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Krispy Kreme plans foreign expansion, new beverage line


WINSTON-SALEM N.C. Krispy Kreme Doughnuts Inc. said it would look to international development, a smaller U.S. restaurant prototype and new menu offerings, including a long-discussed emphasis on beverages, like many of its quick-service peers, to help the company rebound from years of falling sales and other corporate troubles.

The company discussed its new operational goals in mid-April as it reported narrowed net losses for the fourth quarter and fiscal year ended Jan. 28, versus the same periods a year earlier. The losses were reduced mainly on lower year-over-year impairment charges, lease termination costs and litigation settlement payouts. The chain's sales, however, still trended negative.

The company's fiscal 2007 report was the first timely filing of financial results in nearly three years for the operator and franchisor of 395 KrispyKreme locations. Since mid-2004, KrispyKreme's sales have plummeted, its stock price has lost more than half of its value, and the company has been involved in numerous lawsuits and investigations surrounding accusations that its then-management team had "managed earnings" and over-reported sales figures. Most of the litigation has been settled.

KrispyKreme's current president and chief executive, Daryl Brewster, said the company is finally "moving out of survival mode, addressing key challenges and driving against a sustained growth plan."

He said he was excited about the chain's newest product offering, a whole-wheat glazed doughnut introduced in February, which was "well received." KrispyKreme soon will introduce a zero-trans-fat doughnut as well, he added.

In addition to new food offerings, KrispyKreme is introducing a new beverage program featuring its Chillers frozen drinks, which boast a Kremey line and a Fruity line.

The frozen beverages, available this month at most corporate locations and expected to roll out at franchised units next month, will supplement a focus on coffee beverages, the company said.

KrispyKreme has for years discussed the introduction of a strong beverage line to compete with segment peers Dunkin' Donuts, Starbucks and even McDonald's. Its introduction of a smaller U.S. prototype more focused on serving coffee than making doughnuts is another step in that direction, the company indicated.

Still, some analysts were not convinced that a plan emphasizing beverages would be successful.

"Competing in coffee places the company squarely against aggressive and well-capitalized brands," said securities analyst John Ivankoe at J.P. Morgan Securities, "and we doubt that a coffee-central model will work for KrispyKreme in the United States, especially as the 70-year history of the brand has been without decent coffee execution."

KrispyKreme also is moving ahead on international growth to supplement a still-recovering U.S. market. The company opened about 30 new international units recently, from a base of 28 units. It expects to open an additional 60 locations this year, analysts said.

Its latest results for the quarter ended Jan. 28 include a net loss of $24.4 million, or 39 cents per share, compared with a net loss of $37.7 million, or 61 cents per share, in the year-earlier quarter. For the year, KrispyKreme posted a loss of $42.2 million, or 68 cents per share, compared with a loss of $135.8 million, or $2.20 per share, in fiscal 2006.

Fourth-quarter revenues fell 8.2 percent to $112.2 million, and full-year revenues decreased 15.1 percent to $461.2 million.

Impairment and lease termination costs totaled $12.5 million in fiscal 2007, versus $55.1 million in fiscal 2006; and litigation settlement costs were $16.0 million in fiscal 2007, compared with $35.8 million in fiscal 2006.

Also, the company logged "professional fees" of $9 million in fiscal 2007, versus $31.8 million the year earlier.

TAGS: Technology
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