Krispy Kreme profits fall despite cutbacks

By Charlotte Eyre

- Last updated on GMT

Related tags: Krispy kreme

Doughnut manufacturer Krispy Kreme last week said third quarter
sales fell nearly 12 per cent, despite closing factory stores
across the country in an attempt to save costs.

The US-based group - which also operates stores in Europe, Australia and Mexico - suffered financially over the period ending 28 October 2007, after failing to tap into American healthy eating trends. In order to try and trim down profit losses, the company closed 17 own factory stores, 12 domestic stores in the US, and 25 franchises during the first nine months of the year. Many more franchises will be closed over coming months, the company admitted, because of the continued "financial pressure".​ While Krispy Kreme did manage to stem the flow of profit loss, reducing the deficit to $798,000 (€542,087) from $7.2m (€4.9m) the year before, overall sales fell to $103.4m (€70.2m) down from $117.1m (€79.5m). Operating income also went down nearly two per cent to $1.98m (€1.34m), compared to $2.04m (€1.39m) in 2006. The company remained relatively optimistic, however, and pledged to continue cost reducing plans, including simplifying supply chains and focusing on international rather than domestic business. "As we look past the third quarter, we continue to focus on improving Company shop performance, driving the hub and spoke model, growing our international franchise business, refranchising certain domestic markets and reducing costs to help offset rising commodity prices,"​ said president and chief executive officer Daryl Brewster. However, Wall Street still has serious concerns about the company's future, according to the Times newspaper. Moody's, the debt rating agency, has indeed warned that Krispy Kreme's strategy of selling off franchises may in fact hinder, rather then help, future growth, as the shrinking store base may drag down sales. Krispy Kreme has struggled to balance the sheets for several years now, seeing its share value falling a massive 82 per cent since 2003. The company has faced a variety of both legal and financial difficulties over this period, including an investigation by the Securities and Exchange commission over accounting irregularities, as well as a lawsuit on behalf of beneficiaries in the firm's retirement savings plan. To compound matters, the company's Australian branch was accused of targeting its products at children in March this year. However, Krispy Kreme franchises have fared better in overseas markets, with the company increasing rather than decreasing operations particularly in Asia. The company now has 1,700 stores overseas with a strong presence in the Philippines, Indonesia, South Korea and Thailand.

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