Krispy Kreme(DNUT) - 2025 Q2 - Quarterly Report

Financial Performance - Net revenues for the quarter ended June 30, 2024, were $438.8 million, a 7.3% increase compared to$ 408.9 million in the same quarter of 2023[91] - Adjusted EBITDA for the quarter ended June 30, 2024, was $54.7 million, a 12.1% increase compared to$ 48.8 million in the same quarter of 2023[91] - Adjusted Net Income, Diluted for the quarter ended June 30, 2024, was $9.1 million, a 20.1% decrease compared to$ 11.4 million in the same quarter of 2023[91] - Adjusted EBITDA for the quarter ended June 30, 2024, was $54.7 million, up from$ 48.8 million in the same period last year[113] - Adjusted Net Income, Diluted for the quarter ended June 30, 2024, was $9.1 million, compared to$ 11.4 million in the prior year[115] - Adjusted EPS (Diluted) for the quarter ended June 30, 2024, was $0.05, down from$ 0.07 in the prior year[115] - Total net revenues for the quarter ended June 30, 2024, increased by $29.9 million (7.3%) compared to the same period in 2023[121] - Organic revenue growth for the quarter ended June 30, 2024, was$ 32.0 million (7.8%)[123] - U.S. segment net revenue grew by $21.9 million (8.2%) and organic revenue increased by$ 22.5 million (8.4%) from Q2 2023 to Q2 2024[124] - International segment net revenue grew by $4.7 million (3.9%) despite a$ 1.4 million foreign currency translation impact[125] - Market Development segment net revenue and organic revenue increased by $3.4 million (16.1%) from Q2 2023 to Q2 2024[125] - Total net revenues grew by$ 53.7 million (6.5%) and organic revenue grew by $59.6 million (7.2%) in the first two quarters of fiscal 2024[139] - U.S. segment net revenue grew by$ 36.5 million (6.6%) and organic revenue increased by $42.8 million (7.9%) in the first two quarters of fiscal 2024[140] - International segment net revenue grew by$ 17.4 million (7.5%) and organic revenue grew by $17.0 million (7.3%) in the first two quarters of fiscal 2024[141] Operational Metrics - Global Points of Access increased by 1,039 in Q2 2024, reaching a total of 15,853, driven by the addition of 993 DFD Doors globally[93] - U.S. segment organic revenue growth was 8.4% in Q2 2024, with Sales per Hub increasing by 6.4% to$ 5.0 million[93] - The U.S. segment's trailing four quarters Sales per Hub increased by 6.4% to $5.0 million in Q2 2024[93] - Total Hubs increased to 419 as of June 30, 2024, up from 405 in the previous year, with U.S. Hubs growing to 227 from 225[105] - International Hubs grew to 51 from 49, with all International Hubs having Spokes[105] - Market Development Hubs increased to 141 from 131, driven by growth in Hot Light Theater Shops and Doughnut Factories[105] - Sales per Hub in the U.S. reached$ 5.0 million, up from $4.9 million in fiscal year 2023 and$ 4.5 million in fiscal year 2022[118] - International Sales per Hub reached $10.1 million, up from$ 10.0 million in fiscal year 2023 and $9.7 million in fiscal year 2022[118] Digital and Sales Channels - Digital channel sales accounted for 22.2% of Doughnut Shop and Cookie Bakery sales in Q2 2024, up from 18.8% in the same quarter of 2023[97] Expansion and Partnerships - The company plans to open in 3 to 5 new countries in fiscal 2024, focusing on Western Europe, Asia, and South America[95] - The partnership with McDonald's is expected to phase a U.S. national rollout from Q4 2024 through the end of fiscal 2026[94] - The company added 44 new shops globally in Q2 2024, including 34 Fresh Shops and 9 Insomnia Cookie Bakeries[103] Costs and Expenses - Product and distribution costs decreased by$ 3.3 million (2.9%) from Q2 2023 to Q2 2024, with a 260 basis point decrease as a percentage of revenue[126] - Operating expenses increased by $23.3 million (12.3%) from Q2 2023 to Q2 2024, with a 210 basis point increase as a percentage of revenue[127] - Marketing expenses increased by$ 2.6 million (27.1%) from Q2 2023 to Q2 2024, driven by higher promotional activity costs[129] - Depreciation and amortization expense increased by $5.4 million (18.5%) from Q2 2023 to Q2 2024, driven by higher capital spend and assets supporting the Hub and Spoke model[131] - Interest expense, net increased by$ 2.4 million (19.8%) from Q2 2023 to Q2 2024, primarily due to higher outstanding debt and benchmark interest rates[131] - Product and distribution costs decreased by $14.1 million (6.1%) with a 330 basis point reduction as a percentage of revenue in the first two quarters of fiscal 2024[142] - Operating expenses increased by$ 37.1 million (9.8%) with a 140 basis point increase as a percentage of revenue in the first two quarters of fiscal 2024[143] - Depreciation and amortization expense increased by $11.1 million (19.3%) from the first two quarters of fiscal 2023 to the first two quarters of fiscal 2024, driven by higher capital spend and assets placed into service to support the Hub and Spoke model evolution[146] - Interest expense, net increased by$ 4.1 million (17.2%) from the first two quarters of fiscal 2023 to the first two quarters of fiscal 2024, primarily due to increases in outstanding debt and benchmark interest rates[146] Segment Performance - U.S. segment Adjusted EBITDA increased by $4.6 million (16.3%) with margin expansion of 80 basis points to 11.3% in Q2 2024[133] - International segment Adjusted EBITDA decreased by$ 3.0 million (12.3%) with margin decline of 320 basis points to 17.3% in Q2 2024[133] - Market Development segment Adjusted EBITDA increased by $2.4 million (22.7%) with margin expansion of 280 basis points to 53.1% in Q2 2024[135] - U.S. segment Adjusted EBITDA increased by$ 8.7 million (13.0%) with margin expansion of 80 basis points to 12.9% in the first two quarters of fiscal 2024 compared to the first two quarters of fiscal 2023[148] - International segment Adjusted EBITDA decreased by $1.5 million (3.4%) with margin decline of 190 basis points to 16.9% in the first two quarters of fiscal 2024 compared to the first two quarters of fiscal 2023[148] - Market Development segment Adjusted EBITDA increased by$ 2.7 million (12.4%) with margin expansion of 620 basis points to 53.6% in the first two quarters of fiscal 2024 compared to the first two quarters of fiscal 2023[149] - Corporate expenses within Adjusted EBITDA increased by $0.7 million (2.5%) from the first two quarters of fiscal 2023 to the first two quarters of fiscal 2024 primarily due to higher share-based compensation expense and investments in strategic initiatives[151] Cash Flow and Capital Expenditures - The company had cash and cash equivalents of$ 28.6 million as of June 30, 2024, compared to $38.2 million as of December 31, 2023[155] - Cash provided by operations totaled$ 15.5 million for the first two quarters of fiscal 2024, a decrease of $30.7 million compared with the first two quarters of fiscal 2023[158] - Cash used for investing activities totaled$ 65.2 million for the first two quarters of fiscal 2024, an increase of $21.1 million compared with the first two quarters of fiscal 2023[159] - The company expects capital expenditures to be between 7% and 8% of revenues in fiscal 2024 as it continues to deploy the capital-efficient Hub and Spoke model globally[160] Risk Management - The company is exposed to commodity price fluctuations, particularly in the cost of ingredients like flour, sugar, and shortening, and has implemented strategies such as rapid inventory turnover and forward contracts to manage inflationary pressures[173][174] - The company has entered into interest rate swaps on$ 200.0 million of its $912.0 million outstanding debt to mitigate interest rate risk, with a 100 basis point change in SOFR impacting interest expense by$ 7.1 million annually[175] - Foreign currency translation risk affects approximately 28% of the company's total net revenues, with a 10% change in exchange rates potentially impacting revenues by $25.0 million[176] - The company has increased its hedged debt ratio by entering into additional interest rate swap agreements with a notional amount of$ 250.0 million after June 30, 2024[175] - The company's subsidiaries with functional currencies other than the U.S. dollar generated approximately $250.0 million in revenues through the first two quarters of 2024[176] Strategic Initiatives - Strategic initiatives and new market penetration expenses totaled$ 4.2 million and $572 thousand, respectively, for the quarter ended June 30, 2024[113] - Share-based compensation increased to$ 7.6 million for the quarter ended June 30, 2024, up from $4.8 million in the prior year[113] - Acquisition and integration expenses were$ 851 thousand for the quarter ended June 30, 2024, compared to $339 thousand in the same period last year[113] - Organic revenue growth excludes acquisitions, foreign currency impacts, and shop closures, focusing on internal expansion efforts[109]