ex99_1.htm

Exhibit 99.1

Krispy Kreme Contact:

Brian K. Little

336-726-8825

blittle@KrispyKreme.com

FOR IMMEDIATE RELEASE

KRISPY KREME RELEASES THIRD QUARTER FISCAL 2008 RESULTS

Winston-Salem, NC – December 6, 2007– Krispy Kreme Doughnuts, Inc. (NYSE: KKD) (the “Company”) today reported financial results for the third fiscal quarter ended October 28, 2007.

During the third quarter of fiscal 2008, 29 new Krispy Kreme stores, comprised of 8 factory stores and 21 satellites, were opened systemwide, and 17 Krispy Kreme factory stores were closed systemwide. This brings the total number of stores systemwide at the end of the third quarter of fiscal 2008 to 423, consisting of 290 factory stores and 133 satellites. The net increase of 12 stores in the quarter reflects a net increase of 24 international stores and a net decrease of 12 domestic stores.

Third quarter systemwide sales decreased approximately 2.6% from the third quarter of last year. Satellite stores made up 31% of the total systemwide store count as of October 28, 2007 compared to 23% at October 29, 2006. Systemwide average weekly sales per store are lower than Company average weekly sales per store principally because satellite stores, which have lower average weekly sales than factory stores, are operated almost exclusively by franchisees. Systemwide average weekly sales per store decreased approximately 9.2% to approximately $36,400. Company Stores average weekly sales per store decreased 0.4% to approximately $52,900.

Company revenues for the third quarter of fiscal 2008 decreased 11.7% to $103.4 million compared to $117.1 million in the third quarter of last year. Company Stores revenues decreased 11.3% to $72.8 million, Franchise revenues were flat at $5.7 million and KK Supply Chain revenues decreased 15.1% to $24.9 million.

The net loss for the third quarter of fiscal 2008 was $798,000, or $0.01 per diluted share, compared to a net loss of $7.2 million, or $0.12 per diluted share, in the comparable period last year.

The Company recorded a net credit to impairment charges and lease termination costs of $268,000 in the third quarter this year, compared to a charge of $5.4 million in the third quarter of fiscal 2007. Most of the prior year charge relates to underperforming stores, including stores closed and likely to be closed.

As of October 28, 2007, the Company’s consolidated balance sheet reflects cash and indebtedness of approximately $23 million and $88 million, respectively. The maximum additional indebtedness permitted under the Company’s credit facilities (and the amount of additional borrowings available to the Company under those facilities) was approximately $11 million at that date. During the first nine months of fiscal 2008, the Company prepaid approximately $21.9 million under the Company’s $110 million term loan entered into in February 2007. A substantial portion of these prepayments was made in order to reduce the likelihood of violation of the financial covenants contained in the Company’s credit facilities.

Several franchisees have been experiencing financial pressures which, in certain instances, appear to have become more exacerbated during fiscal 2008. Franchisees closed 25 stores in the first nine months of fiscal 2008. The Company believes franchisees will close additional stores in the foreseeable future, and the number of such closures is likely to be significant. Royalty revenues and most of KK Supply Chain revenues

are directly correlated to sales by franchise stores and, accordingly, store closures have an adverse effect on the Company’s revenues and results of operations.

“Although we still have much to do, performance improved in the third quarter compared to the second quarter, and the organization made progress on the transformation steps previously announced,” said Daryl Brewster, the Company’s President and Chief Executive Officer. Since the end of the second quarter, we have:

•

Closed an additional five underperforming Company stores;

•

Opened over 20 new satellites systemwide as part of our hub and spoke strategy, including converting an additional Company-owned factory store to a non-producing hot shop;

•

Reduced Supply Chain costs by outsourcing our coffee supply and announcing the planned closure of a manufacturing and distribution facility;

•

Increased international franchisee sales 48% year-over-year;

•

Realigned Company Stores and Franchise management with experienced leadership;

•

Continued to reduce G&A costs; and

•

Completed an amended Franchise Disclosure Document (formerly called a Uniform Franchise Offering Circular).

“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,” Brewster added.

Systemwide sales, a non-GAAP financial measure, include sales by both Company and franchise stores. The Company believes systemwide sales data are useful in assessing the overall performance of the Krispy Kreme brand and, ultimately, the performance of the Company. The Company’s consolidated financial statements include sales by Company stores, sales to franchisees by the KK Supply Chain business segment, and royalties and fees received from franchisees, but exclude sales by franchise stores to their customers.

Krispy Kreme management will host a conference call to review third quarter results on December 6, 2007 at 4:30 p.m. (ET). A live webcast of the conference call will be available at www.KrispyKreme.com/investorrelations.html and www.Streetevents.com. An archived audio replay will be available shortly following the conference call. To access the telephone replay dial 888-286-8010 and enter the passcode number 45888585. International callers may access the replay by dialing 617-801-6888 and entering passcode 45888585. The audio replay will be available through December 13, 2007. The conference call webcast will be archived and accessible for one month following the date of the conference call.

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Information contained in this press release, other than historical information, should be considered forward-looking. Forward-looking statements are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on Krispy Kreme's operating results, performance or financial condition are the outcome of pending governmental investigations and litigation, including governmental investigations by the United States Securities and Exchange Commission and the United States Attorney's Office for the Southern District of New York; potential indemnification obligations and limitations of our director and officer liability insurance; material weaknesses in our internal control over financial reporting; our ability to implement remedial measures necessary to improve our processes and procedures; negative publicity; significant changes in our management; our ability, and our dependence on the ability of our franchisees, to execute our and their business plans; our ability to implement our international growth strategy; currency, economic, political and other risks associated with our international operations; the price and availability of raw materials needed to produce doughnut mixes and other ingredients; compliance with governmental regulations relating to food products and franchising; our relationships with wholesale customers; our ability to protect our trademarks; restrictions on our operations and compliance with covenants contained in our secured credit facilities; changes in customer preferences and perceptions; risks associated with competition; and other factors discussed in Krispy Kreme's Annual Report on Form 10-K for fiscal 2007 and other periodic reports filed with the United States Securities and Exchange Commission.

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KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

(In thousands)

	Oct. 28, 2007			Jan. 28, 2007

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,419		$	36,242
Receivables		22,943			26,769
Accounts and notes receivable — equity method franchisees		2,276			834
Inventories		23,340			21,006
Insurance recovery receivable		—			34,967
Other current assets		5,681			12,000
Total current assets		77,659			131,818
Property and equipment		129,759			168,654
Investments in equity method franchisees		2,201			3,224
Goodwill and other intangible assets		28,534			28,934
Deferred income taxes		20			20
Other assets		10,616			16,842
Total assets	$	248,789		$	349,492

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,707		$	1,730
Accounts payable		8,359			7,874
Accrued litigation settlement		—			86,772
Deferred income taxes		20			20
Other accrued liabilities		35,429			38,474
Total current liabilities		45,515			134,870
Long-term debt, less current maturities		86,423			105,966
Other long-term obligations		28,228			29,694

Commitments and contingencies

SHAREHOLDERS’ EQUITY:
Preferred stock, no par value		—			—
Common stock, no par value		354,753			310,942
Accumulated other comprehensive income		1,127			1,266
Accumulated deficit		(267,257	)		(233,246	)
Total shareholders’ equity		88,623			78,962
Total liabilities and shareholders’ equity	$	248,789		$	349,492

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KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	Oct. 28, 2007			Oct. 29, 2006			Oct. 28, 2007			Oct. 29, 2006

Revenues	$	103,355		$	117,107		$	318,371		$	349,007
Operating expenses:
Direct operating expenses (exclusive of depreciation and amortization shown below)		90,911			96,192			283,239			290,325
General and administrative expenses		5,650			12,457			19,394			41,218
Depreciation and amortization expense		4,868			5,177			13,642			16,114
Impairment charges and lease termination costs		(268	)		5,423			34,504			6,560
Settlement of litigation		—			—			(14,930	)		—
Other operating (income) and expense, net		196			(105	)		(73	)		(5	)
Operating income (loss)		1,998			(2,037	)		(17,405	)		(5,205	)
Interest income		379			460			1,224			1,168
Interest expense		(2,274	)		(5,196	)		(7,429	)		(15,365	)
Loss on extinguishment of debt		—			—			(9,622	)		—
Equity in (losses) of equity method franchisees		(216	)		(65	)		(695	)		(924	)
Other non-operating income and (expense), net		(309	)		68			(263	)		3,287
(Loss) before income taxes		(422	)		(6,770	)		(34,190	)		(17,039	)
Provision for income taxes		376			431			1,046			781
Net (loss)	$	(798	)	$	(7,201	)	$	(35,236	)	$	(17,820	)

(Loss) per common share:
Basic	$	(.01	)	$	(.12	)	$	(.55	)	$	(.29	)

Diluted	$	(.01	)	$	(.12	)	$	(.55	)	$	(.29	)

Weighted average shares outstanding		63,934			61,879			63,652			61,857

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KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	Oct. 28, 2007			Oct. 29, 2006
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss)	$	(35,236	)	$	(17,820	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		13,642			16,114
Deferred income taxes		206			(95	)
Impairment charges		33,671			5,243
Settlement of litigation		(14,930	)		—
Accrued rent expense		(830	)		775
(Gain) on disposal of property and equipment		(316	)		(44	)
(Gain) on sale of interest in equity method franchisee		—			(3,580	)
Share-based compensation		6,646			8,175
Provision for doubtful accounts		755			1,638
Amortization of deferred financing costs		5,856			2,074
Equity in losses of equity method franchisees		695			924
Other		828			317
Change in assets and liabilities:
Receivables		1,543			(4,633	)
Inventories		(2,297	)		2,174
Other current and non-current assets		1,227			3,916
Accounts payable and accrued liabilities		(2,788	)		(369	)
Other long-term obligations		(572	)		1,592
Net cash provided by operating activities		8,100			16,401
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(4,928	)		(2,839	)
Proceeds from disposals of property and equipment		6,751			6,219
Investments in and advances to franchise investees		—			(1,100	)
Recovery of investments in and advances to franchise investee		—			2,500
Sale of interest in equity method franchisee		—			5,982
Acquisition of stores from franchisee		—			(2,900	)
Decrease (increase) in other assets		10			(3	)
Net cash provided by investing activities		1,833			7,859
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of short-term debt		—			2,984
Repayment of short-term debt		—			(2,389	)
Proceeds from issuance of long-term debt		110,000			—
Repayment of long-term debt		(130,238	)		(4,589	)
Deferred financing costs		(2,891	)		—
Proceeds from exercise of stock options		290			—
Net change in book overdraft		—			(60	)
Net cash (used for) financing activities		(22,839	)		(4,054	)
Effect of exchange rate changes on cash		83			27
Cash balances of subsidiary at date of deconsolidation		—			(1,413	)
Net increase (decrease) in cash and cash equivalents		(12,823	)		18,820
Cash and cash equivalents at beginning of period		36,242			16,980
Cash and cash equivalents at end of period	$	23,419		$	35,800
Supplemental schedule of non-cash investing and financing activities:
Assets acquired under capital leases	$	672		$	41

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RISPY KREME DOUGHNUTS, INC.

Store Count

	NUMBER OF STORES
	FACTORY			SATELLITE			TOTAL
Three months ended October 28, 2007:
JULY 29, 2007		299			112			411
Opened		8			21			29
Closed		(17	)		—			(17	)
OCTOBER 28, 2007		290			133			423

Nine months ended October 28, 2007:
JANUARY 28, 2007		296			99			395
Opened		20			41			61
Closed		(26	)		(7	)		(33	)
OCTOBER 28, 2007		290			133			423

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KRISPY KREME DOUGHNUTS, INC.

SELECTED OPERATING STATISTICS

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	Oct. 28, 2007			Oct. 29, 2006			Oct. 28, 2007			Oct. 29, 2006

Year over year percentage change in systemwide sales (1)		(2.6	)%		(8.9	)%		(2.0	)%		(13.6	)%

Average weekly sales per factory store (2):
Company	$	54.5		$	55.0		$	54.9		$	54.3
Systemwide	$	51.8		$	50.7		$	51.3		$	49.3

Factory store operating weeks (3):
Company		1,334			1,491			4,162			4,488
Systemwide		3,640			3,820			11,265			11,950

Average weekly sales per store (4):
Company	$	52.9		$	53.1		$	53.4		$	52.5
Systemwide	$	36.4		$	40.1		$	37.7		$	39.5

Store operating weeks (5):
Company		1,373			1,543			4,279			4,636
Systemwide		5,174			4,825			15,310			14,898

On-premises sales (6):
Company change in same store sales		(2.9	)%					(0.4	)%
Systemwide change in same store sales		(6.0	)%					(3.4	)%

Company off-premises sales (7):
Change in average weekly number of doors		(5.7	)%					(2.1	)%
Change in average weekly sales per door		(7.4	)%					(5.9	)%

(1)	Systemwide sales, a non-GAAP financial measure, include the sales by both Company and franchise stores. The Company believes systemwide sales data is useful in assessing the overall performance of the Krispy Kreme brand and, ultimately, the performance of the Company.

(2)	Represents, on a Company and systemwide basis, total sales of all stores divided by the number of operating weeks for factory stores.

(3)	Represents, on a Company and systemwide basis, the aggregate number of operating weeks for factory stores.

(4)	Represents, on a Company and systemwide basis, total sales of all stores divided by the number of operating weeks for both factory and satellite stores.

(5)	Represents, on a Company and systemwide basis, the aggregate number of operating weeks for both factory and satellite stores.

(6)

The change in “same store sales” represents, on a Company and systemwide basis, the aggregate on-premises sales (including fundraising sales) during the current year period for all stores which had been open for more than 56 consecutive weeks during the current year period (but only to the extent such sales occurred in the 57^th or later week of each store’s operation) divided by the aggregate on-premises sales of such stores for the comparable weeks in the preceding year period. Once a store has been open for at least 57 consecutive weeks, its sales are included in the computation of same stores sales for all subsequent periods. In the event a store is closed temporarily (for example, for remodeling) and has no sales during one or more weeks, such store’s sales for the comparable weeks during the earlier or subsequent period are excluded from the same store sales computation.

(7)	For Company off-premises sales, “average weekly number of doors” represents the average number of customer locations to which product deliveries are made during a week by Company Stores, and “average weekly sales per door” represents the average weekly sales to each such location by Company Stores.

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KRISPY KREME DOUGHNUTS, INC.

SEGMENT INFORMATION

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	Oct. 28, 2007			Oct. 29, 2006			Oct. 28, 2007			Oct. 29, 2006
Revenues:
Company Stores	$	72,787		$	82,078		$	228,504		$	247,013
Franchise		5,679			5,716			15,773			15,319
KK Supply Chain:
Total revenues		48,933			55,531			150,415			167,609
Less- intersegment elimination		(24,044	)		(26,218	)		(76,321	)		(80,934	)
External KK Supply Chain revenues		24,889			29,313			74,094			86,675
Total revenues	$	103,355		$	117,107		$	318,371		$	349,007
Operating income (loss):
Company Stores	$	(1,855	)	$	2,110		$	(7,187	)	$	3,879
Franchise		3,793			4,727			9,997			12,566
KK Supply Chain		5,735			9,346			19,681			27,246
Unallocated general and administrative expenses		(5,943	)		(12,797	)		(20,322	)		(42,336	)
Impairment charges and lease termination costs		268			(5,423	)		(34,504	)		(6,560	)
Settlement of litigation		—			—			14,930			—
Total operating income (loss)	$	1,998		$	(2,037	)	$	(17,405	)	$	(5,205	)
Depreciation and amortization expense:
Company Stores	$	2,603		$	3,937		$	9,018		$	12,259
Franchise		22			32			70			95
KK Supply Chain		1,960			868			3,671			2,613
Corporate administration		283			340			883			1,147
Total depreciation and amortization expense	$	4,868		$	5,177		$	13,642		$	16,114

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