Krispy Kreme Reports Third Quarter 2023 Results

Published

Net Revenue grew 7.9% and Organic Revenue grew 9.6% with strong momentum to start Q4 Reaffirms mid-to-high end of Revenue and Adjusted EBITDA guidance

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Krispy Kreme, Inc. (NASDAQ: DNUT) (“Krispy Kreme” or the “Company”) today reported financial results for the third quarter ended October 1, 2023.

Third Quarter Highlights (vs Q3 2022)

  • Net Revenue grew 7.9% to $407.4 million
  • Organic Revenue grew 9.6% to $400.3 million
  • GAAP Net Loss of $40.3 million primarily driven by non-cash, income tax expense accrual
  • Adjusted EBITDA grew 13.5% to $43.7 million
  • Adjusted EBITDA margins improved 50 basis points to 10.7%
  • Global Points of Access growth accelerated, increasing 1,691, or 14.4%, to 13,394

“Our third quarter results showed the strength of our team, business model, and the power of our brand. We delivered revenue and Adjusted EBITDA growth, while delivering Adjusted EBITDA margin expansion through our hub and spoke model. Our global expansion continued, and our doughnuts became available in two new markets, Switzerland and Kazakhstan, and Insomnia Cookies expanded internationally into Canada and the United Kingdom. Overall, Global Points of Access growth accelerated, increasing by 1,691 or 14.4% year-over-year to 13,394,” stated CEO Mike Tattersfield. “We delivered the joy that is Krispy Kreme through powerful specialty doughnut offerings including the popular M&Ms collection, which was available in 17 countries, our extremely successful limited time offering with Pumpkin Spice, and an innovative new partnership with Hailey Bieber to promote her Krispy Kreme inspired strawberry glazed peptide lip treatment.”

Mike continued, “The path forward for Krispy Kreme remains incredibly exciting. Momentum continues into the seasonally strong fourth quarter enhanced by continued growth in global Points of Access, and a robust Halloween Scooby-Doo offering. We expect to open in Ecuador and France in the fourth quarter taking our new market openings to seven in 2023. We are also excited about our continued partnership with McDonald’s, which we believe has validated the attractiveness of the quick-service restaurant channel. While nothing has been finalized, we are in advanced discussions about expanding the partnership and are making investments in the U.S. that reflect our confidence in further scaling our Delivered Fresh Daily network. I could not be more excited to watch Krispy Kreme become the most loved sweet treat brand in the world and follow the Company’s continued success as Josh Charlesworth takes on the CEO position in 2024.”

Financial Highlights

$ in millions, except per share data

Q3 2023

vs Q3 2022

Q1-Q3 2023

vs. Q1-Q3 2022

Net Revenue

$407.4

+7.9%

$1,235.2

+9.8%

Organic Revenue (1)

$400.3

+9.6%

$1,229.6

+11.8%

GAAP Net Loss

$(40.3)

(240.0)%

$(38.5)

(394.6)%

Adjusted Net Income, Diluted (1)

$4.4

(3.6)%

$31.1

0.5%

GAAP Operating (Loss)/Income

$(2.1)

(105.7)%

$18.5

(22.3)%

GAAP Operating (Loss)/Income Margin

(0.5)%

-20 bps

1.5%

-60 bps

Adjusted EBITDA (1)

$43.7

+13.5%

$147.5

+9.4%

Adjusted EBITDA Margin (1)

10.7%

+50 bps

11.9%

-10 bps

GAAP Diluted EPS

$(0.24)

$(0.16)

$(0.24)

$(0.16)

Adjusted Diluted EPS (1)

$0.03

$0.00

$0.18

$0.00

Notes:

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

Key Operating Metrics

$ in millions, except access points

Q3 2023

vs Q3 2022

vs Q2 2023

Global Points of Access

13,394

+14.4%

+4.1%

Sales per Hub (U.S.) TTM

$4.8

+9.1%

+2.1%

Sales per Hub (International) TTM

$9.9

0.0%

(4.8)%

Ecommerce as a Percent of Retail Sales

18.6%

+10 bps

-20 bps

Third Quarter 2023 Consolidated Results

Krispy Kreme’s third quarter 2023 results reflect continued year-over-year growth as compared to the third quarter of 2022. Net Revenue grew 7.9% to $407.4 million. Total Company Organic Revenue grew 9.6% in the quarter, led by the U.S., which delivered 10.2% organic growth in the quarter driven by growth across all sales channels, including Delivered Fresh Daily (“DFD”) doors, Doughnut Shops and Cookie Bakeries, and Ecommerce.

GAAP net loss for the quarter was $40.3 million, compared to a GAAP net loss of $11.8 million in 2022, due to the forecasted effective tax rate and attributable non-cash income tax expense. Adjusted Net Income, Diluted, decreased 3.6% to $4.4 million in the quarter. Adjusted EBITDA in the quarter grew in excess of revenue at 13.5% to $43.7 million, driven by improved profitability across each of our reportable segments. Adjusted EBITDA margins improved 50 basis points to 10.7% driven by efficiencies in and expansion of our hub and spoke model, as well as pricing actions taken throughout the quarter and from earlier in 2023. GAAP diluted EPS in the quarter was a $0.24 loss per share compared to a loss per share of $0.08 in the same quarter last year, while adjusted diluted EPS was flat compared to last year at $0.03 despite elevated interest rates.

Third Quarter 2023 Market Segment Results (vs Q3 2022)

U.S.: In the U.S. segment, net revenue grew $13.3 million, or approximately 5.4%, and organic revenue increased $23.9 million, or approximately 10.2%. Organic growth was driven by successful marketing activations, pricing actions, and the expansion of our DFD strategy. Sales per hub in the U.S. increased 9.1% to $4.8 million and DFD average sales per door increased 11.6% to $613 per week, with an additional 786 doors. Additionally, Ecommerce as a percent of retail sales grew 150 basis points, or $4.8 million.

U.S. Adjusted EBITDA increased 8.8% to $22.3 million with Adjusted EBITDA margin expansion of 30 basis points to 8.6%. This was primarily driven by the productivity benefits of the expansion of our hub and spoke model.

International: In the International segment, net revenue grew $14.2 million, or approximately 15.4%, aided by foreign currency translation impacts of $6.7 million from a weakening U.S. dollar. International organic revenue grew $7.5 million, or approximately 8.2%, with organic growth across all of our markets, driven by pricing and strong Points of Access growth of 416, or 12%.

International Adjusted EBITDA grew 17.3% to $21.4 million with Adjusted EBITDA margin expansion of 30 basis points to 20.2%, primarily driven by the U.K. and Australia where pricing and cost control initiatives continue to prove effective.

Market Development: In the Market Development segment, net revenue increased $2.3 million, or approximately 5.9%, despite lapping one-time franchise equipment sales and the impact 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 $3.5 million, or approximately 9.1%, driven by strong organic growth in Japan and Canada, and new markets openings including Kazakhstan and Switzerland.

Market Development Adjusted EBITDA grew 13.3% to $13.4 million with Adjusted EBITDA margin expansion of 220 basis points to 32.6% driven mainly by hub and spoke efficiencies in our company-owned Japan and Canada businesses.

Balance Sheet & Capital Expenditures

During the third quarter of 2023, the Company invested $34.3 million in capital expenditures, or 8.4% of revenue, primarily to support new store development, international expansion and the growth of our omni-channel strategy preparing for expansion in the QSR channel.

As of October 1, 2023 the Company had total available liquidity of $196.2 million, including $25.7 million of cash and cash equivalents plus undrawn capacity of $170.5 million under available credit facilities, and net debt of $849.8 million.

2023 Financial Outlook

With the exception of capital expenditures and interest expense, the Company is reiterating its outlook 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)
  • Adjusted Income Tax rate between 24.5% to 26.0%
  • Capital Expenditures of approximately 7% to 8% of revenue; updated from 6.6% driven by investments to support the growth of the business and foreign exchange rates
  • Interest Expense, net between $47 million to $51 million; updated from $39 to $43 million driven by the reduction of vendor financing and higher prevailing interest rates
  • The Company continues to expect to reduce its net leverage in 2023, as we make progress towards our 2026 goal of approximately 2.0x to 2.5x net leverage

As noted above, the Company continues to trend toward the middle to the higher end of the revenue and adjusted EBITDA ranges. Additionally, on October 3, 2023, the Company announced it is exploring strategic alternatives for Insomnia Cookies, which includes consideration of an all-cash sale. Guidance for the full year 2023 includes operations from Insomnia Cookies and, if a divestiture occurs, final results may reflect separation of Insomnia Cookies' operations.

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 Bakeries, 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 third 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 more than 35 countries through its unique network of fresh doughnut shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business with more than 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 “continue,” “towards,” “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

 

Three Quarters Ended

 

October 1, 2023 (13 weeks)

 

October 2, 2022 (13 weeks)

 

October 1, 2023 (39 weeks)

 

October 2, 2022 (39 weeks)

Net revenues

 

 

 

 

 

 

 

Product sales

$

398,745

 

 

$

370,216

 

 

$

1,209,767

 

 

$

1,102,045

 

Royalties and other revenues

 

8,622

 

 

 

7,306

 

 

 

25,432

 

 

 

23,254

 

Total net revenues

 

407,367

 

 

 

377,522

 

 

 

1,235,199

 

 

 

1,125,299

 

Product and distribution costs

 

101,353

 

 

 

102,870

 

 

 

330,292

 

 

 

299,539

 

Operating expenses

 

195,380

 

 

 

177,592

 

 

 

575,953

 

 

 

520,260

 

Selling, general and administrative expense

 

68,305

 

 

 

54,801

 

 

 

192,355

 

 

 

160,266

 

Marketing expenses

 

12,478

 

 

 

10,995

 

 

 

32,101

 

 

 

32,369

 

Pre-opening costs

 

1,059

 

 

 

1,200

 

 

 

2,927

 

 

 

3,514

 

Other (income)/expenses, net

 

(1,102

)

 

 

2,964

 

 

 

(6,051

)

 

 

1,800

 

Depreciation and amortization expense

 

32,007

 

 

 

28,127

 

 

 

89,142

 

 

 

83,782

 

Operating (loss)/income

 

(2,113

)

 

 

(1,027

)

 

 

18,480

 

 

 

23,769

 

Interest expense, net

 

12,807

 

 

 

8,871

 

 

 

36,858

 

 

 

23,808

 

Other non-operating expense, net

 

971

 

 

 

1,648

 

 

 

3,031

 

 

 

2,083

 

Loss before income taxes

 

(15,891

)

 

 

(11,546

)

 

 

(21,409

)

 

 

(2,122

)

Income tax expense

 

24,367

 

 

 

294

 

 

 

17,121

 

 

 

5,668

 

Net loss

 

(40,258

)

 

 

(11,840

)

 

 

(38,530

)

 

 

(7,790

)

Net income attributable to noncontrolling interest

 

199

 

 

 

1,216

 

 

 

2,005

 

 

 

5,113

 

Net loss attributable to Krispy Kreme, Inc.

$

(40,457

)

 

$

(13,056

)

 

$

(40,535

)

 

$

(12,903

)

Net loss per share:

 

 

 

 

 

 

 

Common stock — Basic

$

(0.24

)

 

$

(0.08

)

 

$

(0.24

)

 

$

(0.08

)

Common stock — Diluted

$

(0.24

)

 

$

(0.08

)

 

$

(0.24

)

 

$

(0.08

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

168,224

 

 

 

167,431

 

 

 

168,183

 

 

 

167,353

 

Diluted

 

168,224

 

 

 

167,431

 

 

 

168,183

 

 

 

167,353

 

Krispy Kreme, Inc. Condensed Consolidated Balance Sheets (in thousands, except per share amounts)

 

 

As of

 

(Unaudited) October 1, 2023

 

January 1, 2023

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

25,711

 

 

$

35,371

 

Restricted cash

 

430

 

 

 

359

 

Accounts receivable, net

 

49,854

 

 

 

51,089

 

Inventories

 

35,063

 

 

 

46,239

 

Taxes receivable

 

17,886

 

 

 

18,263

 

Prepaid expense and other current assets

 

31,118

 

 

 

26,953

 

Total current assets

 

160,062

 

 

 

178,274

 

Property and equipment, net

 

517,528

 

 

 

472,358

 

Goodwill

 

1,092,000

 

 

 

1,087,908

 

Other intangible assets, net

 

949,463

 

 

 

966,088

 

Operating lease right of use asset, net

 

448,569

 

 

 

417,381

 

Other assets

 

19,581

 

 

 

26,528

 

Total assets

$

3,187,203

 

 

$

3,148,537

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

43,492

 

 

$

40,034

 

Current operating lease liabilities

 

49,408

 

 

 

43,160

 

Accounts payable

 

178,725

 

 

 

225,276

 

Accrued liabilities

 

164,577

 

 

 

104,424

 

Structured payables

 

88,838

 

 

 

103,575

 

Total current liabilities

 

525,040

 

 

 

516,469

 

Long-term debt, less current portion

 

827,429

 

 

 

739,052

 

Noncurrent operating lease liabilities

 

441,732

 

 

 

412,759

 

Deferred income taxes, net

 

109,925

 

 

 

143,124

 

Other long-term obligations and deferred credits

 

34,067

 

 

 

38,258

 

Total liabilities

 

1,938,193

 

 

 

1,849,662

 

Commitments and contingencies

 

 

 

Shareholders’ equity:

 

 

 

Common stock, $0.01 par value; 300,000 shares authorized as of both October 1, 2023 and January 1, 2023; 168,594 and 168,137 shares issued and outstanding as of October 1, 2023 and January 1, 2023, respectively

 

1,686

 

 

 

1,681

 

Additional paid-in capital

 

1,437,488

 

 

 

1,426,105

 

Shareholder note receivable

 

(3,820

)

 

 

(4,813

)

Accumulated other comprehensive loss, net of income tax

 

(7,516

)

 

 

(9,151

)

Retained deficit

 

(275,698

)

 

 

(217,490

)

Total shareholders’ equity attributable to Krispy Kreme, Inc.

 

1,152,140

 

 

 

1,196,332

 

Noncontrolling interest

 

96,870

 

 

 

102,543

 

Total shareholders’ equity

 

1,249,010

 

 

 

1,298,875

 

Total liabilities and shareholders’ equity

$

3,187,203

 

 

$

3,148,537

 

Krispy Kreme, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)

 

 

Three Quarters Ended

 

October 1, 2023 (39 weeks)

 

October 2, 2022 (39 weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net loss

$

(38,530

)

 

$

(7,790

)

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

 

 

 

Depreciation and amortization expense

 

89,142

 

 

 

83,782

 

Deferred income taxes

 

12,634

 

 

 

(10,259

)

Loss on extinguishment of debt

 

472

 

 

 

 

Impairment and lease termination charges

 

7,711

 

 

 

7,255

 

Gain on disposal of property and equipment

 

(168

)

 

 

(244

)

Gain on sale-leaseback

 

(9,646

)

 

 

(4,311

)

Share-based compensation

 

17,821

 

 

 

13,318

 

Change in accounts and notes receivable allowances

 

504

 

 

 

378

 

Inventory write-off

 

10,522

 

 

 

388

 

Settlement of interest rate swap derivatives

 

7,657

 

 

 

 

Amortization related to settlement of interest rate swap derivatives

 

(7,334

)

 

 

 

Other

 

566

 

 

 

804

 

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

 

(47,319

)

 

 

(12,591

)

Net cash provided by operating activities

 

44,032

 

 

 

70,730

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

Purchase of property and equipment

 

(88,605

)

 

 

(75,002

)

Proceeds from disposals of assets

 

202

 

 

 

856

 

Proceeds from sale-leaseback

 

10,025

 

 

 

5,700

 

Acquisition of shops and franchise rights from franchisees, net of cash acquired

 

 

 

 

(17,335

)

Purchase of equity method investment

 

 

 

 

(989

)

Other investing activities

 

20

 

 

 

(931

)

Net cash used for investing activities

 

(78,358

)

 

 

(87,701

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from the issuance of debt

 

1,044,698

 

 

 

121,500

 

Repayment of long-term debt and lease obligations

 

(965,250

)

 

 

(70,180

)

Payment of financing costs

 

(5,000

)

 

 

 

Proceeds from structured payables

 

145,099

 

 

 

219,459

 

Payments on structured payables

 

(159,571

)

 

 

(211,778

)

Payment of contingent consideration related to a business combination

 

(925

)

 

 

(900

)

Capital contribution by shareholders, net of loans issued

 

631

 

 

 

(288

)

Payments of issuance costs in connection with IPO

 

 

 

 

(12,458

)

Proceeds from sale of noncontrolling interest in subsidiary

 

 

 

 

410

 

Distribution to shareholders

 

(17,657

)

 

 

(17,570

)

Payments for repurchase and retirement of common stock

 

(1,609

)

 

 

(2,425

)

Distribution to noncontrolling interest

 

(12,883

)

 

 

(11,525

)

Net cash provided by financing activities

 

27,533

 

 

 

14,245

 

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

 

(2,796

)

 

 

(7,967

)

Net decrease in cash, cash equivalents and restricted cash

 

(9,589

)

 

 

(10,693

)

Cash, cash equivalents and restricted cash at beginning of period

 

35,730

 

 

 

39,192

 

Cash, cash equivalents and restricted cash at end of period

$

26,141

 

 

$

28,499

 

 

 

 

 

Net cash provided by operating activities

$

44,032

 

 

$

70,730

 

Less: Purchase of property and equipment

 

(88,605

)

 

 

(75,002

)

Free cash flow

$

(44,573

)

 

$

(4,272

)

Krispy Kreme, Inc. Reconciliation of Non-GAAP Financial Measures (Unaudited) (in thousands, except per share amounts)

We define “Adjusted EBITDA” as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for share-based compensation, certain strategic initiatives, acquisition and integration expenses, and other certain non-recurring, infrequent or non-core income and expense items. Adjusted EBITDA is a principal metric that management uses to monitor and evaluate operating performance and provides a consistent benchmark for comparison across reporting periods.

We define “Adjusted Net Income, Diluted” as net loss attributable to common shareholders, adjusted for interest expense, share-based compensation, certain strategic initiatives, acquisition and integration expenses, amortization of acquisition-related intangibles, the tax impact of adjustments, and other certain non-recurring, infrequent or non-core income and expense items. “Adjusted EPS” is Adjusted Net Income, Diluted converted to a per share amount.

Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS have certain limitations, including adjustments for income and expense items that are required by GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as share-based compensation. Our presentation of Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS supplementally.

 

Quarter Ended

 

Three Quarters Ended

(in thousands)

October 1, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

Net loss

$

(40,258

)

 

$

(11,840

)

 

$

(38,530

)

 

$

(7,790

)

Interest expense, net

 

12,807

 

 

 

8,871

 

 

 

36,858

 

 

 

23,808

 

Income tax expense

 

24,367

 

 

 

294

 

 

 

17,121

 

 

 

5,668

 

Depreciation and amortization expense

 

32,007

 

 

 

28,127

 

 

 

89,142

 

 

 

83,782

 

Share-based compensation

 

7,452

 

 

 

2,825

 

 

 

17,821

 

 

 

13,318

 

Employer payroll taxes related to share-based compensation

 

96

 

 

 

2

 

 

 

310

 

 

 

92

 

Other non-operating expense, net (1)

 

971

 

 

 

1,648

 

 

 

3,031

 

 

 

2,083

 

Strategic initiatives (2)

 

5,895

 

 

 

86

 

 

 

23,841

 

 

 

206

 

Acquisition and integration expenses (3)

 

49

 

 

 

790

 

 

 

479

 

 

 

1,389

 

New market penetration expenses (4)

 

678

 

 

 

313

 

 

 

1,013

 

 

 

683

 

Shop closure (income)/expenses, net (5)

 

(449

)

 

 

5,735

 

 

 

356

 

 

 

7,859

 

Restructuring and severance expenses (6)

 

552

 

 

 

2,328

 

 

 

2,799

 

 

 

2,804

 

Gain on sale-leaseback

 

 

 

 

(1,937

)

 

 

(9,646

)

 

 

(4,311

)

Other (7)

 

(426

)

 

 

1,300

 

 

 

2,888

 

 

 

5,219

 

Adjusted EBITDA

$

43,741

 

 

$

38,542

 

 

$

147,483

 

 

$

134,810

 

 

Quarter Ended

 

Three Quarters Ended

(in thousands)

October 1, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

Segment Adjusted EBITDA:

 

 

 

 

 

 

 

U.S.

$

22,258

 

 

$

20,452

 

 

$

88,878

 

 

$

77,014

 

International

 

21,406

 

 

 

18,254

 

 

 

54,436

 

 

 

55,033

 

Market Development

 

13,371

 

 

 

11,797

 

 

 

46,071

 

 

 

36,642

 

Corporate

 

(13,294

)

 

 

(11,961

)

 

 

(41,902

)

 

 

(33,879

)

Adjusted EBITDA

$

43,741

 

 

$

38,542

 

 

$

147,483

 

 

$

134,810

 

 

Quarter Ended

 

Three Quarters Ended

(in thousands, except per share amounts)

October 1, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

Net loss

$

(40,258

)

 

$

(11,840

)

 

$

(38,530

)

 

$

(7,790

)

Share-based compensation

 

7,452

 

 

 

2,825

 

 

 

17,821

 

 

 

13,318

 

Employer payroll taxes related to share-based compensation

 

96

 

 

 

2

 

 

 

310

 

 

 

92

 

Other non-operating expense, net (1)

 

971

 

 

 

1,648

 

 

 

3,031

 

 

 

2,083

 

Strategic initiatives (2)

 

5,895

 

 

 

86

 

 

 

23,841

 

 

 

206

 

Acquisition and integration expenses (3)

 

49

 

 

 

790

 

 

 

479

 

 

 

1,389

 

New market penetration expenses (4)

 

678

 

 

 

313

 

 

 

1,013

 

 

 

683

 

Shop closure (income)/expenses, net (5)

 

(449

)

 

 

5,735

 

 

 

356

 

 

 

8,109

 

Restructuring and severance expenses (6)

 

552

 

 

 

2,328

 

 

 

2,799

 

 

 

2,804

 

Gain on sale-leaseback

 

 

 

 

(1,937

)

 

 

(9,646

)

 

 

(4,311

)

Other (7)

 

(426

)

 

 

1,300

 

 

 

2,888

 

 

 

5,219

 

Amortization of acquisition related intangibles (8)

 

7,386

 

 

 

7,083

 

 

 

22,027

 

 

 

21,307

 

Loss on extinguishment of 2019 Facility (9)

 

 

 

 

 

 

 

472

 

 

 

 

Tax impact of adjustments (10)

 

22,694

 

 

 

(2,470

)

 

 

8,574

 

 

 

(5,889

)

Tax specific adjustments (11)

 

(28

)

 

 

 

 

 

(2,343

)

 

 

(628

)

Net income attributable to noncontrolling interest

 

(199

)

 

 

(1,216

)

 

 

(2,005

)

 

 

(5,113

)

Adjustment to adjusted net income attributable to common shareholders

 

 

 

 

 

 

 

 

 

 

(374

)

Adjusted net income attributable to common shareholders - Basic

$

4,413

 

 

$

4,647

 

 

$

31,087

 

 

$

31,105

 

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

 

(7

)

 

 

(76

)

 

 

(14

)

 

 

(174

)

Adjusted net income attributable to common shareholders - Diluted

$

4,406

 

 

$

4,571

 

 

$

31,073

 

 

$

30,931

 

Basic weighted average common shares outstanding

 

168,224

 

 

 

167,431

 

 

 

168,183

 

 

 

167,353

 

Dilutive effect of outstanding common stock options, RSUs, and PSUs

 

2,421

 

 

 

1,822

 

 

 

2,249

 

 

 

2,006

 

Diluted weighted average common shares outstanding

 

170,645

 

 

 

169,253

 

 

 

170,432

 

 

 

169,359

 

Adjusted net income per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic

$

0.03

 

 

$

0.03

 

 

$

0.18

 

 

$

0.19

 

Diluted

$

0.03

 

 

$

0.03

 

 

$

0.18

 

 

$

0.18

 

(1)

 

Primarily foreign translation gains and losses in each period.

(2)

 

The quarter and three quarters ended October 1, 2023 consist primarily of costs associated with global transformation and U.S. initiatives such as 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. The quarter and three quarters ended October 1, 2023 include gains related to the termination of leases at certain Krispy Kreme shops in the U.S. where the Company had already recognized impairment of the corresponding right of use assets in a prior period.

(6)

 

The quarter and three quarters ended October 1, 2023 and October 2, 2022 consist primarily of costs associated with restructuring of the global executive team.

(7)

 

The quarter and three quarters ended October 1, 2023 and October 2, 2022 consist primarily of legal and other regulatory expenses incurred outside the ordinary course of business.

(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 three quarters ended October 1, 2023 and October 2, 2022 also include the impact of disallowed executive compensation expense.

(11)

 

The quarter and three quarters ended October 1, 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

 

Three Quarters Ended

 

October 1, 2023

 

October 2, 2022

 

October 1, 2023

 

October 2, 2022

Net revenues:

 

 

 

 

 

 

 

U.S.

$

260,177

 

$

246,830

 

$

808,938

 

$

739,414

International

 

106,130

 

 

91,934

 

 

294,750

 

 

272,988

Market Development

 

41,060

 

 

38,758

 

 

131,511

 

 

112,897

Total net revenues

$

407,367

 

$

377,522

 

$

1,235,199

 

$

1,125,299

Q3 2023 Organic Revenue - QTD (in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in third quarter of fiscal 2023

$

260,177

 

 

$

106,130

 

 

$

41,060

 

 

$

407,367

 

Total net revenues in third quarter of fiscal 2022

 

246,830

 

 

 

91,934

 

 

 

38,758

 

 

 

377,522

 

Total Net Revenues Growth

 

13,347

 

 

 

14,196

 

 

 

2,302

 

 

 

29,845

 

Total Net Revenues Growth %

 

5.4

%

 

 

15.4

%

 

 

5.9

%

 

 

7.9

%

Less: Impact of shop optimization closures

 

(3,096

)

 

 

 

 

 

 

 

 

(3,096

)

Less: Impact of Branded Sweet Treats exit

 

(9,035

)

 

 

 

 

 

 

 

 

(9,035

)

Adjusted net revenues in third quarter of fiscal 2022

 

234,699

 

 

 

91,934

 

 

 

38,758

 

 

 

365,391

 

Adjusted net revenue growth

 

25,478

 

 

 

14,196

 

 

 

2,302

 

 

 

41,976

 

Impact of acquisitions

 

(1,575

)

 

 

 

 

 

457

 

 

 

(1,118

)

Impact of foreign currency translation

 

 

 

 

(6,677

)

 

 

765

 

 

 

(5,912

)

Organic Revenue Growth

$

23,903

 

 

$

7,519

 

 

$

3,524

 

 

$

34,946

 

Organic Revenue Growth %

 

10.2

%

 

 

8.2

%

 

 

9.1

%

 

 

9.6

%

Q3 2023 Organic Revenue - YTD (in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in first three quarters of fiscal 2023

$

808,938

 

 

$

294,750

 

 

$

131,511

 

 

$

1,235,199

 

Total net revenues in first three quarters of fiscal 2022

 

739,414

 

 

 

272,988

 

 

 

112,897

 

 

 

1,125,299

 

Total Net Revenues Growth

 

69,524

 

 

 

21,762

 

 

 

18,614

 

 

 

109,900

 

Total Net Revenues Growth %

 

9.4

%

 

 

8.0

%

 

 

16.5

%

 

 

9.8

%

Less: Impact of shop optimization closures

 

(9,613

)

 

 

 

 

 

 

 

 

(9,613

)

Less: Impact of Branded Sweet Treats exit

 

(15,736

)

 

 

 

 

 

 

 

 

(15,736

)

Adjusted net revenues in first three quarters of fiscal 2022

 

714,065

 

 

 

272,988

 

 

 

112,897

 

 

 

1,099,950

 

Adjusted net revenue growth

 

94,873

 

 

 

21,762

 

 

 

18,614

 

 

 

135,249

 

Impact of acquisitions

 

(7,678

)

 

 

 

 

 

2,227

 

 

 

(5,451

)

Impact of foreign currency translation

 

 

 

 

(4,593

)

 

 

4,475

 

 

 

(118

)

Organic Revenue Growth

$

87,195

 

 

$

17,169

 

 

$

25,316

 

 

$

129,680

 

Organic Revenue Growth %

 

12.2

%

 

 

6.3

%

 

 

22.4

%

 

 

11.8

%

Q3 2022 Organic Revenue - QTD (in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in third quarter of fiscal 2022

$

246,830

 

 

$

91,934

 

 

$

38,758

 

 

$

377,522

 

Total net revenues in third quarter of fiscal 2021

 

225,807

 

 

 

87,262

 

 

 

29,730

 

 

 

342,799

 

Total Net Revenues Growth

 

21,023

 

 

 

4,672

 

 

 

9,028

 

 

 

34,723

 

Total Net Revenues Growth %

 

9.3

%

 

 

5.4

%

 

 

30.4

%

 

 

10.1

%

Impact of acquisitions

 

(1,030

)

 

 

 

 

 

(3,862

)

 

 

(4,892

)

Impact of foreign currency translation

 

 

 

 

8,890

 

 

 

2,564

 

 

 

11,454

 

Organic Revenue Growth

$

19,993

 

 

$

13,562

 

 

$

7,730

 

 

$

41,285

 

Organic Revenue Growth %

 

8.9

%

 

 

15.5

%

 

 

26.0

%

 

 

12.0

%

Q3 2022 Organic Revenue - YTD (in thousands, except percentages)

U.S.

 

International

 

Market Development

 

Total Company

Total net revenues in first three quarters of fiscal 2022

$

739,414

 

 

$

272,988

 

 

$

112,897

 

 

$

1,125,299

 

Total net revenues in first three quarters of fiscal 2021

 

679,195

 

 

 

243,005

 

 

 

91,594

 

 

 

1,013,794

 

Total Net Revenues Growth

 

60,219

 

 

 

29,983

 

 

 

21,303

 

 

 

111,505

 

Total Net Revenues Growth %

 

8.9

%

 

 

12.3

%

 

 

23.3

%

 

 

11.0

%

Impact of acquisitions

 

(4,955

)

 

 

 

 

 

(10,653

)

 

 

(15,608

)

Impact of foreign currency translation

 

 

 

 

18,843

 

 

 

5,769

 

 

 

24,612

 

Organic Revenue Growth

$

55,264

 

 

$

48,826

 

 

$

16,419

 

 

$

120,509

 

Organic Revenue Growth %

 

8.1

%

 

 

20.1

%

 

 

17.9

%

 

 

11.9

%

Sales per Hub

Trailing Four Quarters Ended

 

Fiscal Year Ended

(in thousands, unless otherwise stated)

October 1, 2023

 

January 1, 2023

 

January 2, 2022

U.S.:

 

 

 

 

 

Revenues

$

1,079,774

 

 

$

1,010,250

 

 

$

923,129

 

Non-Fresh Revenues (1)

 

(18,488

)

 

 

(38,380

)

 

 

(37,311

)

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

 

(400,567

)

 

 

(404,430

)

 

 

(414,899

)

Sales from Hubs with Spokes

 

660,719

 

 

 

567,440

 

 

 

470,919

 

Sales per Hub (millions)

 

4.8

 

 

 

4.5

 

 

 

4.0

 

 

 

 

 

 

 

International:

 

 

 

 

 

Sales from Hubs with Spokes (3)

$

387,678

 

 

$

365,916

 

 

$

332,995

 

Sales per Hub (millions) (4)

 

9.9

 

 

 

9.9

 

 

 

8.6

 

(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

 

October 1, 2023

 

October 2, 2022

 

January 1, 2023

U.S.: (2)

 

 

 

 

 

Hot Light Theater Shops

229

 

240

 

234

Fresh Shops

65

 

61

 

62

Cookie Bakeries

247

 

227

 

231

Carts, Food Trucks, and Other (3)

 

1

 

DFD Doors (5)

6,506

 

5,720

 

5,729

Total

7,047

 

6,249

 

6,256

International:

 

 

 

 

 

Hot Light Theater Shops

36

 

35

 

37

Fresh Shops

410

 

384

 

388

Carts, Food Trucks, and Other (3)

16

 

12

 

14

DFD Doors

3,393

 

3,008

 

3,032

Total

3,855

 

3,439

 

3,471

Market Development: (4)

 

 

 

 

 

Hot Light Theater Shops

122

 

111

 

115

Fresh Shops

989

 

809

 

873

Cookie Bakeries

2

 

 

Carts, Food Trucks, and Other (3)

29

 

29

 

27

DFD Doors

1,350

 

1,066

 

1,095

Total

2,492

 

2,015

 

2,110

Total Global Points of Access (as defined)

13,394

 

11,703

 

11,837

Total Hot Light Theater Shops

387

 

386

 

386

Total Fresh Shops

1,464

 

1,254

 

1,323

Total Cookie Bakeries

249

 

227

 

231

Total Shops

2,100

 

1,867

 

1,940

Total Carts, Food Trucks, and Other

45

 

42

 

41

Total DFD Doors

11,249

 

9,794

 

9,856

Total Global Points of Access (as defined)

13,394

 

11,703

 

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 October 1, 2023.

Krispy Kreme, Inc. Global Hubs (Unaudited)

 

 

Hubs

 

Quarter Ended

 

Fiscal Year Ended

 

October 1, 2023

 

October 2, 2022

 

January 1, 2023

U.S.:

 

 

 

 

 

Hot Light Theater Shops (1)

222

 

237

 

228

Doughnut Factories

4

 

4

 

4

Total

226

 

241

 

232

Hubs with Spokes

148

 

126

 

133

Hubs without Spokes

78

 

115

 

99

International:

 

 

 

 

 

Hot Light Theater Shops (1)

30

 

26

 

28

Doughnut Factories

11

 

11

 

11

Total

41

 

37

 

39

Hubs with Spokes

41

 

37

 

39

Market Development:

 

 

 

 

 

Hot Light Theater Shops (1)

115

 

107

 

110

Doughnut Factories

26

 

26

 

27

Total

141

 

133

 

137

Total Hubs

408

 

411

 

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)

October 1, 2023

 

January 1, 2023

Current portion of long-term debt

$

43,492

 

 

$

40,034

 

Long-term debt, less current portion

 

827,429

 

 

 

739,052

 

Total long-term debt, including debt issuance costs

 

870,921

 

 

 

779,086

 

Add back: Debt issuance costs

 

4,634

 

 

 

2,247

 

Total long-term debt, excluding debt issuance costs

 

875,555

 

 

 

781,333

 

Less: Cash and cash equivalents

 

(25,711

)

 

 

(35,371

)

Net debt

$

849,844

 

 

$

745,962

 

Adjusted EBITDA - trailing four quarters

 

203,402

 

 

 

190,729

 

Net leverage ratio

4.2 x

 

3.9 x

 

Investor Relations Stephanie Daukus ir@krispykreme.com

Financial Media Edelman Smithfield for Krispy Kreme, Inc. Ashley Firlan & Ashna Vasa, KrispyKremeIR@edelman.com

Source: Krispy Kreme, Inc.

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