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Krispy Kreme narrows losses despite 22% revenue drop

WINSTON-SALEM N.C. In a long-delayed report covering financial results for the first quarter of its current fiscal year 2007, which ends in January, Krispy Kreme Doughnuts Inc. reported a smaller loss compared with the year-earlier quarter despite a revenue decline of nearly 22 percent.

For the quarter ended April 30, the company’s net loss totaled $6 million, or 10 cents per share, versus $53.4 million, or 86 cents a share, in the year-earlier quarter, when the company accounted for a charge of $35.8 million to settle litigation.

The operator or franchisor of 394 Krispy Kreme locations posted revenues of $119.4 million in the first quarter, versus $152.5 million a year earlier, according to a regulatory filing. The decline in revenues was driven by a year-over-year decrease in the number of stores in operation, less corporate sales of doughnut mix and equipment to franchisees and soft franchisee sales, the company said.

Krispy Kreme has closed or sold 62 factory units — or locations that have a full doughnut production line — since the end of fiscal 2005, which ended in January 2005, the company reported. In the first quarter of fiscal 2007, corporate and systemwide average weekly sales per factory store increased 9.8 percent and 2.5 percent, respectively, compared with a year earlier, the company reported. The increases were aided by the closures of underperforming units and the consolidation of production for wholesale customers into a smaller number of factory stores, Krispy Kreme said.

Still, systemwide total sales for the first quarter decreased 16.6 percent and systemwide average weekly sales fell 10.3 percent. Those results include satellite locations that typically post lower sales volumes and are mostly franchised.

Krispy Kreme, still under accounting-related investigations by the U.S. Securities & Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York, also disclosed an additional $4 million in compensation charges related to stock options given to three non-employee board members that may have been erroneously dated to correspond with the company’s lowest per-share price. The company said it is “aware of no evidence which suggests … the company’s accounting for such options to be improper.”

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