Krispy Kreme Doughnuts Inc., despite increased revenues from its franchises, reported a loss in the second quarter of its 2009 fiscal year yesterday.
The company could not build on momentum from its first profitable quarter -- $4 million in net income -- in more than three years during the first quarter.
But Krispy Kreme did reduce its loss in the second quarter, which ended Aug. 3, to $1.9 million.
By comparison, the company reported a loss of $27 million in the second quarter of 2008, of which $22.1 million was related to charges.
The company reported an earnings loss of 3 cents in the second quarter compared with 42 cents a year ago. Excluding the charges taken in the second quarter of 2008, Krispy Kreme had a loss of 7 cents a share a year ago.
The average forecast of analysts surveyed by Zacks Investment Research was a loss of 1 cent. Krispy Kreme's share price was down 16 cents yesterday to close at $3.84.
Over the past four years, Krispy Kreme has struggled to adapt to the changing tastes of U.S. consumers.
Jim Morgan, the chairman, chief executive and president of Krispy Kreme, cautioned in June that its earnings would be up and down for up to 24 months as some of its strategies take time to gain traction.
"We are not satisfied with our financial results for the second quarter, even though it is traditionally our toughest quarter," Morgan said. "Some of the shortfall was due to external factors."
He mentioned a weakening economy and rising fuel and raw-material commodity prices.
"But it's our task to operate successfully no matter the headwinds," Morgan said. "We must move forward on implementing our key strategic initiatives in order to achieve the positive long-term results we believe are possible."
Among those initiatives are adding small retail shops in select markets, including the Triad, Charlotte and Raleigh, and Memphis and Nashville, Tenn. Morgan said that the shops have been successful in international markets and "we expect them to be successful here."
Officials also plan to add more product choices, such as soft-serve ice cream that is being tested in Greensboro and St. Louis.
Other initiatives include better expense control, expanding international franchise opportunities and improving supply-chain logistics.
The company said in a separate regulatory filing that it expects to raise prices to offset increases in raw material costs.
Total revenues for the second quarter were down 9.5 percent to $94.2 million. Revenue from company-store sales were down 13.5 percent to $65.1 million, while revenue from franchises rose 30 percent to $6.6 million. Supply-chain revenues fell 5 percent to $22.5 million.
Krispy Kreme had a net gain of 29 international stores during the quarter and a decrease of five domestic stores. It had 286 factory stores and 208 satellite stores on Aug. 3. About 80 percent of total stores are operated by franchisees, with more than half outside the United States.
Morgan said that Krispy Kreme has felt no direct financial impact to date from Dunkin' Donuts expanding its presence in Krispy Kreme's home market. Dunkin' Donuts has two stores in Winston-Salem, and two franchisees said in August they plan to bring at least 13 stores to Forsyth and Davie counties in the next four years.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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