Yahoo Finance Krispy Kreme Reports Strong Fourth Quarter 2022 Results
Fourth quarter net revenue grew 9.2% with organic revenue growth of 12.5%
Points of Access increased to 11,837, up 14% from 2021
Introduces robust 2023 guidance
CHARLOTTE, N.C., February 15, 2023--(BUSINESS WIRE)--Krispy Kreme, Inc. (NASDAQ: DNUT) ("Krispy Kreme" or the "Company") today reported financial results for the fourth quarter and full year ended January 1, 2023. Net revenue in the quarter grew 9.2%, inclusive of a negative 3.7% impact from foreign currency exchange ("FX") headwinds. Sales Per Hub grew 15.0% in the U.S. and Canada to $4.6 million and 7.7% in International to $9.8 million. Organic revenue in the quarter grew 12.5% driven by double digit organic growth in all three business segments. For the full year 2022, net revenue grew 10.5%, inclusive of a negative 2.7% impact from FX headwinds, and organic revenue grew 12.1%.
Our efforts to improve performance through our network optimization and closing unprofitable shops led to expenses of $12.4 million, over 90% non cash, which contributed to a GAAP Net Loss of $1.0 million for the fourth quarter. The Company is already seeing improved performance from our Hubs without Spokes in the U.S.
Adjusted EBITDA grew 17%, or an even stronger 25% in constant currency, and Adjusted EBITDA margins expanded 90 basis points in the quarter compared to the same quarter a year ago, led by strong performance from the U.S. and Canada and Market Development segments and sequential improvement in our International segment. GAAP Diluted Loss Per Share for the quarter was $0.02 compared to income of $0.01 in the same quarter last year. Adjusted Diluted Earnings Per Share was $0.11 for the quarter, up 38% compared to the same quarter a year ago. Free cash flow in the fourth quarter was $32.4 million.
Commenting on the performance, CEO Mike Tattersfield stated, "We are pleased with the strong end to 2022, with notable progress on expanding our omni-channel model, furthering our global growth strategy and executing successfully on the initial phase of our hub optimization efforts. Our global fresh, premium Halloween and winter holiday specialty doughnuts resonated strongly with consumers, helping drive a record of more than 1.6 billion doughnuts sold in 2022. Our Ecommerce business also achieved impressive growth of 23%, marking the best quarter in this channel since the pandemic, led by growth in Insomnia Cookies and Krispy Kreme in the U.S."
Mike continued, "Looking to 2023, we are well-positioned to deliver another year of terrific growth with a great start led by premium offerings for celebrations. Our performance this year will be led by continued expansion of our capital efficient omni-channel model as we aim to grow our fresh points of access by 10% to 15% in 2023. We are particularly excited for our global growth this year as we expect to open in five to seven new countries in 2023, including in France, as we continue on our journey to being the most loved sweet treat brand in the world."
Financial Highlights
$ in millions, except per share data | Q4 2022 | vs Q4 2021 | 2022 | vs 2021 |
Net Revenue | $404.6 | 9.2% | $1,529.9 | 10.5% |
Organic Revenue (1) | $415.4 | 12.5% | $1,549.8 | 12.1% |
GAAP Net Loss | $(1.0) | nm | $(8.8) | 40.9% |
Adjusted Net Income, Diluted (1) | $18.6 | 38.9% | $49.6 | (10.6)% |
Operating Income | $5.2 | (68.4)% | $29.0 | (29.5)% |
Operating Income Margin | 1.3% | -310 bps | 1.9% | -110 bps |
Adjusted EBITDA (1) | $55.9 | 17.2% | $190.7 | 1.5% |
Adjusted EBITDA Margin (1) | 13.8% | +90 bps | 12.5% | -110 bps |
GAAP Diluted Loss Per Share | $(0.02) | $(0.03) | $(0.10) | $0.08 |
Adjusted Diluted EPS (1) | $0.11 | $0.03 | $0.29 | $(0.08) |
Notes: | ||||
Key Operating Metrics
$ in millions, except access points | Q4 2022 | vs Q4 2021 |
Global Points of Access | 11,837 | 13.5% |
Sales per Hub (U.S. and Canada) TTM | $4.6 | 15.0% |
Sales per Hub (International) TTM | $9.8 | 7.7% |
Ecommerce as a Percent of Retail Sales | 18.3% | +260 bps |
Fourth Quarter and Full Year 2022 Consolidated Results
Net revenue grew 9.2% in the quarter to $404.6 million, or 23.0% on a two-year stack basis. Total company organic revenue grew 12.5% in the quarter compared to the same quarter last year, and 26.4% on a two-year stack basis. Organic revenue growth in the quarter was strong across all segments due to the increase in Points of Access and a strong Delivered Fresh Daily ("DFD") performance.
For the full year 2022, net revenue grew 10.5% to $1.53 billion, or 33.9% on a two-year stack basis. Organic revenue grew 12.1% in 2022, or 24.6% on a two-year stack basis, driven by Points of Access growth and a 10% increase in sales per DFD door in the U.S. and Canada.
GAAP Net Loss for the quarter was $1.0 million, compared to a GAAP Net Income of $4.3 million a year ago. The decrease was driven by expenses of $12.4 million, over 90% of which were non-cash, associated with previously announced optimization efforts and shop closures. Excluding that expense, GAAP Net Income would have increased in the fourth quarter.
Adjusted EBITDA in the quarter grew 17.2% to $55.9 million, or 25.0% in constant currency, with Adjusted EBITDA margins expanding 90 basis points to 13.8%. Adjusted Net Income, diluted grew 38.9% to $18.6 million in the quarter. GAAP Diluted Loss per Share in the quarter was $0.02 compared to income of $0.01 in the same quarter last year. Adjusted Diluted EPS increased 37.5% to $0.11 from $0.08 in the same quarter last year.
For the full year 2022, GAAP Net Loss was $8.8 million, an improvement of 40.9% compared to 2021. GAAP Net Loss for the year included $19.0 million in expense related to the previously discussed optimization efforts, over 90% of which were non-cash. Adjusted EBITDA grew 1.5% to $190.7 million in 2022, or 7.1% in constant currency. Adjusted Net Income, diluted for 2022 declined 10.6% to $49.6 million. GAAP Diluted Loss per Share for the full year 2022 was $0.10 compared to a loss of $0.18 in 2021. Adjusted Diluted EPS for the year was $0.29.
Weighted diluted average shares outstanding for the fourth quarter of 2022 were 169.8 million, compared to 169.1 million in the same quarter last year. Weighted diluted average shares outstanding for the full year 2022 were 169.5 million, compared to 150.3 million for the full year 2021, primarily as a result of the IPO.
Fourth Quarter and Full Year 2022 Segment Results
U.S. and Canada: In the U.S. and Canada segment in the fourth quarter, net revenue grew 11.1% to $276.9 million from $249.2 million a year ago, driven by strong Points of Access expansion over the last year and a record average weekly revenue per door of approximately $620 driven by strong sales of specialty doughnuts. Sales per Hub increased 15.0% to $4.6 million. Organic revenue in the quarter increased 11.6% driven by our omni-channel model, primarily the strength of DFD, as well as double digit same-store sales growth from Insomnia Cookies. For the full year, net revenue grew 11.3% to $1.0 billion while organic revenue increased 9.1%.
U.S. and Canada Adjusted EBITDA in the fourth quarter increased 16.2% to $37.0 million, with margin expansion of 50 basis points to 13.3%, driven primarily by the strong performance of our Hub and Spoke model from increased DFD doors and sales per door as well as improved performance from our Hubs without Spokes as optimization efforts highlighted at our Investor Day in December 2022 are already producing results. Price increases were successfully implemented on fresh doughnuts in October 2022 showing low levels of elasticity. For the full year, U.S. and Canada Adjusted EBITDA increased 10.1% to $118.5 million while margins were approximately flat at 11.5%.
International: In the International segment, net revenue in the fourth quarter grew 3.3% to $92.9 million, with the stronger dollar reducing growth by 8.0%. Sales per Hub increased 7.7% to $9.8 million. Organic growth of 11.3% in the quarter was driven by successful specialty doughnut sales and expansion of DFD. The company saw growth across all of our International markets, including in the U.K. which saw sequential improvement compared to the third quarter. For the full year, the International segment saw net revenue increase 9.9% to $365.9 million, with organic growth of 17.7%, which excludes the impact of the stronger U.S. dollar.
International Adjusted EBITDA in the fourth quarter was approximately flat over the prior year at $20.5 million, or an increase of 13.5% in constant currency. International Adjusted EBITDA margin was 22.0% for the quarter, down 110 basis points from the prior year but an increase of 210 basis points from the prior quarter. For the full year, International Adjusted EBITDA declined 7.3% to $75.5 million, or an increase of 3.8% in constant currency.
Market Development: In the Market Development segment net revenue in the fourth quarter grew 10.7% to $34.7 million or 20.9% in constancy currency. Organic growth accelerated to 23.4% in the quarter with strong performances across our global franchise partners and our equity owned Japanese market. For the full year, Market Development net revenue increased 6.4% to $130.9 million, or 13.7% in constant currency, while organic growth was 19.3%.
Market Development Adjusted EBITDA in the fourth quarter increased 11.3% to $12.3 million, or 22.0% in constant currency, led by strong increases in international franchise and our equity owned Japan business, partially offset by domestic franchise acquisitions. For the full year, Market Development Adjusted EBITDA increased 8.8% to $44.4 million, or 17.1% in constant currency.
Balance Sheet and Capital Expenditures
During the fourth quarter 2022, the company invested $36.7 million in capital expenditures, primarily to support Hub and Spoke expansion. For the full year 2022, the Company invested $111.7 million in capital expenditures, or 7.3% of revenue, and $17.3 million for franchise acquisitions in the U.S.
As of January 1, 2023, the Company had $35.4 million of cash and cash equivalents and net debt of $746.0 million. Free cash flow in the fourth quarter was $32.4 million with the Adjusted EBITDA generated from operating activities in excess of capital expenditures reflecting the capital-efficient Hub and Spoke growth model and free cash flow of $28.1 million for the full year 2022.
2023 Financial Outlook
Krispy Kreme issues the following guidance for the full year 2023
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 assumes 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.
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 fourth quarter of 2022. 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 over 30 countries through its unique network of fresh doughnut shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business with nearly 12,000 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 "Special Note Regarding Forward-Looking Statements" and "Risk Factors" in the Prospectus, dated June 30, 2022, 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, 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. Consolidated Statements of Operations (in thousands, except per share amounts) | |||||||||||
Fiscal Years Ended | |||||||||||
January 1, | January 2, | January 3, | |||||||||
(unaudited) | |||||||||||
Net revenues | |||||||||||
Product sales | $ | 1,497,882 | $ | 1,353,466 | $ | 1,085,110 | |||||
Royalties and other revenues | 32,016 | 30,925 | 36,926 | ||||||||
Total net revenues | 1,529,898 | 1,384,391 | 1,122,036 | ||||||||
Product and distribution costs | 406,227 | 354,093 | 310,909 | ||||||||
Operating expenses | 704,287 | 630,239 | 488,061 | ||||||||
Selling, general and administrative expense | 223,198 | 222,394 | 182,317 | ||||||||
Marketing expenses | 42,566 | 39,489 | 34,000 | ||||||||
Pre-opening costs | 4,227 | 5,568 | 11,583 | ||||||||
Other expenses/(income), net | 10,157 | (10,102 | ) | 10,488 | |||||||
Depreciation and amortization expense | 110,261 | 101,608 | 80,398 | ||||||||
Operating income | 28,975 | 41,102 | 4,280 | ||||||||
Interest expense, net | 34,102 | 32,622 | 34,741 | ||||||||
Interest expense – related party | — | 10,387 | 22,468 | ||||||||
Other non-operating expense/(income), net | 3,036 | 2,191 | (1,101 | ) | |||||||
Loss before income taxes | (8,163 | ) | (4,098 | ) | (51,828 | ) | |||||
Income tax expense | 612 | 10,745 | 9,112 | ||||||||
Net loss | (8,775 | ) | (14,843 | ) | (60,940 | ) | |||||
Net income attributable to noncontrolling interest | 6,847 | 9,663 | 3,361 | ||||||||
Net loss attributable to Krispy Kreme, Inc | $ | (15,622 | ) | $ | (24,506 | ) | $ | (64,301 | ) | ||
Net loss per share: | |||||||||||
Common stock - Basic | $ | (0.10 | ) | $ | (0.18 | ) | $ | (0.52 | ) | ||
Common stock - Diluted | $ | (0.10 | ) | $ | (0.18 | ) | $ | (0.52 | ) | ||
Weighted average shares outstanding: | |||||||||||
Basic | 167,471 | 147,655 | 124,987 | ||||||||
Diluted | 167,471 | 147,655 | 124,987 | ||||||||
Quarter Ended | |||||||
January 1, | January 2, | ||||||
Net revenue | |||||||
Product sales | $ | 395,837 | $ | 364,334 | |||
Royalties and other revenues | 8,762 | 6,263 | |||||
Total net revenues | 404,599 | 370,597 | |||||
Product and distribution costs | 106,688 | 96,927 | |||||
Operating expenses | 184,027 | 167,506 | |||||
Selling, general and administrative expense | 62,932 | 58,977 | |||||
Marketing expenses | 10,197 | 7,868 | |||||
Pre-opening costs | 713 | 1,233 | |||||
Other expenses/(income), net | 8,357 | (5,737 | ) | ||||
Depreciation and amortization expense | 26,479 | 27,350 | |||||
Operating income | 5,206 | 16,473 | |||||
Interest expense, net | 10,294 | 7,394 | |||||
Other non-operating expense, net | 953 | 2,317 | |||||
(Loss)/income before income taxes | (6,041 | ) | 6,762 | ||||
Income tax (benefit)/expense | (5,056 | ) | 2,479 | ||||
Net (loss)/income | (985 | ) | 4,283 | ||||
Net income attributable to noncontrolling interest | 1,734 | 2,927 | |||||
Net (loss)/income attributable to Krispy Kreme, Inc. | $ | (2,719 | ) | $ | 1,356 | ||
Net (loss)/income per share: | |||||||
Common stock - Basic | $ | (0.02 | ) | $ | 0.01 | ||
Common stock - Diluted | $ | (0.02 | ) | $ | 0.01 | ||
Weighted average shares outstanding: | |||||||
Basic | 167,826 | 167,246 | |||||
Diluted | 167,826 | 169,130 | |||||
Krispy Kreme, Inc. Consolidated Balance Sheets (in thousands, except per share data) | |||||||
As of | |||||||
January 1, 2023 | January 2, 2022 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 35,371 | $ | 38,562 | |||
Restricted cash | 359 | 630 | |||||
Accounts receivable, net | 51,089 | 47,491 | |||||
Inventories | 46,239 | 34,851 | |||||
Taxes receivable | 18,263 | 14,662 | |||||
Prepaid expense and other current assets | 26,953 | 20,701 | |||||
Total current assets | 178,274 | 156,897 | |||||
Property and equipment, net | 472,358 | 438,918 | |||||
Goodwill | 1,087,908 | 1,105,322 | |||||
Other intangible assets, net | 966,088 | 992,520 | |||||
Operating lease right of use asset, net | 417,381 | 435,168 | |||||
Other assets | 26,528 | 16,429 | |||||
Total assets | $ | 3,148,537 | $ | 3,145,254 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 40,034 | $ | 36,583 | |||
Current operating lease liabilities | 43,160 | 50,359 | |||||
Accounts payable | 225,276 | 182,104 | |||||
Accrued liabilities | 104,424 | 140,750 | |||||
Structured payables | 103,575 | 116,361 | |||||
Total current liabilities | 516,469 | 526,157 | |||||
Long-term debt, less current portion | 739,052 | 680,307 | |||||
Noncurrent operating lease liabilities | 412,759 | 415,208 | |||||
Deferred income taxes, net | 143,124 | 145,418 | |||||
Other long-term obligations and deferred credits | 38,258 | 42,509 | |||||
Total liabilities | 1,849,662 | 1,809,599 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Common stock, $0.01 par value; 300,000 shares authorized as of both January 1, 2023 and January 2, 2022; 168,137 and 167,251 shares issued and outstanding as of January 1, 2023 and January 2, 2022, respectively | 1,681 | 1,673 | |||||
Additional paid-in capital | 1,426,105 | 1,415,185 | |||||
Shareholder note receivable | (4,813 | ) | (4,382 | ) | |||
Accumulated other comprehensive loss, net of income tax | (9,151 | ) | (2,478 | ) | |||
Retained deficit | (217,490 | ) | (178,409 | ) | |||
Total shareholders’ equity attributable to Krispy Kreme, Inc. | 1,196,332 | 1,231,589 | |||||
Noncontrolling interest | 102,543 | 104,066 | |||||
Total shareholders’ equity | 1,298,875 | 1,335,655 | |||||
Total liabilities and shareholders’ equity | ... | ||||||
