Krispy Kreme(DNUT) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Krispy Kreme, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2024, including statements of operations, comprehensive (loss)/income, balance sheets, changes in shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, inventory, goodwill, leases, derivatives, debt, share-based compensation, income taxes, commitments, related party transactions, revenue recognition, net loss per share, and segment reporting Condensed Consolidated Statements of Operations The company reported a significant increase in net loss attributable to Krispy Kreme, Inc. for Q1 2024, reaching $(8.5) million, compared to $(0.3) million in Q1 2023. Total net revenues grew by 5.7% to $442.7 million, but operating income declined by 20.3% due to rising operating, SG&A, marketing, and depreciation expenses, alongside higher interest and income tax expenses | Metric | Q1 2024 (13 weeks) | Q1 2023 (13 weeks) | Change ($) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Total Net Revenues | $442,698 | $418,950 | $23,748 | 5.7% | | Operating Income | $11,908 | $14,948 | $(3,040) | -20.3% | | Net (Loss)/Income | $(6,663) | $1,644 | $(8,307) | -505.3% | | Net Loss Attributable to KKI | $(8,534) | $(301) | $(8,233) | -2,735.2% | | Basic Net Loss Per Share | $(0.05) | $0.00 | $(0.05) | - | | Diluted Net Loss Per Share | $(0.05) | $0.00 | $(0.05) | - | Condensed Consolidated Statements of Comprehensive (Loss)/Income The company reported a comprehensive loss of $(15.4) million for Q1 2024, a substantial decrease from a comprehensive income of $9.8 million in Q1 2023, primarily driven by the reported net loss and a negative foreign currency translation adjustment | Metric | Q1 2024 (13 weeks) | Q1 2023 (13 weeks) | | :------------------------------------------ | :----------------- | :----------------- | | Net (Loss)/Income | $(6,663) | $1,644 | | Foreign Currency Translation Adjustment | $(6,069) | $11,092 | | Unrealized Loss on Cash Flow Hedges | $(2,684) | $(2,967) | | Total Other Comprehensive (Loss)/Income | $(8,753) | $8,125 | | Comprehensive (Loss)/Income | $(15,416) | $9,769 | | Comprehensive (Loss)/Income Attributable to Krispy Kreme, Inc. | $(16,988) | $7,932 | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets slightly decreased to $3.23 billion from $3.24 billion at December 31, 2023, while total liabilities increased to $1.99 billion from $1.98 billion, and total shareholders' equity saw a slight reduction to $1.25 billion from $1.26 billion | Metric | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Assets | $3,234,318 | $3,240,592 | $(6,274) | -0.19% | | Total Liabilities | $1,986,431 | $1,976,809 | $9,622 | 0.49% | | Total Shareholders' Equity | $1,247,887 | $1,263,783 | $(15,896) | -1.26% | | Cash and Cash Equivalents | $33,132 | $38,185 | $(5,053) | -13.23% | | Inventories | $39,257 | $34,716 | $4,541 | 13.08% | | Long-term debt, less current portion | $881,778 | $836,615 | $45,163 | 5.39% | Condensed Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity decreased from $1,263.8 million at December 31, 2023, to $1,247.9 million at March 31, 2024, primarily due to the net loss for the quarter, other comprehensive losses, and declared dividends, partially offset by share-based compensation and capital contributions | Metric | December 31, 2023 | March 31, 2024 | | :------------------------------------------ | :---------------- | :------------- | | Balance at Period Start | $1,263,783 | $1,263,783 | | Net (Loss)/Income for the Quarter | $(278,990) (Retained Deficit) | $(8,534) (Net Loss) | | Other Comprehensive (Loss)/Income | $7,246 (Accumulated OCI) | $(8,753) (Total OCI) | | Share-based Compensation | - | $6,986 | | Dividends Declared | - | $(5,905) | | Balance at Period End | $1,263,783 | $1,247,887 | Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash, cash equivalents, and restricted cash of $(5.0) million in Q1 2024, a slight improvement from a $(5.6) million decrease in Q1 2023, with operating activities using $(17.7) million, investing activities using $(29.0) million, and financing activities providing $43.6 million | Cash Flow Activity | Q1 2024 (13 weeks) | Q1 2023 (13 weeks) | Change ($) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | | Net Cash (Used For)/Provided by Operating Activities | $(17,705) | $10,365 | $(28,070) | | Net Cash Used for Investing Activities | $(29,045) | $(16,446) | $(12,599) | | Net Cash Provided by Financing Activities | $43,577 | $1,808 | $41,769 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(5,002) | $(5,646) | $644 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $33,612 | $30,084 | $3,528 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures for the condensed consolidated financial statements, covering the company's business description, accounting policies, inventory, goodwill, intangible assets, leases, fair value measurements, derivative instruments, vendor finance programs, long-term debt, share-based compensation, income taxes, commitments, related party transactions, revenue recognition, net loss per share, segment reporting, and subsequent events Note 1 — Description of Business and Summary of Significant Accounting Policies Krispy Kreme operates an omni-channel business model to deliver fresh doughnuts through Doughnut Shops, Delivered Fresh Daily (DFD) outlets, and digital channels, with three reportable segments: U.S., International, and Market Development, and reclassified Company-owned Canada and Japan businesses to International effective January 1, 2024 - Krispy Kreme operates an omni-channel business model to deliver fresh doughnuts through Doughnut Shops, Delivered Fresh Daily (DFD) outlets, and digital channels[24] - The company has three reportable segments: U.S. (Krispy Kreme U.S. and Insomnia Cookies), International (Company-owned operations in UK, Ireland, Australia, New Zealand, Mexico, Canada, Japan), and Market Development (global franchise operations)[25] - Effective January 1, 2024, Company-owned Canada and Japan businesses were moved from the Market Development segment to the International segment, with all segment information restated[32] Note 2 — Inventories Total inventories increased by 13.08% to $39.3 million as of March 31, 2024, from $34.7 million at December 31, 2023, primarily driven by increases in raw materials (12.35%) and finished goods and purchased merchandise (12.50%) | Inventory Component | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------- | :------------- | :---------------- | :--------- | :--------- | | Raw materials | $23,594 | $21,000 | $2,594 | 12.35% | | Work in progress | $470 | $211 | $259 | 122.75% | | Finished goods and purchased merchandise | $15,193 | $13,505 | $1,688 | 12.50% | | Total inventories | $39,257 | $34,716 | $4,541 | 13.08% | Note 3 — Goodwill and Other Intangible Assets, net Goodwill slightly decreased to $1.10 billion as of March 31, 2024, from $1,101.9 million at December 31, 2023, primarily due to foreign currency impact, while other intangible assets, net, also decreased to $938.8 million from $946.3 million, with amortization expense of $7.4 million for the quarter | Asset Type | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Goodwill | $1,098,826 | $1,101,939 | $(3,113) | -0.28% | | Other Intangible Assets, net | $938,847 | $946,349 | $(7,502) | -0.79% | - Amortization expense related to intangible assets was $7.4 million for Q1 2024, up from $7.3 million for Q1 2023[37] Note 4 — Leases Total leased assets were $499.0 million and total leased liabilities were $552.5 million as of March 31, 2024, remaining relatively stable, with operating lease costs increasing and cash paid for operating leases rising to $31.1 million, and no sale-leaseback transactions occurring in Q1 2024 | Lease Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total Leased Assets | $498,950 | $498,375 | | Total Leased Liabilities | $552,503 | $552,065 | | Lease Cost (Q1) | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Operating lease cost (SG&A) | $935 | $891 | | Operating lease cost (Operating expenses) | $24,023 | $22,390 | | Finance lease amortization | $2,921 | $1,584 | | Cash paid for operating leases | $31,124 | $29,145 | - No sale-leaseback transactions were completed in Q1 2024. In Q1 2023, the company completed a sale-leaseback transaction for $10.0 million proceeds, recognizing a $9.7 million gain[41] Note 5 — Fair Value Measurements The company's recurring fair value measurements primarily involve Level 2 derivatives, with total derivative assets of $1.3 million (interest rate and commodity derivatives) and total derivative liabilities of $0.6 million (foreign currency derivatives) as of March 31, 2024 | Derivative Type (Level 2) | March 31, 2024 (Assets) | December 31, 2023 (Assets) | March 31, 2024 (Liabilities) | December 31, 2023 (Liabilities) | | :-------------------------------- | :---------------------- | :------------------------- | :--------------------------- | :------------------------------ | | Interest rate derivatives | $972 | $1,596 | - | - | | Commodity derivatives | $341 | - | - | $113 | | Foreign currency derivatives | - | - | $599 | $345 | | Total Assets | $1,313 | $1,596 | - | - | | Total Liabilities | - | - | $599 | $458 | Note 6 — Derivative Instruments Krispy Kreme utilizes derivatives to manage commodity price, interest rate, and foreign currency risks, with interest rate swaps designated as cash flow hedges fixing interest rates on a $505.0 million notional amount of the term loan until June 2024 - The company uses forward contracts for commodity price risk (flour, sugar, shortening, gasoline) and foreign exchange forward contracts for foreign currency risk, neither designated as hedges[43][47] - Interest rate swaps are used to manage interest rate volatility on debt, designated as cash flow hedges, fixing rates on $505.0 million notional amount of the term loan until June 2024[44][46] | Derivative Type | Q1 2024 Gain in Income | Q1 2023 Gain in Income | | :-------------------------------- | :--------------------- | :--------------------- | | Interest rate derivatives (hedging) | $3,051 | $2,186 | | Foreign currency derivatives (non-hedging) | $(254) | $(924) | | Commodity derivatives (non-hedging) | $454 | $(118) | Note 7 — Vendor Finance Programs The company participates in Supply Chain Financing (SCF) and Structured Payables programs, with total liabilities under these programs decreasing by 9.88% to $163.4 million as of March 31, 2024, from $181.3 million at December 31, 2023 - The company uses Supply Chain Financing (SCF) programs, where vendors can sell payment obligations to financial institutions, and Structured Payables programs using card products[52][53] | Program Type | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------- | :------------- | :---------------- | :--------- | :--------- | | Supply Chain Financing Programs | $29,622 | $51,239 | $(21,617) | -42.19% | | Structured Payables Programs | $133,809 | $130,104 | $3,705 | 2.85% | | Total Liabilities | $163,431 | $181,343 | $(17,912) | -9.88% | Note 8 — Long-Term Debt Total long-term debt, less current portion, increased by 5.39% to $881.8 million as of March 31, 2024, from $836.6 million at December 31, 2023, including a $700.0 million term loan and a $300.0 million revolving credit facility, with an unhedged interest rate of 7.43% and $505.0 million of the term loan hedged | Debt Component | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | 2023 Facility — term loan | $673,750 | $682,500 | $(8,750) | -1.28% | | 2023 Facility — revolving credit facility | $207,500 | $155,000 | $52,500 | 33.87% | | Short-term lines of credit | $17,000 | $11,000 | $6,000 | 54.55% | | Finance lease obligations | $47,963 | $47,117 | $846 | 1.79% | | Total long-term debt, less current portion | $881,778 | $836,615 | $45,163 | 5.39% | - The 2023 Facility includes a $300.0 million senior secured revolving credit facility and a $700.0 million term loan[55] - As of March 31, 2024, the unhedged interest rate was 7.43%, and $505.0 million of the term loan balance was hedged[56] Note 9 — Share-based Compensation Total non-cash compensation expense for RSUs and PSUs was $6.1 million in Q1 2024, up from $4.7 million in Q1 2023, with unrecognized compensation cost for KKI RSUs and PSUs at $53.7 million and time-vested stock options resulting in $0.9 million expense in both Q1 2024 and Q1 2023 - Total non-cash compensation expense for RSUs and PSUs was $6.1 million in Q1 2024, an increase from $4.7 million in Q1 2023[60] | Plan | Unrecognized Compensation Cost (March 31, 2024) | Weighted Average Period | | :---------------- | :-------------------------------------- | :---------------------- | | KKI RSUs and PSUs | $53,665 | 2.9 years | | Insomnia Cookies RSUs | $3,355 | 0.9 years | - Non-cash compensation expense for time-vested stock options was $0.9 million for both Q1 2024 and Q1 2023[63] Note 10 — Income Taxes The company's effective income tax rate was -177.5% for Q1 2024, a significant change from 16.2% in Q1 2023, primarily due to lower pre-tax results, disallowed executive compensation, the mix of income and taxes attributable to foreign jurisdictions, and noncontrolling interest in domestic joint ventures | Metric | Q1 2024 | Q1 2023 | | :-------------------------- | :------ | :------ | | Effective Income Tax Rate | -177.5% | 16.2% | - The effective tax rate for Q1 2024 was impacted by lower pre-tax results, disallowed executive compensation, foreign jurisdiction income mix, and noncontrolling interest[67] Note 11 — Commitments and Contingencies The company is involved in various legal proceedings, including a lawsuit alleging violations of the Illinois Biometric Information Privacy Act, which management believes has meritorious defenses, and had $13.3 million in outstanding letters of credit as of March 31, 2024 - A lawsuit alleging violations of the Illinois Biometric Information Privacy Act is pending, but management believes it has meritorious defenses and expects no material adverse effect on financial results[68] - Letters of credit totaling $13.3 million were outstanding as of March 31, 2024, mainly securing self-insurance obligations[70] Note 12 — Related Party Transactions The company holds equity ownership in three franchisees: KremeWorks USA, LLC (20% ownership), KremeWorks Canada, L.P. (25% ownership), and Krispy Kreme Doughnuts France SAS (33% ownership), with an aggregate carrying value of $2.3 million as of March 31, 2024 - The company has equity ownership in three franchisees: KremeWorks USA, LLC (20%), KremeWorks Canada, L.P. (25%), and Krispy Kreme Doughnuts France SAS (33%)[71] | Related Party | Ownership | Carrying Value (March 31, 2024) | | :-------------------------------- | :-------- | :------------------------------ | | KremeWorks USA, LLC | 20% | $2,300 (aggregate) | | KremeWorks Canada, L.P. | 25% | | | Krispy Kreme Doughnuts France SAS | 33% | | Note 13 — Revenue Recognition Total net revenues increased by 5.7% to $442.7 million in Q1 2024, with revenue from Company Shops, DFD, and Branded Sweet Treats growing by 7.0%, while mix and equipment revenue from franchisees decreased by 25.5%, and franchise royalties and other revenues increased by 11.0%, leading to deferred revenue increasing by 5.04% to $29.5 million | Revenue Source | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Company Shops, DFD and Branded Sweet Treats | $420,213 | $392,814 | $27,399 | 7.0% | | Mix and equipment revenue from franchisees | $13,299 | $17,860 | $(4,561) | -25.5% | | Franchise royalties and other | $9,186 | $8,276 | $910 | 11.0% | | Total net revenues | $442,698 | $418,950 | $23,748 | 5.7% | | Contract Balance | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------- | :------------- | :---------------- | :--------- | :--------- | | Trade receivables, net | $50,212 | $45,858 | $4,354 | 9.49% | | Total deferred revenue | $29,486 | $28,071 | $1,415 | 5.04% | Note 14 — Net Loss per Share The basic and diluted net loss per share attributable to Krispy Kreme, Inc. was $(0.05) for Q1 2024, compared to $0.00 in Q1 2023, with potential dilutive shares excluded from diluted EPS calculation due to their antidilutive effect | Metric | Q1 2024 | Q1 2023 | | :------------------------------------------ | :------ | :------ | | Net Loss Attributable to Krispy Kreme, Inc. | $(8,534) | $(301) | | Basic Net Loss Per Share | $(0.05) | $0.00 | | Diluted Net Loss Per Share | $(0.05) | $0.00 | | Basic Weighted Average Shares Outstanding | 168,685 | 168,141 | | Diluted Weighted Average Shares Outstanding | 168,685 | 168,141 | - Potential dilutive shares (unvested RSUs, PSUs, and stock options) were excluded from diluted EPS calculation for both periods due to their antidilutive effect[75][76] Note 15 — Segment Reporting The company realigned its segment reporting effective January 1, 2024, moving Company-owned Canada and Japan businesses to International, resulting in total net revenues increasing by 5.7% to $442.7 million, with U.S. segment revenue up 5.2%, International up 11.4%, and Market Development revenue decreasing by 14.1%, while Adjusted EBITDA increased by 5.9% to $58.2 million - Effective January 1, 2024, Company-owned Canada and Japan businesses were moved from the Market Development segment to the International segment[79] | Segment | Q1 2024 Net Revenues | Q1 2023 Net Revenues | Change ($) | Change (%) | | :---------------- | :------------------- | :------------------- | :--------- | :--------- | | U.S. | $295,935 | $281,344 | $14,591 | 5.2% | | International | $124,750 | $111,988 | $12,762 | 11.4% | | Market Development | $22,013 | $25,618 | $(3,605) | -14.1% | | Total Net Revenues | $442,698 | $418,950 | $23,748 | 5.7% | | Segment | Q1 2024 Adjusted EBITDA | Q1 2023 Adjusted EBITDA | Change ($) | Change (%) | | :---------------- | :---------------------- | :---------------------- | :--------- | :--------- | | U.S. | $42,616 | $38,535 | $4,081 | 10.6% | | International | $20,536 | $18,982 | $1,554 | 8.2% | | Market Development | $11,900 | $11,551 | $349 | 3.0% | | Corporate | $(16,864) | $(14,140) | $(2,724) | -19.3% | | Total Adjusted EBITDA | $58,188 | $54,928 | $3,260 | 5.9% | Note 16 — Subsequent Events A cash dividend of $0.035 per share was declared on April 30, 2024, payable on August 7, 2024, to shareholders of record on July 24, 2024 - A cash dividend of $0.035 per share was declared on April 30, 2024, payable on August 7, 2024[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Krispy Kreme's financial condition and results of operations for Q1 2024, covering forward-looking statements, business overview, significant events, segment reclassifications, key performance indicators, detailed results by segment, capital resources, liquidity, cash flows, debt, critical accounting policies, and new accounting pronouncements Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to various risks and uncertainties, which could cause actual results to differ materially from expectations, with key factors including pandemics, consumer preferences, inflation, and the company's ability to execute its omni-channel business strategy - The report contains forward-looking statements based on assumptions, subject to various risks and uncertainties that could cause actual results to differ materially[85] - Key factors influencing actual results include pandemics, changes in consumer preferences, inflation, and the execution of the omni-channel business strategy[85] Overview Krispy Kreme is a global sweet treat brand operating in 39 countries, employing an omni-channel strategy to deliver fresh doughnuts, with "Global Points of Access" as a key metric, and for Q1 2024, net revenues increased by 5.7%, while net loss attributable to Krispy Kreme, Inc. significantly widened - Krispy Kreme operates in 39 countries with an omni-channel strategy to deliver fresh doughnuts through Doughnut Shops, DFD outlets, and digital channels[86] - Global Points of Access, defined as the network of Doughnut Shops, DFD Doors, and digital business, is a key metric for measuring consumer access[86] | Metric | Q1 2024 | Q1 2023 | % Change | | :-------------------------------- | :------ | :------ | :------- | | Net Revenues | $442,698 | $418,950 | 5.7% | | Net Loss Attributable to Krispy Kreme, Inc. | $(8,534) | $(301) | -2,735.2%| | Adjusted Net Income, Diluted | $11,321 | $15,261 | -25.8% | | Adjusted EBITDA | $58,188 | $54,928 | 5.9% | Significant Events and Transactions In Q1 2024, Krispy Kreme significantly advanced its omni-channel strategy by adding 667 new Global Points of Access, primarily 605 DFD Doors, contributing to a 6.5% increase in trailing four quarters Sales per Hub in the U.S. segment, announced a national rollout partnership with McDonald's, and digital channel sales reached a record 23.0% of Doughnut Shop and Cookie Bakery sales - Added 667 new Global Points of Access in Q1 2024, reaching 14,814, primarily driven by 605 new DFD Doors globally[89] - Entered an agreement with McDonald's for a U.S. national rollout of Krispy Kreme doughnuts, with phasing expected through the end of fiscal 2026[90] - Digital channel sales reached a record 23.0% of Doughnut Shop and Cookie Bakery sales in Q1 2024, up from 19.6% in Q1 2023[92] - Trailing four quarters Sales per Hub in the U.S. increased by 6.5% to a record $4.9 million in Q1 2024[89] Segment Reclassifications Effective January 1, 2024, the company realigned its segment reporting structure, reclassifying Company-owned Canada and Japan businesses from the Market Development segment to the International segment, with all prior period segment information restated for consistency - Effective January 1, 2024, Company-owned Canada and Japan businesses were reclassified from the Market Development segment to the International segment[95] Key Performance Indicators and Non-GAAP Measures The company monitors Global Points of Access, Hubs, Organic Revenue Growth, Adjusted EBITDA, Adjusted Net Income, Diluted, and Sales per Hub as key performance indicators, with Global Points of Access reaching 14,814 as of March 31, 2024, and total Hubs increasing to 414 - Global Points of Access, reflecting all locations where fresh doughnuts or cookies can be purchased, reached 14,814 as of March 31, 2024, including 2,239 shops and 12,529 DFD Doors[98][100] | Global Points of Access | March 31, 2024 | April 2, 2023 | December 31, 2023 | | :-------------------------------- | :------------- | :------------ | :---------------- | | U.S. Total | 7,775 | 6,615 | 7,374 | | International Total | 4,753 | 3,836 | 4,520 | | Market Development Total | 2,286 | 1,959 | 2,253 | | Total Global Points of Access | 14,814 | 12,410 | 14,147 | - Hubs, which are centralized production facilities, totaled 414 as of March 31, 2024, up from 400 in Q1 2023[101][102] Organic Revenue Growth Organic revenue growth, which excludes the impact of acquisitions, foreign currency, shop closures, and the Branded Sweet Treats business exit, was 6.7% for Q1 2024, driven by the continued execution of the omni-channel strategy, high-impact brand activations, and product premiumization efforts - Organic revenue growth excludes the impact of acquisitions, foreign currency, shop closures, and the Branded Sweet Treats business exit[105] | Segment | Q1 2024 Organic Revenue Growth | Q1 2024 Organic Revenue Growth % | | :---------------- | :----------------------------- | :------------------------------- | | U.S. | $20,274 | 7.4% | | International | $10,926 | 9.8% | | Market Development | $(3,605) | -14.1% | | Total Company | $27,595 | 6.7% | Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS are non-GAAP measures used by management to evaluate operating performance, with Adjusted EBITDA increasing by 5.9% to $58.2 million in Q1 2024, while Adjusted Net Income, Diluted decreased by 25.8% to $11.3 million, resulting in an Adjusted EPS of $0.07 - Adjusted EBITDA is a principal metric used by management to monitor and evaluate operating performance, adjusting for non-recurring or non-core items[106] | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :------------------------------------------ | :------ | :------ | :--------- | :--------- | | Adjusted EBITDA | $58,188 | $54,928 | $3,260 | 5.9% | | Adjusted Net Income Attributable to Common Shareholders - Diluted | $11,321 | $15,261 | $(3,940) | -25.8% | | Adjusted Net Income Per Share Attributable to Common Shareholders - Diluted | $0.07 | $0.09 | $(0.02) | -22.2% | Sales Per Hub Sales per Hub, a key performance indicator for the Hub and Spoke model, measures revenue generated from a Hub and its associated Spokes, with U.S. Sales per Hub at $4.9 million and International Sales per Hub reaching $10.2 million for the trailing four quarters ended March 31, 2024 - Sales per Hub measures revenue generated from a Hub and its associated Spokes, reflecting the efficiency of the Hub and Spoke distribution model[113] | Segment | Trailing Four Quarters Ended March 31, 2024 (millions) | Fiscal Year Ended December 31, 2023 (millions) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | U.S. Sales per Hub | $4.9 | $4.9 | | International Sales per Hub | $10.2 | $10.0 | Results of Operations This section details the company's financial performance for Q1 2024 compared to Q1 2023, highlighting revenue growth, changes in costs and expenses, and segment-specific Adjusted EBITDA performance, with total net revenues increasing by 5.7% with organic growth of 6.7%, while product and distribution costs decreased, operating expenses and SG&A increased, leading to a 20.3% decline in operating income and a significant widening of net loss attributable to Krispy Kreme, Inc Quarter ended March 31, 2024 compared to the Quarter ended April 2, 2023 Total net revenues increased by 5.7% to $442.7 million, with organic revenue growth of 6.7%, while product and distribution costs decreased by 9.2%, operating expenses increased by 7.2%, and SG&A expenses rose by 16.4%, leading to operating income decreasing by 20.3% and net loss attributable to Krispy Kreme, Inc. significantly widening to $(8.5) million | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Total Net Revenues | $442,698 | $418,950 | $23,748 | 5.7% | | Organic Revenue Growth | $27,595 | - | - | 6.7% | | Product and Distribution Costs | $107,015 | $117,833 | $(10,818) | -9.2% | | Operating Expenses | $205,195 | $191,408 | $13,787 | 7.2% | | Selling, General and Administrative Expense | $71,574 | $61,468 | $10,106 | 16.4% | | Operating Income | $11,908 | $14,948 | $(3,040) | -20.3% | | Net Loss Attributable to Krispy Kreme, Inc. | $(8,534) | $(301) | $(8,233) | -2,735.2% | - Product and distribution costs decreased by 9.2% primarily due to benefits from exiting the lower-margin Branded Sweet Treats business and lapping related inventory write-offs[122] - SG&A expense increased by 16.4% due to investments in strategic initiatives (global transformation, Insomnia Cookies alternatives, McDonald's expansion) and higher share-based compensation[124] Results of Operations by Segment – Quarter ended March 31, 2024 compared to the Quarter ended April 2, 2023 U.S. segment Adjusted EBITDA increased by 10.6% with a 70 basis point margin expansion, International segment Adjusted EBITDA grew by 8.2% but experienced a 50 basis point margin decline, and Market Development segment Adjusted EBITDA increased by 3.0% with a significant 900 basis point margin expansion, while Corporate expenses within Adjusted EBITDA increased by 19.3% | Segment | Q1 2024 Adjusted EBITDA | Q1 2023 Adjusted EBITDA | Change ($) | Change (%) | Margin Change (bps) | | :---------------- | :---------------------- | :---------------------- | :--------- | :--------- | :------------------ | | U.S. | $42,616 | $38,535 | $4,081 | 10.6% | +70 | | International | $20,536 | $18,982 | $1,554 | 8.2% | -50 | | Market Development | $11,900 | $11,551 | $349 | 3.0% | +900 | | Corporate | $(16,864) | $(14,140) | $(2,724) | -19.3% | - | | Total Adjusted EBITDA | $58,188 | $54,928 | $3,260 | 5.9% | - | - U.S. Adjusted EBITDA margin expanded by 70 basis points to 14.4%, benefiting from the Branded Sweet Treats exit and Hub and Spoke expansion[129] - International Adjusted EBITDA margin declined by 50 basis points to 16.5% due to lower transaction volumes in the U.K.[130] - Market Development Adjusted EBITDA margin expanded by 900 basis points to 54.1%, driven by timing of lower-margin equipment sales and international franchise expansion[131] Capital Resources and Liquidity The company's primary liquidity sources include cash from operating activities, cash on hand, credit facilities, and vendor financing, with $881.3 million outstanding principal under the 2023 Facility and $33.1 million in cash and cash equivalents as of March 31, 2024, and management expects existing liquidity to be sufficient for the next twelve months - Primary liquidity sources include cash from operating activities, cash on hand, credit facilities, and vendor financing programs[133] | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Outstanding Principal (2023 Facility) | $881.3 million | $837.5 million (FY23) | | Cash and Cash Equivalents | $33.1 million | $38.2 million | - Management expects existing cash and debt facilities to be sufficient for operating and capital needs for at least the next twelve months, but future needs are subject to growth and expansion factors[135] Cash Flows Cash used for operating activities totaled $(17.7) million in Q1 2024, a $28.1 million fluctuation from Q1 2023, while cash used for investing activities increased by $12.6 million to $(29.0) million, and cash provided by financing activities significantly increased to $43.6 million, with capital expenditures projected to be 7-8% of revenues in fiscal 2024 | Cash Flow Activity | Q1 2024 | Q1 2023 | Change ($) | | :------------------------------------------ | :------ | :------ | :--------- | | Net Cash (Used For)/Provided by Operating Activities | $(17,705) | $10,365 | $(28,070) | | Net Cash Used for Investing Activities | $(29,045) | $(16,446) | $(12,599) | | Net Cash Provided by Financing Activities | $43,577 | $1,808 | $41,769 | - Operating cash flow fluctuation was due to paydown of SCF obligations and Q1 2023's $7.7 million interest rate swap settlement[138] - Investing cash flow increase was due to higher capital expenditures and the absence of $10.0 million sale-leaseback proceeds from Q1 2023[139] - Capital expenditures are expected to be 7-8% of revenues in fiscal 2024, with incremental outflows in 2025-2026 for U.S. expansion (McDonald's rollout)[140] Debt Total long-term debt, less current portion, was $881.8 million as of March 31, 2024, with the leverage ratio under the 2023 Facility at 3.75 to 1.00, an increase from 3.48 to 1.00 at fiscal year-end 2023, but remaining below the covenant limit of 5.00 to 1.00, and the company was in compliance with all financial covenants | Debt Component | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total long-term debt, less current portion | $881,778 | $836,615 | - The leverage ratio was 3.75 to 1.00 as of March 31, 2024, up from 3.48 to 1.00 at December 31, 2023, but within the 2023 Facility covenant of less than 5.00 to 1.00[146] - The company was in compliance with all financial covenants of the 2023 Facility as of March 31, 2024, and expects to remain compliant[147] Critical Accounting Policies and Estimates The preparation of the Condensed Consolidated Financial Statements requires the use of judgments, estimates, and assumptions, with no material changes to critical accounting policies and estimates previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to critical accounting policies and estimates were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2023[150] New Accounting Pronouncements This section refers to Note 1, Description of Business and Summary of Significant Accounting Policies, within the Condensed Consolidated Financial Statements for a detailed description of recent accounting pronouncements - Refer to Note 1 for details on recent accounting pronouncements, including ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures)[33][34][151] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Krispy Kreme's exposure to market risks, including the effects of changing prices (inflation), interest rate risk, and foreign currency risk, and the company employs various strategies, such as forward contracts and interest rate swaps, to mitigate these risks Effects of Changing Prices – Inflation The company is exposed to commodity price fluctuations for key ingredients and gasoline for its delivery vehicles, and manages these inflationary cost increases through rapid inventory turnover, supply chain resiliency, pricing adjustments, and forward contracts for raw materials and fuel - The company is exposed to commodity price fluctuations for key ingredients (flour, sugar, shortening) and gasoline for delivery vehicles[153][154] - Inflationary cost increases are managed through rapid inventory turnover, supply chain resiliency, pricing adjustments, and forward contracts for raw materials and fuel[153][154] Interest Rate Risk The company is exposed to changes in interest rates on its variable-rate debt, with $505.0 million of the $898.3 million outstanding debt hedged by interest rate swaps maturing in June 2024, and a 100 basis point change in one-month SOFR on the unhedged $393.3 million debt would result in an approximately $3.9 million annual change in interest expense - The company is exposed to interest rate changes on variable-rate debt, with $505.0 million of $898.3 million outstanding debt hedged by interest rate swaps maturing in June 2024[155] - A 100 basis point change in one-month SOFR on the unhedged $393.3 million debt would result in an approximate $3.9 million annual change in interest expense[155] Foreign Currency Risk The company faces foreign currency translation risk from its non-U.S. subsidiaries, which accounted for approximately 28% of total net revenues in Q1 2024, and a 10% change in major foreign currency exchange rates against the U.S. dollar would impact total net revenues by approximately $12.5 million, with foreign exchange forward contracts utilized to mitigate transaction risk - Foreign currency translation risk exists from non-U.S. subsidiaries, which generated approximately 28% of total net revenues in Q1 2024[156] - A 10% change in major foreign currency exchange rates against the U.S. dollar would result in an approximate $12.5 million change in total net revenues for Q1 2024[156] - Foreign exchange forward contracts are used to hedge commercial and financial transactions with non-U.S. subsidiaries, not for speculative purposes[157] Item 4. Controls and Procedures As of March 31, 2024, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, and there were no material changes in internal control over financial reporting during the fiscal quarter ended March 31, 2024 - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024[159] - No material changes in internal control over financial reporting occurred during Q1 2024[160] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal actions that arise in the normal course of business, and readers are directed to Note 11, Commitments and Contingencies, within the Condensed Consolidated Financial Statements for specific details - The company is involved in various legal proceedings arising in the normal course of business[162] - Refer to Note 11, Commitments and Contingencies, for information regarding specific legal proceedings[162] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2023[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities and use of proceeds[164] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[165] Item 4. Mine Safety Disclosures No mine safety disclosures are applicable to the company - No mine safety disclosures[166] Item 5. Other Information During the quarter ended March 31, 2024, no director or Section 16 officer of the company adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 arrangements" - No director or Section 16 officer adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 arrangements during Q1 2024[167] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Transition and Separation Agreement, certifications from the CEO and CFO, and the financial statements formatted in Inline XBRL, along with the Cover Page Interactive Data File - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1), financial statements in Inline XBRL (101), and the Cover Page Interactive Data File (104)[169] Signatures The report was duly signed on behalf of Krispy Kreme, Inc. by Jeremiah Ashukian, Chief Financial Officer, in Charlotte, North Carolina on May 9, 2024 - The report was signed by Jeremiah Ashukian, Chief Financial Officer, on May 9, 2024[174]