Krispy Kreme, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Delivered 18th consecutive quarter of organic sales growth despite the Cyber Security Incident in December.
• 2024 saw 21% revenue growth, with US delivered fresh daily network surpassing $250 million in sales. Operate in 40 countries with an established franchise pipeline.
• Simplified business by divesting Insomnia Cookies, added national distribution partners, and restructured management teams.
• Key priorities for 2025: spotlight core offerings (e.g., Original Glazed Doughnuts), grow with national distribution partners, evaluate refranchising international markets, and strengthen performance-based culture.
• Expanded availability globally, with US adding over 2,800 new doors and international points of access growing 24% in 2024. Plan to award US Logistics contracts and open 2-4 new countries via franchise in 2025.
• Outsourcing U.S. Logistics to achieve service level and cost predictability, with aim to outsource over half of DFD deliveries by year end.

Segment Performance

• U.S. Segment: Organic revenue declined 1.2% primarily due to the Cyber Security Incident. Adjusted EBITDA was $23.6 million, impacted by the Cyber Incident and the sale of a majority stake in Insomnia Cookies. DFD points of access grew 34% year-over-year.
• Equity-Owned International Markets: Organic revenue grew 7.8% year-over-year, led by Canada and Japan. Points of access grew 14% with DFD revenue up 21%. Adjusted EBITDA was $25.7 million, with margin down to 18.6% due to pressure in the UK.
• Market Development: Organic revenue declined 0.7% due to timing of equipment sales. Adjusted EBITDA margin improved to 57.8% driven by favorable sales mix and SG&A improvements.

Guidance

• Net revenue: $1.55 billion to $1.65 billion
• Organic revenue growth: 5% to 7%
• Adjusted EBITDA: $180 million to $200 million
• Adjusted earnings per share: $0.04 to $0.08
• Margin compression in first half of 2025 due to lingering Cyber Incident impacts; operating leverage expected in second half
• CapEx: 6% to 7% of net revenue; interest expense: $65 million to $75 million; FX impact: $3 million to $5 million
• Q1 2025 net revenue: $379 million to $390 million; adjusted EBITDA: $25 million to $30 million

Risks

• Impact of the Cyber Security Incident on operations, revenue, and margins
• Consumer pressures affecting sales, particularly on value-conscious consumers
• Weather and wildfires impacting traditional retail locations in the U.S.
• Foreign exchange rate fluctuations impacting EBITDA

Question and Answer

• Q: OpEx expenses for 2025?

A: Pressure in the front half due to operations investments (e.g., operations leadership, simplifying roles), with operating leverage expected in the back half.

• Q: DFD existing locations less economical?

A: Continuously optimizing the network, with plans to shut down low-performing doors to ensure sustainable growth.

• Q: Top-line guide below street expectations?

A: Choppy start to 2025 due to freezing temperatures, wildfires, and value-conscious consumer pressure; focus on spotlighting the Original Glazed Doughnut to drive sales.

• Q: CapEx and free cash flow outlook?

A: Focus on driving free cash flow, with refranchising proceeds potentially incremental; leveraging existing capacity to reduce CapEx needs.

• Q: McDonald's DFD rollout progress?

A: On track, with initial demand dip due to local marketing timing; working on maintaining awareness during rollout.

• Q: DFD door weekly sales down?

A: Primarily due to customer mix change, with larger Walmart doors making up a lower percentage of total DFD doors.

• Q: Cyber impact on 2025 EBITDA?

A: Lingering impacts of the Cyber Incident on labor and materials management expected in Q1.

• Q: Revenue guide offset by Insomnia sale and FX?

A: Sale of Insomnia Cookies and foreign exchange rate impacts contributed to revenue and EBITDA adjustments.

• Q: Third-party logistics outsourcing impact?

A: Transition costs expected in the front half, targeting EBIT neutrality once fully implemented.

• Q: International refranchising plans?

A: Evaluating refranchising with local master franchisees across owned international markets; ongoing evaluation process.

• Q: Q1 EBITDA guidance?

A: Pressured in Q1 due to multiple factors (e.g., Insomnia sale, Cyber Incident, startup costs, weather), with sequential improvement expected.

• Q: Cyber impact calculation?

A: Estimated from online sales loss, labor inefficiencies, and materials waste during the incident.

• Q: Logistics outsourcing timeline?

A: Plan to transition over half of U.S. Logistics by year end, targeting EBIT neutrality with service level and cost predictability.