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    Krispy Kreme Reports 43 percent Profit Increase

    New store openings propel sales; margins improve.

    NEW YORK -- Krispy Kreme Doughnuts Inc. on Friday said quarterly earnings rose 43 percent as new store openings propelled sales, according to a Reuters report. However, average weekly sales, a closely watched measure for Krispy Kreme, fell 3 percent.

    For the fiscal third quarter ended Nov. 2, the Winston-Salem, N.C.-based company said profit rose to $14.5 million, or 23 cents a share, from $10.1 million, or 17 cents a share, a year earlier. The results met analysts' average forecast, as compiled by Reuters Research, a unit of Reuters Group plc.

    Systemwide sales jumped nearly 29 percent to $251.2 million. Company revenue, which includes sales from company stores, franchise fees and some other operations, rose more than 31 percent to $169.6 million.

    "Good sales, nice margin improvement, solid development progress -- overall, it was a good quarter," David Geraty, an analyst with RBC Capital Markets, told Reuters. Operating margins rose to 15.3 percent from 13.9 percent. During the quarter, Krispy Kreme opened 27 new factory stores. Also, average weekly sales fell to $62,700 on a systemwide basis.

    Investors have driven down the stock of Krispy Kreme in recent months due to concerns about declining average weekly sales, according. Krispy Kreme has been growing rapidly since it went public in 2001, but average weekly sales have been falling as the company opens more stores in existing markets, resulting in less of an initial sales spike than when it enters a new market.
    Geraty dismissed the concerns. "I'm not too worried about average weekly sales being soft. They're growing their system aggressively so that will put some pressure on those sales. But still, it's an attractive business model with very high returns," he said.

    Systemwide same-store sales rose 9.5 percent but were restrained by Hurricane Isabel, grocery store strikes and unseasonably warm weather in many markets late in the quarter, the company said.

    "Good sales, nice margin improvement, solid development progress -- overall, it was a good quarter," David Geraty, an analyst with RBC Capital Markets, told Reuters.

    Operating margins rose to 15.3 percent from 13.9 percent. During the quarter, Krispy Kreme opened 27 new factory stores.
    Average weekly sales fell to $62,700 on a systemwide basis.

    Investors have driven down the stock of Krispy Kreme in recent months due to concerns about declining average weekly sales, according. Krispy Kreme has been growing rapidly since it went public in 2001, but average weekly sales have been falling as the company opens more stores in existing markets, resulting in less of an initial sales spike than when it enters a new market.
    Geraty dismissed the concerns. "I'm not too worried about average weekly sales being soft. They're growing their system aggressively so that will put some pressure on those sales. But still, it's an attractive business model with very high returns," he said.

    Systemwide same-store sales rose 9.5 percent but were restrained by Hurricane Isabel, grocery store strikes and unseasonably warm weather in many markets late in the quarter, the company said.

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