First quarter net revenue grew 12.5% with organic revenue growth of 14.4%

Points of Access grew by 12.5% to 12,410 and Ecommerce revenue grew 23%

GAAP net income of $1.6 million and Adjusted EBITDA of $54.9 million

Krispy Kreme, Inc. (NASDAQ: DNUT) (“Krispy Kreme” or the “Company”) today reported strong financial results for the first quarter ended April 2, 2023. Net revenue grew 12.5% year-over-year to $419.0 million and organic revenue grew 14.4% led by robust performances in the U.S. and Market Development segments. Sales per Hub in the U.S. increased 9% to $4.6 million, driven by an 12% increase in points of access and an 8% increase in U.S. sales per Delivered Fresh Daily (“DFD”) door.

GAAP Net Income for the quarter was $1.6 million compared to Net Income of $6.5 million a year ago while GAAP diluted EPS for the quarter was $0.00 compared to diluted EPS of $0.02 last year. Adjusted diluted EPS increased 12.5% to $0.09 for the quarter, compared to $0.08 last year in the same period. Adjusted EBITDA grew 12.3% in the quarter to $54.9 million led by a 60 basis point improvement in U.S. margins.

Global Points of Access, which reflect all locations where fresh doughnuts and cookies can be purchased, increased by nearly 600 during the quarter, providing consumers with access to Krispy Kreme and Insomnia Cookies through more than 12,400 locations around the world.

Commenting on the Company’s performance, CEO Mike Tattersfield stated, “I’m proud of our performance in the first quarter that continued to demonstrate the strength of our omni-channel model, which allows us to meet consumer demand with premium, fresh doughnuts in a capital efficient manner. Our global Valentine’s Day and St. Patrick’s Day campaigns and specialty offerings such as Biscoff® Doughnuts resonated with consumers, showcasing the opportunities for premiumization as well as the gifting and sharing power of our brand.”

Mike continued, “We also achieved our best ever quarter of Ecommerce revenue, representing a higher mix of revenue than during the pandemic and we see a long runway for further growth in this channel. Krispy Kreme continues to be well-positioned to deliver another year of strong growth driven by our capital efficient DFD model and our global expansion plans.”

Financial Highlights

Key Operating Metrics

First Quarter 2023 Consolidated Results

Krispy Kreme’s first quarter 2023 results reflect strong growth compared to the prior year. Net revenue grew 12.5% to $419.0 million and total company organic revenue grew 14.4% in the quarter. Organic revenue growth was driven by strong growth from U.S. Krispy Kreme and Insomnia Cookies, as well as robust performances from our equity-owned Japan market and international franchise in our Market Development segment. Ecommerce revenue growth in the quarter was 23%.

GAAP Net Income for the quarter was $1.6 million, compared to a GAAP Net Income of $6.5 million in 2022. GAAP Net Income included a $13.4 million charge related to the previously disclosed exit of our small Branded Sweet Treats business that was largely non-cash, partially offset by a $9.7 million gain on a sale-leaseback. Inventory write-offs and employee severance associated with the exit of the Branded Sweet Treats business had a 180 basis point negative impact on Product and Distribution Costs in the first quarter of 2023.

Adjusted EBITDA in the quarter grew 12.3% to $54.9 million despite an approximately $2 million negative impact from the stronger U.S. dollar. Operating margins declined 100 basis points to 3.6%, while Adjusted EBITDA margins were flat at 13.1% from the same quarter in 2022, with an increase in Adjusted EBITDA margins from our U.S. and Market Development segments offset by a decrease in our International segment due to inflation. Adjusted Net Income, Diluted increased 15.5% to $15.3 million in the quarter. GAAP Diluted EPS in the quarter was $0.00 compared to $0.02 in the same quarter last year, while Adjusted Diluted EPS increased 12.5% to $0.09 from $0.08 in the first quarter of 2022.

First Quarter 2023 Market Segment Results

U.S.: In the U.S., segment net revenue grew 13.5% to $281.3 million, driven by the continued execution of our omni-channel strategy and growth of Insomnia Cookies. Organic revenue increased 13.7% driven by increased points of access, higher Ecommerce revenue, higher average weekly sales per DFD door as well as a strong performance in Insomnia Cookies, partially offset by a decrease in Branded Sweet Treats revenue. Average weekly DFD revenue per door hit a record in the quarter and was up 35% from the same period in 2021, as we continue to add new DFD partners and channels. Ecommerce revenue in the U.S. increased 32% compared to the prior year to 22.6% of sales. Excluding Branded Sweet Treats, organic revenue in the U.S. increased by 16.1%. Points of access increased by 359 in the quarter to 6,615, which represents an 11.5% increase from a year ago.

U.S. Adjusted EBITDA increased 18.9% to $38.5 million with Adjusted EBITDA margin expansion of 60 basis points to 13.7% driven primarily by efficiencies from increased Sales per Hub, improvements from the network optimization of our hubs without spokes as well as price increases, partially offset by cost inflation.

International: In the International segment, net revenue grew 3.5% to $90.3 million, with organic growth of 7.3%. Organic growth in the quarter was driven by a 12% increase in points of access compared to the prior year. Foreign currency translation had a negative 3.8% impact on net revenue growth during the quarter compared to a year ago. Points of access increased by 117 in the quarter to total 3,588.

International Adjusted EBITDA declined 21.3% over the prior year to $13.6 million, driven by cost inflation. Adjusted EBITDA margins declined 480 basis points to 15.0%. We have growing confidence in the U.K. market while Australia is currently seeing delayed and accelerated inflationary costs that hit most of our other markets in 2022.

Market Development: In the Market Development segment, net revenue increased 26.5% to $47.3 million driven by strong performances in our equity-owned Japan and Canada markets as well as our International Franchise business. Organic revenue growth was 35.5% compared to the same period in 2022.

Market Development Adjusted EBITDA grew 35.9% to $17.0 million, with strong margin improvement in our equity-owned Japan and Canada markets from hub and spoke efficiencies and strength in international franchise revenue more than offsetting inflation and the strong U.S. dollar. Adjusted EBITDA margins for the segment increased 250 basis points to 35.9% despite a negative impact from mix shift.

Balance Sheet & Capital Expenditures

During the first quarter of 2023, the company invested $26.6 million in capital expenditures, or 6.3% of revenue, primarily to support growth of our hot light theaters, cookie shops, and DFD Doors.

As of April 2, 2023, the Company had $29.7 million of cash and cash equivalents and net debt of $792.7 million. During the quarter, the company reduced its vendor financing programs including structured payables and supply chain financing by approximately $46.1 million. As previously disclosed, during the first quarter the Company successfully completed the refinancing of existing Term Loan A and Revolver facilities. The new $700 million Term Loan A and $300 million Revolver extends maturities until March 2028 at the same terms to existing facilities and welcomes several new creditors into our facilities. There was no change in the Company’s net debt as a result of this refinancing.

2023 Financial Outlook

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

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

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

Definitions

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

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

Conference Call

Krispy Kreme will host a public conference call at 8:00 AM Eastern Time today to discuss its results for the first 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 over 30 countries through its unique network of fresh doughnut shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business with more than 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 “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, 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.

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