WSJ -- Krispy Kreme CFO: No Evidence Diet Dynamics Changed Vs 1Q.
July 14, 2004
Krispy Kreme CFO: No Evidence Diet Dynamics Changed Vs 1Q
DOW JONES NEWSWIRES
By Mary Ellen Lloyd
Of DOW JONES NEWSWIRES
CHARLOTTE -- Krispy Kreme Doughnuts Inc. (KKD) hasn't seen evidence that the low-carbohydrate diet phenomenon that contributed to its disappointing first-quarter results has changed much, company Chief Financial Officer Michael Phalen said Wednesday.
"We have not seen any reason to believe that the dynamics have improved from what we discussed in the first quarter," Phalen said at a CIBC conference in Boston, which was broadcast on the Internet.
Krispy Kreme posted its first quarterly loss as a public company and pulled back on its expansion in May, hurt by waning demand and last year's acquisition of a chain of bread stores the company plans to shed.
Other than that comment, Phalen and Chief Operating Officer John Tate didn't comment on second-quarter business trends during the presentation. A question-and-answer session wasn't broadcast on the Internet.
Both men, however, described growth opportunities for the Winston-Salem, N.C., doughnut maker.
Tate said the popularity of low-carb diets coincided with a time that Krispy Kreme had a dearth of new products, something the company plans to fix this year. "We believe that exacerbated the problems that we saw," he said.
He reiterated plans to roll out packaged coffee sales and new package sizes and product combinations among Krispy Kreme's wholesale accounts. Krispy Kreme also plans to introduce bite-sized doughnuts, chocolate-glazed doughnuts, and a sugar-free doughnut later this year at its roughly 400 stores.
Krispy Kreme just completed rolling out a line of frozen beverages to all stores, he said.
"Top line was what killed us in the first quarter and restoring that top line is what we need to get back to where we want to be," Tate said.
Phalen said Krispy Kreme also sees growth opportunities in gaining market share, increasing sales per capita and expanding internationally.
Krispy Kreme believes it has just over 15% of the estimated $6 billion U.S. market for doughnuts sold in across all distribution channels.
Per capita sales were $3.28 in fiscal 2004, but Krispy Kreme has a target of boosting that to $12 to $15, based on its experience in some company-owned markets and based on other retailers' experiences, Phalen said. Dunkin' Donuts, for example, has per capita sales of $9.25, and Dairy Queen generates per capita sales of just under $7, he said.
Krispy Kreme is pleased with the performance of its stores in the United Kingdom, Australia, Mexico and Canada, and the chain is in the early stages of capitalizing on what it considers a "vast international opportunity," Phalen said.
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-371-4033; maryellen.lloyd@dowjones.com
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