EAT Brinker International Inc

Krispy Kreme Doughnuts Inc.’s (KKD) posted a loss of 2 cents during the fourth quarter of fiscal 2011, below the Zacks Consensus Estimate of profit of 4 cents and year ago earnings of 1 cent per share. The lower-than-expected results were due to higher input costs. Total revenue climbed 5.7% year over year to $86.8 million, as all the four segments reported an increase in revenues.

The company’s full-year income was $7.6 million or 11 cents, compared with loss of $0.2 million or zero cents per share in fiscal 2009. In fiscal 2011, total revenue jumped 4.5% to $362.0 million driven by same-store sales growth of 4.0%.

During the quarter, segment-wise, the company stores revenues inched up 1.9% to $61.8 million, Domestic franchise revenues spiked up 10.2% to $2.2 million, International franchise revenues upped 10.4% to $5.1 million and KK Supply Chain revenues (including sales to company stores) were up 13.9% to $45.8 million.

For nine consecutive quarters, same-store sales at company stores rose 2.2%. Domestic franchise same-store sales grew 4.6%, while International franchise same store sales declined 11.1%.

Direct operating expense, as a percentage of total revenue, surged 120 basis points to 87.4% and general and administrative expenses expanded 50 basis points to 6.9%. As a result, operating income dropped 62.5% to $0.9 million.

Interest expense reduced $1.0 million from the prior-year quarter to $1.3 million due to a decline in debt liability.

Stores Update

During the quarter, Krispy Kreme opened 22 franchise stores and 1 company-owned store and closed 25 franchises and 1 company-owned store. Thus, as of January 30, 2011, the company has 85 company stores and 561 franchise stores.

Financial Position

Krispy Kreme ended fiscal 2011 with cash and cash equivalents of $22.0 million and shareholders’ equity of $76.4 million. As of January 30, 2011, long-term debt was $32.9 million versus $42.7 million at the end of January 31, 2010.

Outlook

The doughnut chain has reaffirmed its outlook. The company expects same-store sales to grow in domestic stores in 2012, but the same will continue to remain challenging at international franchising stores. Additionally, Krispy Kreme views significant cost inflation in 2012 and anticipates mitigating the impact of cost pressure by a hike in prices.

The company expects its adjusted operating income in a range of $22 million to $24 million, up 15% to 25% year over year.

In fiscal 2012, Krispy Kreme plans to open 30 international franchise stores, 5 to 10 company stores, and 5 to 15 domestic franchise stores.

Our Take

The company reported results below expectations, but reiterated its outlook. Thus, we do not expect estimates to move up significantly in the coming days. The Zacks Consensus Estimate for 2012 is pegged at 29 cents and for 2013 at 37 cents.

One of Krispy Kreme’s primary competitors, Brinker International Inc. (EAT) reported second quarter 2011 earnings of 38 cents per share, surpassing the Zacks Consensus Estimate of 32 cents per share. The upside in earnings was driven by continued margin expansion at Chili's and top-line growth at Maggiano's.

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