Krispy Kreme Doughnuts Management Discusses Q2 2014 Results
Anita Booe Director of Investor Relations
James H. Morgan Chairman, Chief Executive Officer, President, Chief Executive Officer of Krispy Kreme Doughnut Corporation, President of Krispy Kreme Doughnut Corporation, Chairman of Krispy Kreme Doughnut Corporation and Director of Krispy Kreme Doughnut Corporation
Conrad Lyon B. Riley Caris, Research DivisionGood day, ladies and gentlemen, and welcome to the Second Quarter 2014 Krispy Kreme Doughnuts Earnings Conference Call. My name is Crystal, and I will be your coordinator for today. [ Instructions] I would now turn the presentation over to your host for today’s conference, Ms. Anita Booe. Please proceed, sir ma’am.
Good afternoon, and welcome to the Krispy Kreme Second Quarter Conference Call. My name is Anita Booe, and I am the Director of Investor Relations. On the call with me today are Jim Morgan, Chairman, President and Chief Executive Officer; and Doug Muir, Executive Vice President and Chief Financial Officer.
Some of the segments on today’s call will include forward looking statements that reflect our expectations or beliefs about the future, including, but not limited to, our expectations and beliefs regarding financial performance. We cannot assure you that we will achieve or realize these expectations. Like any such statements, they are subject to a number of factors, risks and uncertainties that could cause actual results to differ materially from our expectations or beliefs. These factors include items discussed today and in our SEC filings, including our Annual Report on Form 10 K for fiscal 2013.
I’d now like to turn the call over to Jim.
Thank you, Anita, and good afternoon, everyone. The second quarter showed continued progress at Krispy Kreme, marked by ongoing substantial gains in domestic same store sales, continued traction in company store operating income and significant improvement in our bottom line. We continue to be enthusiastic about the remainder of the year, and the financial performance and strategic progress we have made thus far, we believe, justifies our enthusiasm. I would like to briefly review highlights from our P before moving to our ongoing initiatives that we believe will continue to unlock the full potential of our brand.
Quarterly revenues increased 10%, with roughly double digit contributions from 3 of our 4 segments. Most notably, Company Stores have now generated 19 consecutive quarters of same store sales increases, including a 10% gain in the second quarter. This track record is even more impressive when considering that many of our QSR peers have experienced a noticeable slowdown in comp sales and traffic over the past several months.
The overwhelming majo adidas uk rity of the increase was driven by higher customer counts, with only 3.8% from pricing. The uniqueness and credibility of our products are what continue to make Krispy Kreme the go to destination for consumers looking to treat themselves, and they certainly did so in the second quarter.
We do believe the cooler, wet weather compared to last year may have put some wind at our back during the period, but weather certainly was not the driving force behind another period of outstanding same store sales gains. Rather, the driving forces continue to be inspired marketing and continuously improving in store execution.
In terms of our beverage category, total sales at established stores were up 6% versus the year ago period. We are seeing a shift in our beverage mix towards coffee, which accounted for 45% of our beverage sales mix, up over 5 points from last year. Further, total coffee category sales were up 19%, driven by a 156% increase in higher price espresso based beverage sales.
With this shift towards coffee, we did see a decline in our frozen chillers versus the year ago period. We believe this was a function of our marketing focus on coffee, coupled with the cooler weather experienced in many of our markets this summer.
Overall, we believe we are making steady progress in the beverage category and remain encouraged, as Krispy Kreme guests continue to respond positively to our coffee message that encourages them to trade up into o adidas uk ur specialty coffees.
In the wholesale channel, average weekly sales per door adidas uk for grocery, mass merchant and convenient stores increased, as customers found more occasions to consume Krispy Kreme products outside of our retail stores, even as they purchase more doughnuts at our shops.
From a profitability standpoint, consolidated operating income rose 15%, while adjusted net income grew 17% on just a 10% increase in revenues. As good as that was, our year over year performance was actually better than it appeared. The net of unusual charges and credits for the quarter cost us about $0.01 per adjusted share. Add to that a $0.02 adverse swing in gains and losses on agricultural derivatives, and it was really a very remarkable quarter.
Doug will review the details in a minute, but before he does, I’d like to discuss how we executed on our adidas uk strategies during the quarter to move our business forward.
First, we are growing sales and profits within our company store segment and view promoting new doughnut use occasions as key to growing same store sales. We know that if we give our customers an excuse to visit our stores, they will respond.
During the quarter, we celebrated National Doughnut Day on June 7, while on July 13, we marked our 76th birthday by offering a dozen original glazed doughnuts for $0.76 with the purchase of 1 dozen original glazed at the regular price. To be honest, we were concerned about lapping our 75th birthday, given the outstanding sales performance during that milestone celebration last year, but we’re pleased that our comps were up in July, despite that difficult comparison.
We are continuing to drive sales by innovating with LTOs and are currently pitching new caramel chocolate cake, chocolate caramel pretzel and dark chocolate caramel doughnuts, paired with a hot or iced caramel mocha in our shops. Chocolate and caramel are a classic reward yourself combination and have proven to be irresistible to our customers.
Social media also plays a critical role in how we interact with our customers and build relationships with them. As many of you know, we are active across Facebook, Twitter and other social media platforms. And, of course, we have our own Hot Light smartphone app. Between the smartphone app and our website, there have been more than 97 million searches for Krispy Kreme locations since rolling out the app less than 2 years ago. The interest that we’ve garnered within the social media realm is simply incredible and demonstrates how a 76 year old brand can seamlessly transition into the internet age.