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WINSTON-SALEM, NC-The once-burgeoning Krispy Kreme doughnut store chain ended the first quarter with fewer domestic stores and posted a larger loss than it did in the previous year’s first quarter as the company continued turnaround efforts. Although the chain increased its total number of stores during the first quarter of fiscal 2008 that ended April 29, its growth occurred internationally, where it showed a net increase of 12 locations.

In its domestic operations, Krispy Kreme ended the quarter with a net decrease of three locations, for a total of 404 combined domestic and international stores at the end of the quarter. Company officials discussed the store count and the quarterly results Monday in a conference call with financial analysts.

Krispy Kreme “still faces some longstanding challenges” but is turning around, company president and CEO Daryl Brewster said in the conference call. “During the quarter, we improved our average weekly sales per company store and slowed the decline in systemwide sales,” Brewster said. He noted that the company refinanced its credit lines to cut costs and made progress in reducing other general and administrative costs. In addition, “Our international franchisees continued to show significant growth,” Brewster commented.

“The majority of our franchisees are growing today,” Brewster added. He said that, as he explained at the Krispy Kreme annual shareholders’ meeting yesterday, the company “has continued to make progress on its turnaround.” The chain has become current on its financial filings, reduced long-term debt and borrowing costs and has finished refiling documents required for franchising in certain markets.

Krispy Kreme lost $7.4 million and 12 cents per diluted share in the quarter. The company recorded impairment charges and lease termination costs of $12.7 million in the first quarter this year, compared to $755,000 in the first quarter of fiscal 2007. It also recorded a charge of $9.6 million representing a prepayment fee and the write-off of deferred financing costs related to long-term debt refinanced during the quarter.

The quarterly loss this year compared to a net loss of $6 million and 10 cents a share in the comparable period last year. Revenues for the first quarter fell 7.1% to $110.9 million compared to $119.4 million in the first quarter of last year.

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