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Krispy Kreme Reports Second Quarter 2023 Results, Reiterates Full Year Guidance

Second quarter net revenue grew 9.0% with organic revenue growth of 11.4%

Global Points of Access grew by 12.8% to 12,872

GAAP net income of $0.1 million and Adjusted EBITDA of $48.8 million

Krispy Kreme, Inc. (NASDAQ: DNUT) (“Krispy Kreme” or the “Company”) today reported financial results for the second quarter ended July 2, 2023. Net revenue grew 9.0% year-over-year to $408.9 million and organic revenue grew 11.4%, led by the U.S., where all sales channels including doughnut and cookie shops, Delivered Fresh Daily (“DFD”) doors, and ecommerce contributed to 12.7% organic growth in the quarter.

GAAP net income for the quarter was $0.1 million compared to net loss of $2.4 million a year ago while GAAP diluted EPS for the quarter was $0.00 compared to diluted loss per share of $0.02 last year. Adjusted diluted EPS decreased $0.01 to $0.07 for the quarter, compared to $0.08 last year in the same period, driven by higher net interest expense. Adjusted EBITDA increased 3.1% in the quarter to $48.8 million led by the U.S. and Market Development segments.

Global Points of Access, which reflect all locations where fresh doughnuts and cookies can be purchased, increased by 462 during the quarter and 1,035 year-to-date, providing consumers with access to Krispy Kreme and Insomnia Cookies through 12,872 locations around the world.

Commenting on the Company’s performance, CEO Mike Tattersfield stated, “I am proud of the results we delivered in the second quarter, which were bolstered by our continued focus on expanding our hub and spoke model as we leaned heavily into our omni-channel and DFD capabilities as well as our international expansion strategy. We executed the strongest and largest National Doughnut Day in our history, which we now celebrate in a dozen countries. We are also pleased with our continued global expansion, as we opened three new markets during the quarter in Chile, Jamaica, and Costa Rica, all exceeding our revenue growth targets.”

Mike continued, “We look forward to capitalizing on a strong start to the year in the back half of 2023 and delivering profitable growth as we focus on our capital efficient hub and spoke model and omni-channel strategy. We continue to expect to open in three to five additional markets in 2023, and recently opened in Switzerland which marked our first opening in Continental Europe to be followed by France before year-end. Overall, we remain on our path to grow Global Points of Access and become the most loved sweet treat brand in the world.”

Financial Highlights

$ in millions, except per share data

Q2

2023

vs Q2

2022

1H 2023

vs. 1H 2022

Net Revenue

$408.9

+9.0%

$827.8

+10.7%

Organic Revenue (1)

$406.8

+11.4%

$829.3

+12.9%

GAAP Net Income

$0.1

+103.5%

$1.7

(57.3)%

Adjusted Net Income, Diluted (1)

$11.4

(13.1)%

$26.7

+1.3%

GAAP Operating Income

$5.6

(24.8)%

$20.6

(17.0)%

GAAP Operating Income Margin

1.4%

-60 bps

2.5%

-80 bps

Adjusted EBITDA (1)

$48.8

+3.1%

$103.7

+7.8%

Adjusted EBITDA Margin (1)

11.9%

-70 bps

12.5%

-40 bps

GAAP Diluted EPS

$0.00

+$0.02

$0.00

$0.00

Adjusted Diluted EPS (1)

$0.07

($0.01)

$0.16

$0.00

Notes:

(1) Non-GAAP figures – please refer to Reconciliation of Non-GAAP Financial Measures.

Key Operating Metrics

$ in millions, except access points

Q2

2023

vs Q2

2022

vs Q1

2023

 

Global Points of Access

12,872

+12.8%

+3.7%

 

Sales per Hub (U.S.) TTM

$4.7

+9.3%

+2.2%

 

Sales per Hub (International) TTM

$9.7

+3.2%

(1.0)%

 

Ecommerce as a Percent of Retail Sales

18.8%

+130 bps

-80 bps

 

Second Quarter 2023 Consolidated Results

Krispy Kreme’s second quarter 2023 results reflect strong growth compared to the prior year. Net revenue grew 9.0% to $408.9 million and total company organic revenue grew 11.4% in the quarter. Organic revenue growth was driven by a strong performance in all three business segments. Ecommerce revenue growth in the quarter was 18.0% and represented 18.8% of retail sales in the quarter.

GAAP net income for the quarter was $0.1 million, compared to a GAAP net loss of $2.4 million in 2022. GAAP net income included a $4.4 million charge related to the previously disclosed exit of the Company’s Branded Sweet Treats business that was largely non-cash. Inventory write-offs and employee severance associated with the exit of the Branded Sweet Treats business had a 70 basis point impact on product and distribution costs as a percent of revenue in the second quarter of 2023.

Adjusted EBITDA in the quarter grew 3.1% to $48.8 million despite an approximate $0.5 million negative impact from the stronger U.S. dollar. Operating margins declined 60 basis points to 1.4%, while Adjusted EBITDA margins declined 70 basis points to 11.9% as pricing initiatives and hub and spoke efficiencies were offset by inflationary pressure and the timing of certain performance-based incentives. Adjusted Net Income, Diluted, decreased 13.1% to $11.4 million in the quarter. GAAP diluted EPS in the quarter was $0.00 compared to a loss per share of $0.02 in the same quarter last year, while adjusted diluted EPS decreased 12.5% to $0.07 from $0.08 in the second quarter of 2022, due primarily to higher net interest expense.

Second Quarter 2023 Market Segment Results

U.S.: In the U.S. segment, net revenue grew $22.8 million, or approximately 9.3%, and organic revenue increased $29.8 million, or approximately 12.7%, compared to a year ago. Organic growth was driven by successful pricing actions, marketing activations and expansion of our DFD strategy. Sales per hub in the U.S. increased 9% to $4.7 million and DFD average sales per door increased 16% year over year to $632 per week, with an additional 815 Points of Access compared to the second quarter of fiscal 2022. Additionally, ecommerce as a percent of retail sales grew 260 basis points. This level of performance was achieved despite short-term disruption from a third-party POS provider during the first part of the quarter, which has since been resolved. We also saw strong performance at Insomnia Cookies which opened 23 new Cookie Shops compared to the second quarter of fiscal 2022.

U.S. Adjusted EBITDA increased 16.3% to $28.1 million with Adjusted EBITDA margin expansion of 60 basis points to 10.5%. This was primarily driven by efficiencies from network optimizations and price increases augmenting Sales per Hub, partially offset by inflation and labor inefficiencies due to the temporary outages associated with a third-party POS provider. Profitability at Insomnia Cookies was pressured because of the impact of higher product and distribution costs, partially offset by pricing, as well as timing of investments to support strategic growth initiatives.

International: In the International segment, net revenue grew $4.5 million, or approximately 4.8%, from the second quarter of fiscal 2022 to the second quarter of fiscal 2023, aided by foreign currency translation impacts of $1.2 million from a weakening U.S. dollar. International organic revenue grew $3.3 million, or approximately 3.5%, from the second quarter of fiscal 2022 to the second quarter of fiscal 2023, driven by increased pricing and Points of Access growth of 245 locations, or 7%, compared to the second quarter of fiscal 2022.

International Adjusted EBITDA declined 0.4% compared to the prior year at $19.5 million, driven by cost inflation. Adjusted EBITDA margins declined 100 basis points to 19.8%. We have already begun to see results from the actions taken in the International segment, focused on expansion with key partners including adding Krispy Kreme to consumer loyalty card programs, deploying pricing and cost control initiatives, and optimizing price pack architecture in the UK DFD market.

Market Development: In the Market Development segment, net revenue increased $6.4 million, or approximately 17.4%, from the second quarter of fiscal 2022 to the second quarter of fiscal 2023, despite the impacts of certain foreign currencies devaluing against the U.S. dollar. When adjusted for the impacts of acquisitions and foreign currency, Market Development organic revenue grew $8.5 million, or approximately 23.2%, from the second quarter of fiscal 2022 to the second quarter of fiscal 2023, driven by strong performance in the Company’s international franchise markets, Canada, and Japan, aided by Hub and Spoke model expansion.

Market Development Adjusted EBITDA grew 27.3% to $15.7 million, with strong margin improvement in the Company’s equity-owned Japan and Canada markets from hub and spoke efficiencies and strength in international franchise revenue more than offsetting inflation and the strong U.S. dollar. Adjusted EBITDA margins for the segment increased 290 basis points to 36.5% despite a negative impact from mix shift.

Balance Sheet & Capital Expenditures

During the second quarter of 2023, the company invested $27.7 million in capital expenditures, or 6.8% of revenue, primarily to support growth of our hot light theaters, cookie shops, and DFD Doors.

As of July 2, 2023 the company had total available liquidity of $201.6 million, including $26.6 million of cash and cash equivalents plus undrawn capacity of $175 million under available credit facilities, and net debt of $833.5 million. In line with the strategic decision to reduce reliance on vendor financing programs, the Company paid down a further $33.7 million in structured payables and supply chain financing vehicles in the second quarter which will provide a long-term tailwind to Adjusted EBITDA.

2023 Financial Outlook

Krispy Kreme re-affirms its previous guidance for the full year 2023 as follows:

  • Net Revenue of $1.65 billion to $1.68 billion, +8% to +10% vs 2022 (+9% to +11% in constant currency)
  • Organic Revenue growth of 9% to 11%
  • Adjusted EBITDA of $205 million to $215 million, +8% to +13% vs 2022 (+10% to +14% in constant currency)
  • Adjusted Net Income, Diluted, of $52 million to $58 million, +5% to +17% vs 2022 (+9% to +21% in constant currency)
  • Adjusted Diluted EPS of $0.31 to $0.34, +7% to +17% vs 2022 (+10% to +21% in constant currency)
  • Income Tax rate between 24.5% to 26.0%
  • Capital Expenditures between $105 million to $115 million, or approximately 6.6% of revenue
  • Interest Expense, net between $39 million to $43 million

The above guidance continues to assume a negative 1% impact to 2023 revenue and a negative $3 million impact to 2023 Adjusted EBITDA from FX headwinds, with the impact entirely in the first half of the year. The Company expects to reduce its net leverage in 2023, as we make progress towards our 2026 goal of approximately 2.0x to 2.5x net leverage.

Definitions

The following definitions apply to terms used throughout this press release:

  • Global Points of Access: Reflects all locations at which fresh doughnuts or cookies can be purchased. We define global points of access to include all Hot Light Theater Shops, Fresh Shops, Carts and Food Trucks, DFD Doors and Cookie Shops, at both Company-owned and franchise locations as of the end of the respective reporting period. We monitor global points of access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments.
  • Hubs: Reflects locations where fresh doughnuts are produced and processed for sale at any point of access. We define Hubs to include self-sustaining Hot Light Theater Shops and Doughnut Factories, at both Company-owned and franchise locations as of the end of the respective reporting period.
  • Sales Per Hub: Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes at the end of the five most recent quarters.
  • Fresh Revenues from Hubs with Spokes: Fresh Revenues include product sales generated from our Doughnut Shop business (including Ecommerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded Sweet Treat Line. It also excludes all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business. Fresh Revenues from Hubs with Spokes equals the Fresh Revenues derived from those Hubs currently producing product for other shops, Carts and Food Trucks, and/or DFD Doors, but excluding Fresh Revenues derived from those Hubs not currently producing product for other shops, Carts and Food Trucks, and/or DFD Doors.
  • Total Net Leverage Ratio: Calculated using Net Debt (including both bank debt and financing leases as part of debt) divided by Adjusted EBITDA.
  • Free Cash Flow: Defined as cash provided by operating activities less purchases of property and equipment.

Conference Call

Krispy Kreme will host a public conference call at 8:30 AM Eastern Time today to discuss its results for the second quarter of 2023. The conference call can be accessed by dialing 1 (800) 599-5188 and entering the conference ID 5487868. International participants can access the call via the corresponding number listed here and entering the conference ID 5487868. To listen to the live audio webcast and Q&A, visit the Krispy Kreme investor relations website at investors.krispykreme.com. A replay and transcript of the webcast will be available on the website within 24 hours after the call. Krispy Kreme’s earnings press release and related materials will also be available on the investor relations section of the Company’s website.

About Krispy Kreme

Headquartered in Charlotte, N.C., Krispy Kreme is one of the most beloved and well-known sweet treat brands in the world. Our iconic Original Glazed® doughnut is universally recognized for its hot-off-the-line, melt-in-your-mouth experience. Krispy Kreme operates in 35 countries through its unique network of fresh doughnut shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business with nearly 13,000 fresh points of access. Our purpose of touching and enhancing lives through the joy that is Krispy Kreme guides how we operate every day and is reflected in the love we have for our people, our communities and the planet. Connect with Krispy Kreme Doughnuts at www.KrispyKreme.com, or on one of its many social media channels, including www.Facebook.com/KrispyKreme and www.Twitter.com/KrispyKreme.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. The words “believe,” “may,” “could,” “will,” “should,” “anticipate,” “estimate,” “expect,” “outlook,” “guidance,” or similar words, or the negative of these words, identify forward-looking statements. Such forward-looking statements are based on certain assumptions and estimates that we consider reasonable but are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial conditions, business, prospects, growth strategy and liquidity. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause actual results to differ from those expressed in forward-looking statements include, without limitation, the risks and uncertainties described under the headings “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended January 1, 2023, filed by us with the Securities and Exchange Commission (“SEC”) and described in the other filings we make from time to time with the SEC. We believe that these factors include, but are not limited to, the impact of pandemics, changes in consumer preferences, the impact of inflation, and our ability to execute on our omni-channel business strategy. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statement to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

Non-GAAP Measures

This press release includes certain non-GAAP financial measures including organic revenue growth, Adjusted EBITDA, Adjusted Net Income, Diluted, Adjusted Diluted EPS, Fresh Revenue from Hubs with Spokes and Sales per Hub, which differ from results using U.S. Generally Accepted Accounting Principles (“GAAP”). These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than we do or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance under GAAP. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical consolidated financial statements and notes thereto filed with the SEC.

To the extent that the Company provides guidance, it does so only on a non-GAAP basis. The Company does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inability to predict the amount and timing of impacts outside of the Company’s control on certain items, such as net income and other charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

 

Krispy Kreme, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

 

 

Quarter Ended

 

Two Quarters Ended

 

July 2, 2023

(13 weeks)

 

July 3, 2022

(13 weeks)

 

July 2, 2023

(26 weeks)

 

July 3, 2022

(26 weeks)

Net revenues

 

 

 

 

 

 

 

Product sales

$

400,348

 

 

$

367,777

 

 

$

811,022

 

 

$

731,829

 

Royalties and other revenues

 

8,534

 

 

 

7,468

 

 

 

16,810

 

 

 

15,948

 

Total net revenues

 

408,882

 

 

 

375,245

 

 

 

827,832

 

 

 

747,777

 

Product and distribution costs

 

111,106

 

 

 

100,558

 

 

 

228,939

 

 

 

196,669

 

Operating expenses

 

189,165

 

 

 

173,942

 

 

 

380,573

 

 

 

342,668

 

Selling, general and administrative expense

 

62,582

 

 

 

51,754

 

 

 

124,050

 

 

 

105,465

 

Marketing expenses

 

9,770

 

 

 

11,215

 

 

 

19,623

 

 

 

21,374

 

Pre-opening costs

 

1,104

 

 

 

985

 

 

 

1,868

 

 

 

2,314

 

Other expenses/(income), net

 

314

 

 

 

1,469

 

 

 

(4,949

)

 

 

(1,164

)

Depreciation and amortization expense

 

29,196

 

 

 

27,814

 

 

 

57,135

 

 

 

55,655

 

Operating income

 

5,645

 

 

 

7,508

 

 

 

20,593

 

 

 

24,796

 

Interest expense, net

 

12,063

 

 

 

7,586

 

 

 

24,051

 

 

 

14,937

 

Other non-operating expense, net

 

1,061

 

 

 

756

 

 

 

2,060

 

 

 

435

 

(Loss)/income before income taxes

 

(7,479

)

 

 

(834

)

 

 

(5,518

)

 

 

9,424

 

Income tax (benefit)/expense

 

(7,563

)

 

 

1,574

 

 

 

(7,246

)

 

 

5,374

 

Net income/(loss)

 

84

 

 

 

(2,408

)

 

 

1,728

 

 

 

4,050

 

Net (loss)/income attributable to noncontrolling interest

 

(139

)

 

 

1,441

 

 

 

1,806

 

 

 

3,897

 

Net income/(loss) attributable to Krispy Kreme, Inc..

$

223

 

 

$

(3,849

)

 

$

(78

)

 

$

153

 

Net income/(loss) per share:

 

 

 

 

 

 

 

Common stock — Basic

$

 

 

$

(0.02

)

 

$

 

 

$

 

Common stock — Diluted

$

 

 

$

(0.02

)

 

$

 

 

$

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

168,184

 

 

 

167,367

 

 

 

168,162

 

 

 

167,314

 

Diluted

 

170,659

 

 

 

167,367

 

 

 

168,162

 

 

 

167,314

 

 

Krispy Kreme, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

 

 

As of

 

(Unaudited)

July 2, 2023

 

January 1, 2023

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

26,635

 

 

$

35,371

 

Restricted cash

 

339

 

 

 

359

 

Accounts receivable, net

 

49,381

 

 

 

51,089

 

Inventories

 

33,977

 

 

 

46,239

 

Taxes receivable

 

17,354

 

 

 

18,263

 

Prepaid expense and other current assets

 

31,635

 

 

 

26,953

 

Total current assets

 

159,321

 

 

 

178,274

 

Property and equipment, net

 

492,233

 

 

 

472,358

 

Goodwill

 

1,099,393

 

 

 

1,087,908

 

Other intangible assets, net

 

960,094

 

 

 

966,088

 

Operating lease right of use asset, net

 

443,277

 

 

 

417,381

 

Other assets

 

19,826

 

 

 

26,528

 

Total assets

$

3,174,144

 

 

$

3,148,537

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

40,722

 

 

$

40,034

 

Current operating lease liabilities

 

42,932

 

 

 

43,160

 

Accounts payable

 

216,407

 

 

 

225,276

 

Accrued liabilities

 

96,199

 

 

 

104,424

 

Structured payables

 

50,447

 

 

 

103,575

 

Total current liabilities

 

446,707

 

 

 

516,469

 

Long-term debt, less current portion

 

814,476

 

 

 

739,052

 

Noncurrent operating lease liabilities

 

439,103

 

 

 

412,759

 

Deferred income taxes, net

 

134,130

 

 

 

143,124

 

Other long-term obligations and deferred credits

 

33,453

 

 

 

38,258

 

Total liabilities

 

1,867,869

 

 

 

1,849,662

 

Commitments and contingencies

 

 

 

Shareholders’ equity:

 

 

 

Common stock, $0.01 par value; 300,000 shares authorized as of both July 2, 2023 and January 1, 2023; 168,184 and 168,137 shares issued and outstanding as of July 2, 2023 and January 1, 2023, respectively

 

1,682

 

 

 

1,681

 

Additional paid-in capital

 

1,432,150

 

 

 

1,426,105

 

Shareholder note receivable

 

(3,809

)

 

 

(4,813

)

Accumulated other comprehensive income/(loss), net of income tax

 

7,784

 

 

 

(9,151

)

Retained deficit

 

(229,340

)

 

 

(217,490

)

Total shareholders’ equity attributable to Krispy Kreme, Inc.

 

1,208,467

 

 

 

1,196,332

 

Noncontrolling interest

 

97,808

 

 

 

102,543

 

Total shareholders’ equity

 

1,306,275

 

 

 

1,298,875

 

Total liabilities and shareholders’ equity

$

3,174,144

 

 

$

3,148,537

 

 

Krispy Kreme, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Two Quarters Ended

 

July 2, 2023

(26 weeks)

 

July 3, 2022

(26 weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income

$

1,728

 

 

$

4,050

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization expense

 

57,135

 

 

 

55,655

 

Deferred income taxes

 

(11,743

)

 

 

(6,866

)

Loss on extinguishment of debt

 

472

 

 

 

 

Impairment and lease termination charges

 

7,808

 

 

 

1,991

 

Gain on disposal of property and equipment

 

(151

)

 

 

(499

)

Gain on sale-leaseback

 

(9,646

)

 

 

(2,374

)

Share-based compensation

 

10,369

 

 

 

10,493

 

Change in accounts and notes receivable allowances

 

372

 

 

 

193

 

Inventory write-off

 

10,244

 

 

 

251

 

Settlement of interest rate swap derivatives

 

7,657

 

 

 

 

Amortization related to settlement of interest rate swap derivatives

 

(4,379

)

 

 

 

Other

 

996

 

 

 

(733

)

Change in operating assets and liabilities, excluding foreign currency translation adjustments

 

(24,609

)

 

 

(8,238

)

Net cash provided by operating activities

 

46,253

 

 

 

53,923

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

Purchase of property and equipment

 

(54,290

)

 

 

(51,460

)

Proceeds from sale-leaseback

 

10,025

 

 

 

3,000

 

Disbursement for loan receivable

 

 

 

 

(720

)

Other investing activities

 

163

 

 

 

901

 

Net cash used for investing activities

 

(44,102

)

 

 

(48,279

)

CASH FLOWS USED FOR FINANCING ACTIVITIES:

 

 

 

Proceeds from the issuance of debt

 

989,198

 

 

 

53,000

 

Repayment of long-term debt and lease obligations

 

(916,580

)

 

 

(50,179

)

Payment of financing costs

 

(5,000

)

 

 

 

Proceeds from structured payables

 

73,939

 

 

 

153,097

 

Payments on structured payables

 

(126,920

)

 

 

(133,530

)

Payment of contingent consideration related to a business combination

 

 

 

 

(900

)

Capital contribution by shareholders, net of loans issued

 

631

 

 

 

(27

)

Payments of issuance costs in connection with IPO

 

 

 

 

(12,458

)

Proceeds from sale of noncontrolling interest in subsidiary

 

 

 

 

410

 

Distribution to shareholders

 

(11,771

)

 

 

(11,710

)

Payments for repurchase and retirement of common stock

 

(147

)

 

 

(2,363

)

Distribution to noncontrolling interest

 

(11,246

)

 

 

(9,496

)

Net cash used for financing activities

 

(7,896

)

 

 

(14,156

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(3,011

)

 

 

(4,473

)

Net decrease in cash, cash equivalents and restricted cash

 

(8,756

)

 

 

(12,985

)

Cash, cash equivalents and restricted cash at beginning of period

 

35,730

 

 

 

39,192

 

Cash, cash equivalents and restricted cash at end of period

$

26,974

 

 

$

26,207

 

Krispy Kreme, Inc.

Reconciliation of Non-GAAP Financial Measures (Unaudited)

(in thousands, except per share amounts)

 

Quarter Ended

 

Two Quarters Ended

(in thousands)

July 2, 2023

 

July 3, 2022

 

July 2, 2023

 

July 3, 2022

Net income/(loss)

$

84

 

 

$

(2,408

)

 

$

1,728

 

 

$

4,050

 

Interest expense, net

 

12,063

 

 

 

7,586

 

 

 

24,051

 

 

 

14,937

 

Income tax (benefit)/expense

 

(7,563

)

 

 

1,574

 

 

 

(7,246

)

 

 

5,374

 

Depreciation and amortization expense

 

29,196

 

 

 

27,814

 

 

 

57,135

 

 

 

55,655

 

Share-based compensation

 

4,824

 

 

 

5,452

 

 

 

10,369

 

 

 

10,493

 

Employer payroll taxes related to share-based compensation

 

189

 

 

 

35

 

 

 

214

 

 

 

90

 

Other non-operating expense, net (1)

 

1,061

 

 

 

756

 

 

 

2,060

 

 

 

435

 

Strategic initiatives (2)

 

4,477

 

 

 

120

 

 

 

17,946

 

 

 

120

 

Acquisition and integration expenses (3)

 

339

 

 

 

82

 

 

 

430

 

 

 

599

 

New market penetration expenses (4)

 

241

 

 

 

260

 

 

 

335

 

 

 

370

 

Shop closure expenses, net (5)

 

1,484

 

 

 

1,894

 

 

 

805

 

 

 

2,124

 

Restructuring and severance expenses (6)

 

1,667

 

 

 

476

 

 

 

2,247

 

 

 

476

 

Gain on sale-leaseback

 

15

 

 

 

 

 

 

(9,646

)

 

 

(2,374

)

Other (7)

 

737

 

 

 

3,720

 

 

 

3,314

 

 

 

3,919

 

Adjusted EBITDA

$

48,814

 

 

$

47,361

 

 

$

103,742

 

 

$

96,268

 

 

Quarter Ended

 

Two Quarters Ended

(in thousands)

July 2, 2023

 

July 3, 2022

 

July 2, 2023

 

July 3, 2022

Segment Adjusted EBITDA:

 

 

 

 

 

 

 

U.S.

$

28,085

 

 

$

24,155

 

 

$

66,620

 

 

$

56,562

 

International

 

19,463

 

 

 

19,535

 

 

 

33,030

 

 

 

36,779

 

Market Development

 

15,734

 

 

 

12,357

 

 

 

32,700

 

 

 

24,845

 

Corporate

 

(14,468

)

 

 

(8,686

)

 

 

(28,608

)

 

 

(21,918

)

Adjusted EBITDA

$

48,814

 

 

$

47,361

 

 

$

103,742

 

 

$

96,268

 

 

Quarter Ended

 

Two Quarters Ended

(in thousands, except per share amounts)

July 2, 2023

 

July 3, 2022

 

July 2, 2023

 

July 3, 2022

Net income/(loss)

$

84

 

 

$

(2,408

)

 

$

1,728

 

 

$

4,050

 

Share-based compensation

 

4,824

 

 

 

5,452

 

 

 

10,369

 

 

 

10,493

 

Employer payroll taxes related to share-based compensation

 

189

 

 

 

35

 

 

 

214

 

 

 

90

 

Other non-operating expense, net (1)

 

1,061

 

 

 

756

 

 

 

2,060

 

 

 

435

 

Strategic initiatives (2)

 

4,477

 

 

 

120

 

 

 

17,946

 

 

 

120

 

Acquisition and integration expenses (3)

 

339

 

 

 

82

 

 

 

430

 

 

 

599

 

New market penetration expenses (4)

 

241

 

 

 

260

 

 

 

335

 

 

 

370

 

Shop closure expenses, net (5)

 

1,484

 

 

 

2,144

 

 

 

805

 

 

 

2,374

 

Restructuring and severance expenses (6)

 

1,667

 

 

 

476

 

 

 

2,247

 

 

 

476

 

Gain on sale-leaseback

 

15

 

 

 

 

 

 

(9,646

)

 

 

(2,374

)

Other (7)

 

737

 

 

 

3,720

 

 

 

3,314

 

 

 

3,919

 

Amortization of acquisition related intangibles (8)

 

7,368

 

 

 

6,978

 

 

 

14,641

 

 

 

14,224

 

Loss on extinguishment of 2019 Facility (9)

 

 

 

 

 

 

 

472

 

 

 

 

Tax impact of adjustments (10)

 

(9,464

)

 

 

(2,341

)

 

 

(14,120

)

 

 

(3,419

)

Tax specific adjustments (11)

 

(1,758

)

 

 

(628

)

 

 

(2,315

)

 

 

(628

)

Net loss/(income) attributable to noncontrolling interest

 

139

 

 

 

(1,441

)

 

 

(1,806

)

 

 

(3,897

)

Adjustment to adjusted net income attributable to common shareholders

 

 

 

 

 

 

 

 

 

 

(374

)

Adjusted net income attributable to common shareholders - Basic

$

11,403

 

 

$

13,205

 

 

$

26,674

 

 

$

26,458

 

Additional income attributed to noncontrolling interest due to subsidiary potential common shares

 

(4

)

 

 

(83

)

 

 

(7

)

 

 

(122

)

Adjusted net income attributable to common shareholders - Diluted

$

11,399

 

 

$

13,122

 

 

$

26,667

 

 

$

26,336

 

Basic weighted average common shares outstanding

 

168,184

 

 

 

167,367

 

 

 

168,162

 

 

 

167,314

 

Dilutive effect of outstanding common stock options and RSUs

 

2,475

 

 

 

1,973

 

 

 

2,163

 

 

 

2,099

 

Diluted weighted average common shares outstanding

 

170,659

 

 

 

169,340

 

 

 

170,325

 

 

 

169,413

 

Adjusted net income per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic

$

0.07

 

 

$

0.08

 

 

$

0.16

 

 

$

0.16

 

Diluted

$

0.07

 

 

$

0.08

 

 

$

0.16

 

 

$

0.16

 

(1)

  Primarily foreign translation gains and losses in each period.

(2)

  The quarter and two quarters ended July 2, 2023 consist primarily of costs associated with the decision to exit the Branded Sweet Treats business, including property, plant and equipment impairments, inventory write-offs, employee severance, and other related costs.

(3)

  Consists of acquisition and integration-related costs in connection with the Company’s business and franchise acquisitions, including legal, due diligence, and advisory fees incurred in connection with acquisition and integration-related activities for the applicable period.

(4)

  Consists of start-up costs associated with entry into new countries for which the Company’s brands have not previously operated, including the Insomnia Cookies brand entering Canada and the U.K.

(5)

  Includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment.

(6)

  The quarter and two quarters ended July 2, 2023 consist primarily of costs associated with restructuring of the global executive teams.

(7)

  The quarters and two quarters ended July 2, 2023 and July 3, 2022 consist primarily of legal and other regulatory expenses incurred outside the ordinary course of business. The regulatory expenses incurred in the quarter ended April 2, 2023 relate to business acquisitions.

(8)

  Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the Condensed Consolidated Statements of Operations.

(9)

  Includes interest expenses related to unamortized debt issuance costs from the 2019 Facility associated with extinguished lenders as a result of the March 2023 debt refinancing.

(10)

  Tax impact of adjustments calculated applying the applicable statutory rates. The quarter and two quarters ended July 2, 2023 and July 3, 2022 also include the impact of disallowed executive compensation expense.

(11)

  The quarter and two quarters ended July 2, 2023 consist of the recognition of a previously unrecognized tax benefit unrelated to ongoing operations, the effect of tax law changes on existing temporary differences, and a discrete tax benefit unrelated to ongoing operations.
 

Krispy Kreme, Inc.

Segment Reporting (Unaudited)

(in thousands, except percentages or otherwise stated)

 

 

Quarter Ended

 

Two Quarters Ended

 

July 2, 2023

 

July 3, 2022

 

July 2, 2023

 

July 3, 2022

Net revenues:

 

 

 

 

 

 

 

U.S.

$

267,417

 

$

244,665

 

$

548,761

 

$

492,584

International

 

98,332

 

 

93,853

 

 

188,620

 

 

181,054

Market Development

 

43,133

 

 

36,727

 

 

90,451

 

 

74,139

Total net revenues

$

408,882

 

$

375,245

 

$

827,832

 

$

747,777

Q2 2023 Organic Revenue - QTD

(in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in second quarter of fiscal 2023

$

267,417

 

 

$

98,332

 

 

$

43,133

 

 

$

408,882

 

Total net revenues in second quarter of fiscal 2022

 

244,665

 

 

 

93,853

 

 

 

36,727

 

 

 

375,245

Total Net Revenues Growth

 

22,752

 

 

 

4,479

 

 

 

6,406

 

 

 

33,637

 

Total Net Revenues Growth %

 

9.3

%

 

 

4.8

%

 

 

17.4

%

 

 

9.0

%

Less: Impact of shop optimization closures

 

(3,330

)

 

 

 

 

 

 

 

 

(3,330

)

Less: Impact of Branded Sweet Treats exit

 

(6,701

)

 

 

 

 

 

 

 

 

(6,701

)

Adjusted net revenues in second quarter of fiscal 2022

 

234,634

 

 

93,853

 

 

 

36,727

 

 

 

365,214

 

Adjusted Net Revenue Growth

 

32,783

 

 

 

4,479

 

 

 

6,406

 

 

 

43,668

 

Impact of acquisitions

 

(3,023

)

 

 

 

 

 

877

 

 

 

(2,146

)

Impact of foreign currency translation

 

 

 

 

(1,224

)

 

 

1,239

 

 

 

15

 

Organic Revenue Growth

$

29,760

 

 

$

3,255

 

 

$

8,522

 

 

$

41,537

 

Organic Revenue Growth %

 

12.7

%

 

 

3.5

%

 

 

23.2

%

 

 

11.4

%

Q2 2023 Organic Revenue - YTD

(in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in first two quarters of fiscal 2023

$

548,761

 

 

$

188,620

 

 

$

90,451

 

 

$

827,832

 

Total net revenues in first two quarters of fiscal 2022

 

492,584

 

 

 

181,054

 

 

 

74,139

 

 

 

747,777

 

Total Net Revenues Growth

 

56,177

 

 

 

7,566

 

 

 

16,312

 

 

 

80,055

 

Total Net Revenues Growth %

 

11.4

%

 

 

4.2

%

 

 

22.0

%

 

 

10.7

%

Less: Impact of shop optimization closures

 

(6,517

)

 

 

 

 

 

 

 

 

(6,517

)

Less: Impact of Branded Sweet Treats exit

 

(6,701

)

 

 

 

 

 

 

 

 

(6,701

)

Adjusted net revenues in first two quarters of fiscal 2022

 

479,366

 

 

 

181,054

 

 

 

74,139

 

 

 

734,559

 

Adjusted Net Revenue Growth

 

69,395

 

 

 

7,566

 

 

 

16,312

 

 

 

93,273

 

Impact of acquisitions

 

(6,103

)

 

 

 

 

 

1,770

 

 

 

(4,333

)

Impact of foreign currency translation

 

 

 

 

2,084

 

 

 

3,710

 

 

 

5,794

 

Organic Revenue Growth

$

63,292

 

 

$

9,650

 

 

$

21,792

 

 

$

94,734

 

Organic Revenue Growth %

 

13.2

%

 

 

5.3

%

 

 

29.4

%

 

 

12.9

%

Q2 2022 Organic Revenue - QTD

(in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in second quarter of fiscal 2022

$

244,665

 

 

$

93,853

 

 

$

36,727

 

 

$

375,245

 

Total net revenues in second quarter of fiscal 2021

 

230,918

 

 

 

89,237

 

 

 

29,031

 

 

 

349,186

 

Total Net Revenues Growth

 

13,747

 

 

 

4,616

 

 

 

7,696

 

 

 

26,059

 

Total Net Revenues Growth %

 

6.0

%

 

 

5.2

%

 

 

26.5

%

 

 

7.5

%

Impact of acquisitions

 

 

 

 

 

 

 

(4,172

)

 

 

(4,172

)

Impact of foreign currency translation

 

 

 

 

7,018

 

 

 

2,044

 

 

 

9,062

 

Organic Revenue Growth

$

13,747

 

 

$

11,634

 

 

$

5,568

 

 

$

30,949

 

Organic Revenue Growth %

 

6.0

%

 

 

13.0

%

 

 

19.2

%

 

 

8.9

%

Q2 2022 Organic Revenue - YTD

(in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in first two quarters of fiscal 2022

$

492,584

 

 

$

181,054

 

 

$

74,139

 

 

$

747,777

 

Total net revenues in first two quarters of fiscal 2021

 

453,388

 

 

 

155,743

 

 

 

61,864

 

 

 

670,995

 

Total Net Revenues Growth

 

39,196

 

 

 

25,311

 

 

 

12,275

 

 

 

76,782

 

Total Net Revenues Growth %

 

8.6

%

 

 

16.3

%

 

 

19.8

%

 

 

11.4

%

Impact of acquisitions

 

(3,926

)

 

 

 

 

 

(6,790

)

 

 

(10,716

)

Impact of foreign currency translation

 

 

 

 

9,953

 

 

 

3,205

 

 

 

13,158

 

Organic Revenue Growth

$

35,270

 

 

$

35,264

 

 

$

8,690

 

 

$

79,224

 

Organic Revenue Growth %

 

7.8

%

 

 

22.6

%

 

 

14.0

%

 

 

11.8

%

Sales per Hub

Trailing Four Quarters Ended

 

Fiscal Year Ended

(in thousands, unless otherwise stated)

July 2, 2023

 

January 1, 2023

 

January 2, 2022

U.S.:

 

 

 

 

 

Revenues

$

1,066,427

 

 

$

1,010,250

 

 

$

923,129

 

Non-Fresh Revenues (1)

 

(27,381

)

 

 

(38,380

)

 

 

(37,311

)

Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2)

 

(412,241

)

 

 

(404,430

)

 

 

(414,899

)

Sales from Hubs with Spokes

 

626,805

 

 

 

567,440

 

 

 

470,919

 

Sales per Hub (millions)

 

4.7

 

 

 

4.5

 

 

 

4.0

 

 

 

 

 

 

 

International:

 

 

 

 

 

Sales from Hubs with Spokes (3)

$

373,482

 

 

$

365,916

 

 

$

332,995

 

Sales per Hub (millions) (4)

 

9.7

 

 

 

9.8

 

 

 

8.5

 

(1)

  Includes the exited Branded Sweet Treats business revenues.

(2)

  Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes.

(3)

  Total International net revenues is equal to Fresh Revenues from Hubs with Spokes for that business segment.

(4)

  International Sales per Hub comparative data has been restated in constant currency based on current exchange rates.
 

Krispy Kreme, Inc.

Global Points of Access (Unaudited)

 

 

Global Points of Access (1)

 

Quarter Ended

 

Fiscal Year Ended

 

July 2, 2023

 

July 3, 2022

 

January 1, 2023

U.S.: (2)

 

 

 

 

 

Hot Light Theater Shops

228

 

241

 

234

Fresh Shops

66

 

60

 

62

Cookie Shops

244

 

221

 

231

Carts, Food Trucks, and Other (3)

 

1

 

DFD Doors (5)

6,320

 

5,520

 

5,729

Total

6,858

 

6,043

 

6,256

International:

 

 

 

 

 

Hot Light Theater Shops

35

 

34

 

37

Fresh Shops

400

 

386

 

388

Carts, Food Trucks, and Other (3)

16

 

2

 

14

DFD Doors

3,219

 

3,003

 

3,032

Total

3,670

 

3,425

 

3,471

Market Development: (4)

 

 

 

 

 

Hot Light Theater Shops

120

 

111

 

115

Fresh Shops

939

 

784

 

873

Carts, Food Trucks, and Other (3)

28

 

29

 

27

DFD Doors

1,257

 

1,017

 

1,095

Total

2,344

 

1,941

 

2,110

Total Global Points of Access (as defined)

12,872

 

11,409

 

11,837

Total Hot Light Theater Shops

383

 

386

 

386

Total Fresh Shops

1,405

 

1,230

 

1,323

Total Cookie Shops

244

 

221

 

231

Total Shops

2,032

 

1,837

 

1,940

Total Carts, Food Trucks, and Other

44

 

32

 

41

Total DFD Doors

10,796

 

9,540

 

9,856

Total Global Points of Access (as defined)

12,872

 

11,409

 

11,837

(1)

  Excludes the recently exited Branded Sweet Treats distribution points.

(2)

  Includes Points of Access that were acquired from a franchisee in the U.S. in the third quarter of fiscal 2022. These Points of Access were previously included in the Market Development segment prior to the acquisition date.

(3)

  Carts and Food Trucks are non-producing, mobile (typically on wheels) facilities without walls or a door where product is received from a Hot Light Theater Shop or Doughnut Factory. Other includes a vending machine. Points of Access in this category are primarily found in international locations in airports, train stations, etc.

(4)

  Includes locations in Japan and Canada, which are Company-owned. All remaining Points of Access in the Market Development segment relate to our franchise business.

(5)

  Includes over 160 McDonald’s test shops located in Louisville and Lexington, Kentucky and the surrounding area as of July 2, 2023.
 

Krispy Kreme, Inc.

Global Hubs (Unaudited)

 

 

Hubs

 

Quarter Ended

 

Fiscal Year Ended

 

July 2, 2023

 

July 3, 2022

 

January 1, 2023

U.S.:

 

 

 

 

 

Hot Light Theater Shops (1)

221

 

238

 

228

Doughnut Factories

4

 

4

 

4

Total

225

 

242

 

232

Hubs with Spokes

143

 

124

 

133

Hubs without Spokes

82

 

118

 

99

International:

 

 

 

 

 

Hot Light Theater Shops (1)

29

 

26

 

28

Doughnut Factories

11

 

11

 

11

Total

40

 

37

 

39

Hubs with Spokes

40

 

37

 

39

Market Development:

 

 

 

 

 

Hot Light Theater Shops (1)

114

 

108

 

110

Doughnut Factories

26

 

26

 

27

Total

140

 

134

 

137

Total Hubs

405

 

413

 

408

(1)

  Includes only Hot Light Theater Shops and excludes Mini Theaters. A Mini Theater is a Spoke location that produces some doughnuts for itself and also receives doughnuts from another producing location.
 

Krispy Kreme, Inc.

Net Debt and Leverage (Unaudited)

(in thousands, except leverage ratio)

 

(in thousands, except leverage ratio)

July 2, 2023

 

January 1, 2023

Current portion of long-term debt

$

40,722

 

 

$

40,034

 

Long-term debt, less current portion

 

814,476

 

 

 

739,052

 

Total long-term debt, including debt issuance costs

 

855,198

 

 

 

779,086

 

Add back: Debt issuance costs

 

4,896

 

 

 

2,247

 

Total long-term debt, excluding debt issuance costs

 

860,094

 

 

 

781,333

 

Less: Cash and cash equivalents

 

(26,635

)

 

 

(35,371

)

Net debt

$

833,459

 

 

$

745,962

 

Adjusted EBITDA - trailing four quarters

 

198,203

 

 

 

190,729

 

Net leverage ratio

4.2 x

 

3.9 x

 

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