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WINSTON-SALEM, NC-Krispy Kreme, the doughnut shop chain struggling to right itself financially, cut its losses for the fourth quarter and for the year and hopes to continue turning itself around, company officials reported Thursday. However, the turnaround will not likely include many new factory stores in the near future, the company said in its annual report filed Thursday. Factory stores are the large Krispy Kreme operations capable of producing thousands of doughnuts daily. “As we work to stabilize our operations and to refine our format for new domestic stores, we do not expect that we, or our franchisees, will open a significant number of domestic factory stores in the near future,” the annual report said.

However, the company sees significant potential in international expansion. Markets outside the US are a potential source of growth, and Krispy Kreme is hiring additional staff to assist in the development of international markets, the company said. As of Jan. 28, Krispy Kreme’s international stores totaled 123, including locations in Australia, Canada, Hong Kong, Indonesia, Japan, Kuwait, Mexico, the Philippines, South Korea and the United Kingdom. During the year, the company awarded development rights in the Middle East, Hong Kong, Macau, Tokyo, the Philippines and Indonesia. It expects that the development and franchise agreements for these territories have the potential for approximately 200 stores in the next five years.

Commenting during a conference call with financial analysts, Krispy Kreme execs reported that for the fourth quarter ended Jan. 28 the company lost 39 cents per diluted share on a net loss of $24.4 million, compared with a loss of 61 cents per share on a net loss of $37.7 million in the comparable period last year. The net loss for the quarter included a charge related to the settlement of litigation of approximately $16 million. During the fourth quarter, the company recorded a $2.1 million provision for doubtful accounts substantially all of which relates to receivables from franchisees.

The net loss for the full year came to 68 cents per share on a total net loss of $42.2 million, compared with a net loss of $2.20 per share on a $135.8 million loss the previous year. On the sales side, the fourth quarter total decreased 8.2% to $112.2 million and the full-year total full year total decreased 15.1% to $461.2 million.

During the quarter, Krispy Kreme opened 28 new stores, 12 of which were factory stores and 16 satellites. It closed 14 stores, nine of which were factory locations and five of which were satellites. The net change brought the total number of Krispy Kreme stores to 395 at year-end.

Despite the quarterly and yearly losses, Krispy Kreme’s president and chief executive officer, Daryl Brewster, said in the conference call that the company “made progress during the past year, including resolving important legal matters, restoring positive cash flow, getting current with our financials and closing a new senior secured credit facility.” Brewster described the company as “in the midst of a turnaround,” commenting, “We are moving out of the survival mode” into a sustained growth plan.

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