in order to give consumers more reasons to visit Krispy Kreme. Probably the most exciting important test in place now is the test of Kool Kreme, a new soft serve ice cream concept.

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