Krispy Kreme Foresees Store Closings

On an companywide basis, the third-quarter results showed that the chain opened 29 new stores and closed 17 en route to the 12-store increase. The new locations that were opened included eight factory stores and 21 satellites, versus the 17 Kispy Kreme factory stores that were closed systemwide. The doughnut chain now operates 423 locations, consisting of 290 factory stores and 133 satellites.

Along with its loss for the quarter, the company reported declining revenues. Company revenues for the third quarter of fiscal 2008 decreased 11.7% to $103.4 million compared to $117.1 million in the third quarter of last year.Systemwide average weekly sales per store also declined, decreasing approximately 9.2% to $36,400. Company stores average weekly sales per store decreased 0.4% to approximately $52,900.

Satellite stores made up 31% of the total systemwide store count as of Oct. 28, compared to 23% at Oct. 29, 2006. Systemwide average weekly sales per store are lower than company average weekly sales per store principally because satellite stores, which have lower average weekly sales than factory stores, are operated almost exclusively by franchisees.

Krispy Kreme's financial performance improved in the third quarter despite the loss and the slipping sales, according to Daryl Brewster, the company's president and CEO. He pointed out that since the end of the second quarter, Krispy Kreme has closed an additional five underperforming company stores, has opened more than 20 new satellites systemwide as part of its "hub and spoke strategy" and has converted an additional company-owned factory store to a non-producing hot shop.

The company has also increased international franchisee sales 48% year-over-year, realigned company stores and franchise management with experienced leadership and continued its cost-cutting efforts. Krispy Kreme's earnings report Thursday noted that several franchisees have been suffering from financial pressures which, in certain instances, appear to have become more exacerbated during fiscal 2008.

Brewster said that Krispy Kreme's strategy for the rest of the year and into next year will require it to look past the third quarter, continue to focus on improving company shop performance, drive its hub and spoke model and expand its international franchise business.