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Krispy Kreme Doughnuts, Inc. Message Board

  • di_vur_se_fi di_vur_se_fi Jan 28, 2006 11:06 PM Flag


    This is a reprint of an earlier post.

    Making Dough, UFOC, Common Sense
    by: di_vur_se_fi 03/06/04 09:59 pm
    Msg: 85882 of 117568

    On pages 30-31 of the book, MAKING DOUGH: THE 12 SECRET INGREDIENTS OF KRISPY KREME'S SWEET SUCCESS (Kirk Kazanjian and Amy Joyner, John Wiley and Sons, 2004), is some interesting data.

    The authors quote some sales figures from the UFOC (Uniform Franchise Offering Circular); this information is not found in the various SEC filings. The information details revenue and profitability for four company stores in fy2001:

    Location: Charlotte, NC
    Date opened: September 1990
    Total revenue: $1.23 million
    Retail sales: about $1.1 million
    Operating profit: $549,942

    Location: West 38th Street, Indianapolis, IN
    Date opened: May 1995
    Total revenue: $3.7 million
    Retail sales: $812,133
    Operating profit: $1.35 million

    Location: Indianapolis, IN
    Date opened: sometime after May 1995
    Total revenue: $2.78 million
    Retail sales: $771,945
    Operating profit: $1.22 million

    Location: Winston-Salem, NC
    Date opened: Not provided
    Total revenue: $2.69 million
    Retail sales: $1.96 million
    Operating profit: $953,111


    The first thing that is striking about these figures is the low total revenue relative to the 10-k reported average of $69.0 weekly per company store:

    (weekly total revenue in thousands)

    Charlotte: $23.7
    Indy #1: $71.2
    Indy #2: $53.5
    Winston-Salem: $51.7


    The second thing that is striking (even shocking), is the extremely low retail sales revenue:

    (weekly retail revenue in thousands)

    Charlotte: $21.2
    Indy #1: $15.6
    Indy #2: $14.8
    Winston-Salem: $37.7

    COO (former CFO) Tate has indicated on various cc's that typical retail sales are about $40,000 per week in the steady-state. Even the flagship store in WS didn't attain that, at least not in fy01.

    For comparison purposes, PNRA averaged $35,600 in weekly retail revenue at its stores systemwide in its recently completed fy04.


    Finally, the operating expenses as a % of sales is astonishing low, especially given that I have previously shown that kkd's mix cost alone is about 58% of revenue in fy01 at 100% company owned stores: sid=1600706247&mid=83380 sid=1600706247&mid=83381

    (operating expenses as a % of revenue)
    Charlotte: 55.3%
    Indy #1: 63.5%
    Indy #2: 56.1%
    Winston-Salem: 64.6%

    What about the expenses for store labor, depreciation, store rent, and all other store level expenditures? If these stores have the average 58% mix expense, then what happened to the other expenditures?

    As many long-time readers know, I have previously shown that 100% company owned stores are responsible for nearly all the earnings growth in the last year: sid=1600706247&mid=81038

    The information in the UFOC, while consistent with my own observations of slow retail sales, is inconsistent with the information in the kkd financials, imo. I don't understand how these stores can show such high profitability when

    1) the consolidated joint ventures stores are barely profitable
    2) the equity method joint venture stores are not profitable
    3) the company stores are largely low margin wholesale operations as opposed to the largely high margin retail operations of the joint ventures

    It doesn't make any sense

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