Krispy Kreme Narrows 4th Quarter Losses

Krispy Kreme Doughnuts, Inc. (NYSE: KKD) today reported financial results for the fourth quarter and fiscal year ended January 28, 2007, and plans to file with the Securities and Exchange Commission its Annual Report on Form 10-K. The Annual Report will be available at www.sec.gov.

Revenues for the fourth quarter decreased 8.2% to $112.2 million compared to $122.2 million in the fourth quarter of last year. Company Stores sales decreased 11.2% to $79.2 million, revenues from franchise operations increased 34.0% to $5.8 million, and Krispy Kreme Supply Chain ("KK Supply Chain," formerly called "Krispy Kreme Manufacturing and Distribution") revenues decreased 5.2% to $27.2 million.

Fourth quarter systemwide sales decreased 6.4% from the fourth quarter of last year. Systemwide average weekly sales per store increased approximately 2% from the prior year period to approximately $39,500 per store, and Company Store average weekly sales per store increased to approximately $54,100 per store. The higher Company Store average weekly sales per store data reflect, among other things, store closures (including those formerly operated by consolidated franchisees) and the related shift in off-premises doughnut production into a fewer number of factory stores. Excluding the stores formerly operated by consolidated franchisees, Company Store average weekly sales per store increased approximately 9% versus the prior comparable period.

The net loss for the fourth quarter was $24.4 million, or $0.39 per diluted share, compared to a net loss of $37.7 million, or $0.61 per diluted share, in the comparable period last year. The net loss for the quarter includes a charge related to the settlement of litigation of approximately $16.0 million, representing the increase from October 29, 2006 to January 28, 2007 in the estimated fair value of the securities issued by the Company on March 2, 2007 in connection with the previously announced settlement of the class action litigation and partial settlement of the shareholder derivative action.

During the fourth quarter, the Company recorded a $2.1 million provision for doubtful accounts substantially all of which relates to receivables from franchisees. Also during the quarter, the Company recorded a $1.3 million charge related to the proposed settlement of certain wage and hour complaints lodged against the Company.

During the quarter, 28 new Krispy Kreme stores, comprised of 12 factory stores and 16 satellites, were opened systemwide, and 14 stores, comprised of 9 factory stores and 5 satellites, were closed. This brings the total number of stores systemwide at year-end to 395, consisting of 296 factory stores and 99 satellites.

For fiscal 2007, revenues decreased 15.1% to $461.2 million compared to $543.4 million in fiscal 2006. Company Stores sales decreased 18.1% to $326.2 million, revenues from franchise operations increased 14.6% to $21.1 million and KK Supply Chain sales to franchise stores decreased 10.0% to $113.9 million. Systemwide sales decreased 11.9% compared to fiscal 2006.

The net loss for fiscal 2007 was $42.2 million, or $0.68 per diluted share, compared with a net loss of $135.8 million, or $2.20 per diluted share, in fiscal 2006. Impairment charges and lease termination costs were $12.5 million and $55.1 million, in fiscal 2007 and 2006, respectively, and litigation settlement costs were $16.0 million compared to $35.8 million, respectively.

In fiscal 2007 and 2006, the Company incurred professional fees, net of anticipated insurance recoveries, of approximately $9.0 million and $31.8 million, respectively, associated with internal and external investigations, litigation and the interim management firm engaged by the Company in January 2005. The fiscal 2007 amount includes a credit of $2.3 million recorded in the fourth quarter resulting from reimbursements from insurance companies of costs and expenses in excess of amounts previously estimated.

"We have made progress during the past year, including resolving important legal matters, restoring positive cash flow, getting current with our financials, and closing a new senior secured credit facility," said Daryl Brewster, President and Chief Executive Officer of Krispy Kreme Doughnuts, Inc. "Additionally, we've seen stability in our overall average unit volume, developed a pipeline for new products and seen growth internationally utilizing a flexible real estate model."



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