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Krispy Kreme CEO outlines strategies
International sales are expected to grow, he tells shareholders
Journal Photo by Jennifer Rotenizer
Krispy Kreme CEO James Morgan said that the company will likely have some unevenness in its quarterly performances over the next two years.
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Published: June 18, 2008
Krispy Kreme Doughnuts Inc. is committed to a recipe with more substance than style, and more reality checks than hoopla, its chairman and chief executive said yesterday.
James Morgan cautioned against "over optimism" at the annual shareholders meeting, which came eight days after the company reported its first profitable quarter in 3½ years. He said that there likely will be some "unevenness" in quarterly performances for up to two years.
But Morgan said he is convinced that the company will post consistent growth through increased international sales, including in high pedestrian sites, such as train stations and airports.
There also will be an increased emphasis on snack products in kiosks at convenience and grocery stores, he said. And there will be small satellite stores, including two planned for the Triad, that will open by year's end.
"There is no shortage of challenges ahead of us," Morgan said to about 150 employees and shareholders and their family members.
Over the past four years, Krispy Kreme has struggled to adapt to the changing tastes of U.S. consumers. It is still being investigated by federal authorities about past accounting practices.
In January, the company replaced Daryl Brewster, its president and chief executive, with Morgan. And higher prices for raw materials and gas are having an influence on the company and its franchisees.
"But we believe we have even more opportunities, and we will meet those challenges head-on and overcome them," Morgan said.
"We know we were the fair-hair child of quick-service restaurants. We couldn't have paid for all the positive publicity, then it went all the other way, and we got more negative publicity than we deserved," he said.
"The one thing that our research has shown us is that we have not damaged the Krispy Kreme brand, and that there still is an excitement about the Krispy Kreme brand," Morgan said.
Analysts have said that it is unlikely Krispy Kreme will ever approach its performance in the days before the low-carb diet began taking the glaze off its doughnuts in May 2004 and before its financial woes boiled to the surface in July 2004.
In August 2003, Krispy Kreme, the darling of Wall Street, was trading at more than $49 a share as investors bought into the hot-now hype. By contrast, its current 52-week high is $9.50 on June 29, 2007.
However, investors and analysts appear to be gaining confidence in the company with Morgan at the helm and the international franchise push. The share price has more doubled than since Morgan took over -- jumping from $2.32 a share on Jan. 15 to $4.81 yesterday.
"It's been a slow-baked process, but Krispy Kreme Doughnuts continues to awaken from its sugar coma," said Ryan Fuhrmann, an investment analyst and writer for The Motley Fool.
"Its malady stemmed largely from its own overindulgences in store expansion, along with its troublesome relations with franchisees," he said. "But judging from the first-quarter results, the latest management team has a firm grasp on how to get Krispy Kreme back on the path toward consistently positive financial performance.
"Krispy Kreme still has work to do in convincing investors that it's firmly on the sweet path to consistency." But Furhmann said he is encouraged that the company has paid down a big chunk of long-term debt, from $101 million in April 2007 to $75.7 million in May 2008.
For shareholders wanting to double their money in the next three to six months, "Krispy Kreme is not that company," Morgan said. "But we will be disappointed if we do not achieve that level of success in the next two years.
"Some people are concerned that we may be in for trouble in a time when consumers are retrenching. We should not shy away from the fact that we are an indulgent food product. We should try to achieve becoming one of the world's choices for indulgent food products."
Bill Hohman of Winston-Salem has owned shares of Krispy Kreme since its initial public offering in April 2000.
"I've reduced my holding substantially over time, so I'm more of a nominal shareholder now," Hohman said. "But it's a local company that I want to continue to support as I can."
Hohman said he liked what he heard from Morgan, but remains wary, considering how the two previous Krispy Kreme CEOs departed abruptly.
"He seems to have some good ideas, but we'll have to wait to see if this growth strategy will be any better than the previous strategies," Hohman said.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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