Krispy Kreme(DNUT) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q2 2025 financials report a $441.1 million net loss, driven by a $406.9 million impairment, with revenues down 13.5% and negative operating cash flow Condensed Consolidated Statements of Operations Q2 2025 net revenues fell 13.5% to $379.8 million, leading to a $434.6 million operating loss primarily from a $406.9 million impairment Q2 2025 vs Q2 2024 Statement of Operations Highlights (in thousands) | Metric | Q2 2025 (13 weeks) | Q2 2024 (13 weeks) | Change (%) | | :--- | :--- | :--- | :--- | | Total net revenues | $379,767 | $438,809 | -13.5% | | Goodwill and other asset impairments | $406,932 | $201 | N/A | | Operating (loss)/income | $(434,551) | $6,859 | N/A | | Net loss attributable to Krispy Kreme, Inc. | $(435,260) | $(5,491) | N/A | | Diluted Net loss per share | $(2.55) | $(0.03) | N/A | - A substantial goodwill and other asset impairment charge of $406.9 million was the primary driver of the significant operating and net losses in the second quarter of 2025[9] Condensed Consolidated Balance Sheets Total assets decreased to $2.63 billion due to goodwill impairment, with retained deficit widening to $774.2 million and total debt increasing Balance Sheet Highlights (in thousands) | Account | June 29, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $21,264 | $28,962 | | Goodwill, net | $711,780 | $1,047,581 | | Total assets | $2,630,474 | $3,072,030 | | Liabilities & Equity | | | | Total long-term debt (incl. current) | $957,045 | $900,903 | | Total liabilities | $1,912,285 | $1,907,598 | | Retained deficit | $(774,164) | $(299,638) | | Total shareholders' equity | $718,189 | $1,164,432 | Condensed Consolidated Statements of Cash Flows H1 2025 operating cash flow was negative $53.4 million, offset by $30.9 million from investing activities, mainly Insomnia Cookies divestiture proceeds Cash Flow Summary - Two Quarters Ended (in thousands) | Cash Flow Activity | June 29, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net cash (used for)/provided by operating activities | $(53,377) | $15,525 | | Net cash provided by/(used for) investing activities | $30,937 | $(65,161) | | Net cash provided by financing activities | $16,248 | $40,245 | | Net decrease in cash | $(7,492) | $(9,506) | - The company received $75.0 million in net proceeds from the divestiture of Insomnia Cookies, which was a major source of cash from investing activities[18] Notes to Condensed Consolidated Financial Statements Notes detail McDonald's USA agreement termination, a $356.0 million goodwill impairment, Insomnia Cookies divestiture, and new legal proceedings - The Business Relationship Agreement with McDonald's USA was terminated effective July 2, 2025, with neither party having further obligations except for confidentiality and indemnification[28] - The company recognized a cumulative, non-cash, partial goodwill impairment charge of $356.0 million in Q2 2025 for its U.S., KK U.K., and KK Australia reporting units[30] - The company sold its remaining ownership interest in Insomnia Cookies for $75.0 million in cash, resulting in a loss on divestiture of $11.5 million[40] - New legal proceedings were filed against the company, including federal securities class actions related to the McDonald's agreement and class actions related to a 2024 data breach[77][78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 revenue decline, McDonald's partnership termination, a $406.9 million impairment, increased leverage, and a new turnaround plan - The company has implemented a comprehensive turnaround plan focusing on refranchising international markets, reducing capital intensity, expanding profit margins through operational efficiency, and pursuing sustainable U.S. growth[104] - The partnership with McDonald's USA was terminated effective July 2, 2025, as it was deemed unsustainable, with expected positive impact on U.S. segment profitability from Q3 2025[105] - The company no longer expects to pay quarterly cash dividends, a change from its previously disclosed policy, to better align capital allocation with its growth strategy[174] Results of Operations Q2 2025 net revenue fell 13.5% to $379.8 million, with organic revenue down 0.8%, leading to a $434.6 million operating loss and a 63.3% Adjusted EBITDA decline Q2 2025 vs Q2 2024 Revenue Performance | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total Net Revenues | $379.8M | $438.8M | -13.5% | | Organic Revenue Decline | | | -0.8% | Q2 2025 Adjusted EBITDA by Segment (in thousands) | Segment | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | U.S. | $9,930 | $32,668 | -69.6% | | International | $18,221 | $21,655 | -15.9% | | Market Development | $8,948 | $12,875 | -30.5% | | Total Adjusted EBITDA | $20,111 | $54,726 | -63.3% | - The U.S. segment's Adjusted EBITDA decline was primarily driven by an estimated $7 million to $9 million adverse impact from the now-ended McDonald's USA partnership and lower transaction volumes[148] Capital Resources and Liquidity Liquidity sources include cash and credit facilities, with total debt at $957.0 million, a leverage ratio of 4.5x, and a new policy of no quarterly dividends - The company's leverage ratio increased to 4.5 to 1.00 as of the end of Q2 2025, compared to 3.9 to 1.00 at the end of fiscal 2024, remaining in compliance with financial covenants[182][183] - The company has changed its dividend policy and no longer expects to pay quarterly cash dividends to common stockholders[174] Key Liquidity and Debt Figures (in millions) | Metric | June 29, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $21.3 | $29.0 | | Total long-term debt | $957.0 | $900.9 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price volatility, interest rate fluctuations on variable debt, and foreign currency exchange rate changes - The company faces commodity price risk for key ingredients (flour, sugar, shortening) and gasoline, which are subject to market volatility and geopolitical factors[188][189] - The company has interest rate risk on $316.3 million of unhedged variable-rate debt, where a 100 basis point change in SOFR would alter annual interest expense by approximately $3.2 million[190] - Foreign currency exchange rate risk is significant, as 33% of revenues come from outside the U.S., with a 10% change in key exchange rates impacting H1 2025 revenues by an estimated $25.2 million[191] Item 4. Controls and Procedures A new material weakness in goodwill impairment assessment controls led to ineffective disclosure controls as of Q2 2025, replacing a remediated weakness - A previously disclosed material weakness related to journal entry system controls has been successfully remediated[194] - A new material weakness was identified in Q2 2025 related to the review of inputs and assumptions for the non-routine goodwill impairment assessment[196] - Due to the new material weakness, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 29, 2025[195] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with new securities class actions and data breach litigation commencing - The company is subject to various legal proceedings, with details on new litigation that began in Q2 2025 available in Note 12 of the financial statements[201] Risk Factors No material changes to previously disclosed risk factors were reported in the current period - No material changes to risk factors were reported compared to the latest Annual Report on Form 10-K[202] Other Items (Items 2, 3, 4, 5, 6) Part II includes no unregistered equity sales, no senior security defaults, no mine safety disclosures, and lists exhibits - The company reported "None" for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[203][204][205][206]