Krispy Kreme (DNUT) 9 Nov 232023 Q3 Earnings call transcript

Thank you for standing by. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Third Quarter 2023 Earnings Call. [Operator Instructions]I would now like to turn the call over to Ms. Stephanie Daukus, Vice President of Investor Relations. Ms. ahead. go please Daukus,

morning, Earnings welcome joining Call. Good Third us Krispy Quarter XXXX Thank everyone, you. to and Kreme's today. Thank you for

on Josh at like Jeremiah Officer. session.Before to XXXX, question-and-answer and you we release provisions a Investor Mike to be events call Officer; would Tattersfield, forward-looking pursuant remind earnings and Act including and this I made Chief earnings of will future Ashukian, President expectations, are are the or contains call Our of After there Executive of and Litigation Reform and Officer; Operating Securities associated this morning that financial begin, Financial Relations future Global harbor prepared me statements investors.krispykreme.com.Joining available the website statements Private President on Charlesworth, safe performance. remarks, the Chief presentation our Chief

the risks year other we with X, contained a investors than forward-looking results except in involve those of no assumes in that number risks law. and from detail forward-looking XX-K with and update revise XXXX, ended uncertainties and risks publicly or filings the only other the time statements to could made these as caution in are any by the statements today. filed time the Forward-looking to today statements uncertainties, required actual company The January described in These statements. make SEC.Forward-looking cause may are for of SEC inherent as Form obligation and be to factors company's we materially any differ and

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everyone thank Good Stephanie. you, and today. morning, us for you, joining Thank

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holidays in momentum inspired that Kreme driven maintain more our culture.Selling glazed points is we access our more more by original hubs heart accessible Krispy expect collections, fresh convenient model, premium the through premium our specialty of at donuts, the donut and pop making to and make ahead, to same unique consumers more beloved and hub-and-spoke hubs of themselves the by our more both Looking this production offerings profitable. we and the operating productive and

year XXX This quarter, of with $X.X million, helping hub month U.S. over delivery existing adding points basis we to per a compared increased ago. U.S. the the to year-over-year from KPI XXX X% same drive sales to up by number was fresh spokes to XX hubs quarter up locations.Our routes trailing margins XXX

the leveraging delivered doors Miami, which Denver, of by to in most doors in the Jeremiah. continued seeing some continues this to increases have turn positive call to largest and notably, Kreme our growth had establishing our I'm several excited year.As are future quarter now results, and as loved Krispy world's pursue We across and Charlotte, cities, model third produce Dallas, the we treat.I'll and sweet results, daily hub-and-spoke continue strategy fresh evidenced over as Houston for the replicating the DFD tangible success and

Thanks, good everyone. Josh, morning, and

third X.X% activations, our with track finished mid And improved public We quarter growth Organic toward and grew revenue actions, further and high-end our both revenue and marketing of in segments. our EBITDA business. pricing million, to continue throughout trends to guidance.Net $XXX.X of line as performance the to EBITDA year our the million. adjusted markets. and adjusted growth we since EBITDA third we driven delivered maintain, to by full grew $XXX.X the return execution across omnichannel delivered all adjusted the expansion approach if X.X% The line revenue top expectations successful our globally to of on with quarter strongest

of a treats and branded by forecasted from $XX.X costs attributable and away branded As the reminder, XXX tax was excludes year-over-year.GAAP loss basis pricing, Growth, noncash the sweet and points organic impacts tax quarter million foreign the shift distribution product expense. effective currency, treats business. acquisitions, revenue rate due in net and in the income decreasing sweet resulted to

we're U.S. premiumization the size. an segment discounting, financing.Turning decreased increased X.X%. and and making year-over-year, $XXX.X efficiency, In focused by Margin driven mitigation results. XX.X% effective to through net demonstrating and driven at million, exceeding full organic commodity growth pricing as opportunities adjusted hub-and-spoke materials to year-over-year between XXXX. higher efficiencies compared Importantly, vendor last to XX.X% year-over-year we Adjusted interest, and well expanded to to expansion points flat labor EBITDA margins both continue to The leading across XX% the the leverage in and our labor primarily improve grew the XX reliance rate tax mitigating to XX.X%, XX% the segments, $X.XX X.X% revenue expect rate. transaction on despite reducing turn, EPS all Adjusted year, for segment, in and declined expense continue was increased expanded EBITDA pricing adjusted the million. to ability grew net to average our waste be to by $X.X areas. EBITDA primarily an and of by million. interest adjusted XX.X% taken year increasing in as X.X% and to In we Adjusted $XX.X benchmark productivity points million, reportable income was basis margins revenue XX both operating increasing remained to driven year-over-year from initiatives.Diluted those increase year $X.X on pressures.With earlier inflation basis improvements

XX% expanding should structural increased pricing e-commerce revenue for due Adjusted distribution increased year-over-year, expansion actions Market points a Notably, franchisees. our of of timing due finally, In revenue increases. year-over-year basis benefits and by input segment, We in has was growth.Notably, the driven by partially Adjusted We sequentially XX year-over-year, effective to businesses driven a sequentially X in franchisees. increased these expect $X.X expansion. Insomnia fewer offset operating DFD.In double as to XX.X% to set And quarter as moving to forward, the in continues with than the over that mainly leverage X.X% the driven deploy accelerated. actions digits declines margin pricing and points XXX product maturing. initiatives Japanese growth saw system growth increased combined combined format grow and our U.K. up Canadian with to by equipment margin organic segment, of strong or introducing basis and efficiencies, returned accelerated X.X%, persistent improvements increased XX%, International more points company-owned to sales given improvement primarily margin and from and strong both to points percent with to to in grew by costs. Canada control organic cost equipment and hub-and-spoke of hub-and-spoke the margin taken EBITDA XX.X%, strong Development taken driven hub-and-spoke from pack million expansion which pricing address in the access of improved EBITDA XX.X%, and lower access sales by Mexico costs margins

the to liquidity year ample balance and leverage sheet a to with close balance sheet.We expect Moving healthy below the have Xx.

health long-term we are as We setting sheet strategic support the growth through our up balance strong focused to capital business of the on explore and a structure alternatives.

expect a down agenda positioning, a usage the proceeds use and of financing. strengthen of to paying and to which any For vendor continuation growth our in our Cookies, debt reduction financial we fund Insomnia includes

net to driven of by X.Xx openings and rates. in be in the track store leverage term, increased Over exchange the foreign new revenues Xx expenditures quarter, longer and X.X% we on remain third to between XXXX.Capital

remains our growth to looking low Josh our we've forward strategy behind and Today, continue invest with range. that guidance of omnichannel observed we ranges mentioned, our for trend quarter mid As we is growth, reaffirming seasonally and adjusted of revenue to demand strong the the double-digit towards sales robust. underlying organic the fourth are to and proving EBITDA full a year and our October as strongest, continue high-end

out between as and due as to assumptions.We expense rate interest well updating changes capital million interest financing. strategic $XX be outlook interest vendor reduction to prevailing for want to and expenditure I the our expense specifically Additionally, $XX to our million call are environment, the of

In updating between of full to we and which largely revenues, daily investments summary, and X% currency quarter, In year up land we growth our to a our that, seeing had future X% open addition, network in the and are we we're of call momentum capital fourth questions. now foreign third will for we're delivered excited and and growth strong expect the in opportunities fresh expenditures due Operator? about strategic U.S. quarter business.With the rates.

of line [Operator first Ivankoe is the instructions] JPMorgan. question with Your John from

secondly, or third-party tested using doing I trucks or quarter at or delivery any level level. in Is level potentially on being use explored your in third talked allusion guess, drivers. some that saw maybe or if opposed what this that U.S. if there's as to initiative your of the And even an about I we've something question Krispy there's we count on an to is been more a general.And into the drive could market talk Kreme margins, about some call? I the currently around beyond intelligence know that or that accounts use I and that wonder -- level looked being actually may DFD at think past margin we day-of-the-week in business out DFD is there's root thinking for it opportunity at a some and really profitability you

bonuses kind that in referenced performance-based efficiency XX also XXX really with saw pleased I'll by open year we'll up points, and year. respect this ways John, to the the up where that With we and you explore around tinker bonuses We differently, to hub-and-spoke we obviously, despite absorb were expect kind needing elaborate of have we how that at different margins. still the U.S. basis to pay or appreciate -- the around I'll last up question investigate the to quarter, decreasing but declining accruals those we view over to constantly to quarter say, kind to this those some the of for at fresh more. U.S. pass business. maybe looking question your driven to Josh respect points U.S. And with of margins. accruals.So with business basis looking we're of business what with were

focus themselves, as are health the primary for look DFD the the service we of the routes as possible. is sure make and that the business then we quality think of I with that doors efficient at that we them the

door, product density growth more donuts even in at stops, it's C-store So that Generally, of the stores XX% and quarters create get display the plus again improve the of is keep base. to margin to the after of that as sales scale C-stores. different we city add in what short have loose to per the a of more Routes multiple the quarter grocery have donuts. an more greater between see we in in stores. and we're cabinets reflecting add year. existing higher the eye profitability the over grocery over see week be times We've but doors, this we sell the quickly, There's And average than that driving initiative grocery, doors XXX a demonstrates loose added portfolio. which terms little that moment, do opportunity routes. the productive margin do XX those grew customers an $XXX a that's We of actually, DFD you, that and on high-quality is an the this focus.In week, out continuing get and that drives strong in,

across analysis and real that's do the it. we about of the how different we of it, cities. So and doors the around But lot do think primary routes the thing quality those a is

third-party, it route versus an in-house example, distribution potentially of that doing in the a or capabilities than existing terms opportunity? of for markets, perhaps different is considering using in of style distribution various And a

It could are routes have be. ourselves. that by The run today all we

a As displayed years, model quickly. way, fresh that wanted the to over quality. in that different clearly amazing, restaurant thing as logistics is doesn't important DFD need system donuts to quick the sure significant. efficient U.S. last routing. focused move models. is protect we've service and in-house we're on forward this now, at role, that particularly we've flexible But out donuts, and the wanted the party our say we scale which, We've opportunity strong look to throughout. to highest, in The most model built scale well And high-quality these right play The couple of in the always will drive the best But to are daily, looking through service and profitability third that high then the be those magnitude, levels, couldn't making doors remains served, obviously, and we

question next America. Bank the with is of line from of Senatore Sara Your

the increase? I me. that could can announcement. a have twofold. that And question Or One supporting? of initiatives for the CapEx is color the the you're reason also comments McDonald's different that per are are share that? give about can doors. there with findings And pack little customers relative size to loose know there earlier or other your you you It's donuts, McDonald's, that. Hopefully, Is about DFD about a like is, of that you hear profitability Great. maybe you about respect the then things on what sort

early any you if the wondering from that test. there's can share -- Just insights anything

also But the address U.S. X.X% also rates question, to expansion some and contributed our the tick-up on to address we cover exchange experience to you invest we saw McDonald's quarter in our the the this DFD? I'll it about to Josh CapEx investments Josh, obviously on quarter. foreign behind which we in do year-to-date of of did returns. want a Obviously, I'll tick basis, continue on the continue McDonald's impact DFD the and question. and this flip network. spend in up quarter international to highest growth the to as of focus our to Maybe CapEx

way it. we going, are DFD expanded these is the opportunity point just Sure but growth regarding done donuts of the Jeremiah. the an those over finalized, see QSR, around investments.We're thing, cannibalization in our and business it. about interesting itself, And we've our your pilot have with because or indeed McDonald's other has of base analysis around manufacturing, to with to throughout well getting be them, pre-packed scale learned our in substantiates the the as what thoughtfully right our year beyond new is partnership them DFD making we've doesn't added of the for understanding very to QSR similar the well then we -- arrive in and course, sort learned the for view making right nothing right seen very as investments don't through it, additional scale has a whole excited point a are sure donuts capacity quality, requirements what's of viability before, is with And now, and we we've We've covering portfolio we the in operational ongoing to needed Yes, and retail doors and Kentucky, that time, is would McDonald's DFD discussion from with a so, from at to outlets lot in of door. the execution, support, will what the of DFD and behaving a scale mentioned very expand always of been McDonald's provide we're view, to donut received.And loose be in the through U.S.The mean We're that limited, clear. relatively that time. thing. point it's that I've locations. able commercial that brand including It's donuts And including channels, are the mean, such Kentucky, both I been grown. U.S. that The be potential the experience. of the confidence behave it our but from learning fresh the to existing opportunity, couldn't to QSR, now is discussions start that indeed but nature discussing decided

where enough of confidence support that Our really about clearly start grown kind to has to scale. thinking we'd invest

Piper Your line of the next Brian question from Sandler. with Mullan is

think Just associated think that, Insomnia. I great. related How share you'd from If on to of about a business with a a to EBITDA? that come and good be revenue be question any believe good should this about try to level way $XXX G&A store to expecting up the allocation color, willing margins sense we maybe D&A you're the what's million revenue? that with would about And we year. can the of that adjusted

Yes, of Canada we're right in given too in Look, super financials, question. continues it profitability as we're U.K. for with sequentially. fact in and stages. take grow, probably least growth in on want pleased of around speculate process the the both improving both just can lot the we're I other the I the much some a seeing that leave much, that. questions internationally, early too as continues kind and be I'll and early to to at the and opportunities of don't it now U.S. share a great at the expansion, business or performance to kind number and also There Brian, one, of engagement that is

Okay, understood.

related to production capacity just or but follow-up, the to U.S. expanding going Just you're -- not potential, be potential to in the the

to have. top past, XX,XXX you of an serve to a you XX% additional X,XXX increase said in I be it's capacity think the XX% able on DFD to hubs In doors the to

many to thinking cost you long to each year So us next how your get can how build? to planning? do it in are would want additional about build Maybe new just hub? the take hubs you how you you thinking And

I'll it the in to opportunity X,XXX points Okay. that. Yes, just from minimal the can relates including access supporting back a the we with investment. DFD actually, whole moment, stepping hubs take as add U.S., production QSR, of existing about

like Minnesota We England well. and You're go about. markets kind around we to can is But but as you're that would access markets near you also and investing hubs, full just the the can XX% drivers, what about our which we Florida.So existing of thing. as Upstate York, about new beyond do talking be access. that, want want like of country we're capacity XX,XXX increase points capacity that of serve or yes, where hubs with That XX% beyond another very trucks, from points would to on talked top going about markets underserved our clearly, add New we talking of California existing X,XXX strong that and to network, in New start of businesses,

of all opportunity. obviously points XX,XXX So exciting access in,

we have the interesting Now in hubs sales future, off-premise be them to than production these support we'll more today. that building it's hubs DFD the

have to larger donut making areas. logistics going they're lines.They'll have So load-out additional

about what So rapidly at XX is to to a factors. clearly out Timing of years, a XX% ] number hubs more $X evolve new hub. XX% opportunity [ we're about over going support few next us. XX, to $X a to growing works for million depends with And the DFD hubs on million

information. plans we I as nothing finalized you have there's on to more our said, As so McDonald's, continue update with we'll

is CL question King. Wolf with next from Your of line the Andrew

DFD? sales there the and was how hubs, also, at bounced I restaurant similar? shops and generally Great. at -- a October. within And ask and it restaurant especially Was in cadence certainly was sort had Was wanted of to the the September, large summer, back to weak and industry the in then August the of industry sales, just any cadence? the similarity was that large your

actually Yes. strongest. Seasonally, our softest QX one of one QX periods traditionally, and our is of is

right we're our So that seeing line of kind in with cadence expectations.

with bringing in was right as seeing of specialty over and into price the growth grew digits for specifically, which Of we're expected the price how a the given in So the donuts double taken, at In us of channel. QX. largest sign and U.S. pleased by DFD, it the fourth DFD, our productivity DFD by consecutive and the in growth access, is growth we'd we've of channels driven And with some that doors, well. actually existing the and business was half being up, quarter driven are it in was of XX% underlying grew, premiumization we're for the points as maintaining one U.S. the be. contributors good growth half respect in is in holding what to we quarter.With all obviously to line

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It they the Bieber bring actually the around lot part is we're exciting question, the the I the And and really M&Ms. well. promotion seasonality was earlier in about It's this obviously season versus factors servicing related really promotion was a Obviously, spice big for fantastic excitement us. able of holidays as have been and the summer to a big. glaze the referenced. way that the year. Hailey the season that with low, low us QSR less and we're obviously, a interesting, It's you strawberry you behave to U.S., ones in brand industry what a mentioned to of weather learning and year and Pumpkin we've the restaurants quite can influence period. during the of It be

able DFD, that excitement specialty e-commerce, to applied was X. the the supplied shops, So season where those particular, we premium low donuts be to across this donut to at donuts great.And and all in create that specialty in

more of course, high And Halloween really more the holidays, with we've well. our got season. the Now to good ahead, hence, start as excitement looking around about to see think good was brand

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what being didn't expect? issue basis? get at follow-up on to change bought? a is up of there that at guess is same. any comments would hear. one it it I'm well, end terms it good to translate like I about Or a maintenance product on you It's on about, Is but the premiumization the basis is doors. all? so elasticity sounds specifically DFD that shrink in it the guess And the in or productivity on an dollar Would unit going sales asking I what of Just like

half can as unit that, at by I so. look take when think the Andrew. price. I productivity you was that a basis. I on of doors, And Yes, driven And maintaining growth mentioned, the they're existing

we're what expected see. elasticities, they're have definitely line to in not and we with seeing significant So would

donuts, them. specialty the demand there's of And lot for a

the a many become productivity for is bigger those part portfolio faster. ways in of good So having because out they sell

next with the [Operator Bill Your instructions] Truist. line is Chappell from question of

quantify intra-quarter for second, the would for the of a for that. like And it the little quarter And thought of did maybe from strategic there's is a the value I IPO X questions process the what in about what behind build. on on, a was and that more one, that you of there. have can business, Just mean and alternatives, was you're had timing could firm business been of in about U.S. thinking sales Insomnia when the it organic really this key for it as kind then the nurture you ideal. of what guess, seems and part GLPs about just the on and that you color something you year?And maximizing potentially terms noise lot saying pretty and announcement not

just what organic process timing of and in as went behind would to it the understand So of kind away terms trying what as [ ] is thought on and what take stuff of like it kind well your that, growth. total

is Mike. ago, business took this Insomnia. Bill, on of we the years X

and we delivery itself outside that we brand how looked and the expand at One scaled in brand the and capitalize get really of the to we is and capability start how do U.S. of the U.S. of do help on that potentially key things that then e-commerce

They today, cookie XX% -- at U.S. a we we've driven being there. in strategic U.K. Canada potential a growth in Kreme to just reason have and is the that a tremendous growth enhance shop story look unlock to there starting tremendous the you us. explore and story. They're to in front overall The delivery, the Krispy what we alternatives both right?So XXX the has at that of of by have growth international, where our seen that to bakery start basis and So when is box, in we're now you've basis seen check retail sales see

the is timing right why that's So today. right we the why this That's now. chose timing

Yes, impact, top will you pick the made the share generate high-quality shareholders.And me is up the business that we're investment value question the news return both pleased on business that, well With mentioned in it transaction growth in kind already well your it for from very parties questions the pleased remain on our a more all. ago on as we can let have the performing, strong we're with terms how of and sequentially in we'll of and realize and top feeling I business strong basis therefore of which process, With how to total the a and -- around we with is, have profitability, But again, offset XXX super the as seen can overall we're I respect -- line it of proven impact of point XXX it on super focused line the like as on year-over-year. point level and has we've as interest to the we Kreme few that. business. accelerate some growth expect Krispy feel on to basis a we overall overall with

concern. GLP maybe terms can Josh, and GLP question, In of I'll address your to it flip he

others. the a survey. priority we and our ] mentioned. are of weeks less at it's majority the are purchase infrequent our donuts in from unchanged Kreme actually our those given our actually again, on under well. #X strong. conduct that purchase. the year. remains regular the special of than see They're donuts consumer the do celebrations. for know occasions just are than of It's sales a It's of impact of often actually, strong, to donuts sizes, a Yes, customers availability considerations a remain that to that customers.Health latest Krispy shows any the Kreme accessibility usually an sold these And low Krispy and Xx the brand drugs don't are that, Krispy We bought -- XX% you We The trends each.So and are typically the use ago remains not from of Kreme, prior sharing research from actually convenience is XXX surprising. barriers. of calories research once couple More and [ from purchase barrier

is impact recently, strong consumer as success overall brand, out channels, with and And premium we've such why not access, a driven seen all remain much ambition for talked the points the remains Insomnia. by both that we've taking Krispy so on Kreme, trends we're concerned and the the the of So the donuts around expansion Kreme. for lot growth in today, the multiple these engagement from as specialty strong, about performance Krispy around

drive growth -- behind we the the the the In brand on see fact, brand to the Kreme and further. reinvest proceeds opportunity Krispy

more clear, maybe the GLP might for Insomnia, Got was get concern that valuation talking wasn't the I about it. it. And you so be I on but

probably thinking. the as mean basis In our it's on of out the points total clarifying, trying the and it's so you of out U.S. company, to Just you're takes a points it terms would business we to organic Insomnia take forward understand growth go numbers that XXX since point about XXX basis kind if basis impact just and U.S.? XXX of

think just impact close-ish I that U.S. might Yes, conversation. your I probably in estimation of it business you're in take think make offline, the debrief terms in But on sense to the the to the follow-up of

closing call At the back Mike remarks. for this time, queue. to be now further questions there in appear to no any the will turn I Tattersfield

Yes.

personal On this of So your thank you, time. call my for marks everyone, CEO as note, earnings Krispy Kreme. a final

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Quarter Third you for participation. Creek your earnings Crispy the conclude call. does This XXXX Thank

now You disconnect. may