Krispy Kreme Reports Fourth Quarter and Full Year 2023 Financial Results

Fourth quarter Net Revenue growth of 11.4% with Organic Revenue growth of 13.2%

GAAP Net Income of $1.9 million and Adjusted EBITDA margin improvement of 40 basis points

Introduces 2024 guidance

Krispy Kreme, Inc. (NASDAQ:DNUT) ("Krispy Kreme", "KKI", or the "Company") today reported financial results for the fourth quarter and full year ended December 31, 2023.

Fourth Quarter Highlights (vs Q4 2022)

• Net revenue grew 11.4% to $450.9 million
• Organic revenue grew 13.2% to $446.0 million
• GAAP net income of $1.9 million
• GAAP net income attributable to KKI of $2.6 million
• Adjusted EBITDA increased 14.7% to $64.1 million
• Adjusted EBITDA margins improved 40 basis points to 14.2%
• Global Points of Access increased 2,310, or 19.5% to 14,147

"We reported strong double-digit fourth quarter and full-year organic revenue growth in excess of our guide," said Josh Charlesworth, CEO. "Our growth was driven by strong consumer demand in all sales channels and increased access to our fresh doughnuts around the world. We improved profitability as we grew, showing the productivity benefits of our unique Hub and Spoke operating model."

Josh continued, "Moving forward, we are modernizing the making and moving of doughnuts to ensure high quality, profitable growth. We are largely supplying expansion from existing capacity whilst making selective investments in geographies which have limited access to Krispy Kreme. This reflects our confidence in further scaling the Delivered Fresh Daily network in new channels, including Quick Service Restaurants. I look forward to us building a bigger and better Krispy Kreme."

Notes:

⁽¹⁾ Non-GAAP figures – please refer to Reconciliation of Non-GAAP Financial Measures.

Fourth Quarter 2023 Consolidated Results (vs Q4 2022)

Krispy Kreme's fourth quarter results reflect continued year-over-year growth as compared to the fourth quarter of 2022. Net revenue grew 11.4% to $450.9 million, compared to $404.6 million. GAAP net income was $1.9 million, compared to a loss in the prior year of $1.0 million. GAAP Diluted EPS was $0.02, an improvement of $0.04 from the same quarter last year.

Total company organic revenue grew 13.2%, driven by high impact global brand activations and seasonal offerings, increased Points of Access and premiumization efforts. Ecommerce as a percent of retail sales increased 130 basis points to 19.3% of sales.

Adjusted EBITDA in the quarter grew 14.7% to $64.1 million, with Adjusted EBITDA margins expanding 40 basis points to 14.2%. Adjusted Net Income, diluted declined 18.8% to $15.1 million in the quarter. Adjusted Diluted EPS declined $0.02 to $0.09 from $0.11 in the same quarter last year, due to increased depreciation and amortization, as we expanded availability of our doughnuts and Insomnia Cookies globally.

Full Year 2023 Consolidated Results (vs FY 2022)

Krispy Kreme's full year results reflect continued growth, as net revenue grew 10.2% to $1.7 billion in 2023, compared to $1.5 billion in the prior year. GAAP net loss was $36.6 million, compared to a loss of $8.8 million. GAAP Diluted Loss per Share was $0.23 compared to a loss of $0.10.

Total company organic revenue grew 12.2% for the year, driven by strong marketing activations, POA growth, and pricing actions. Adjusted EBITDA grew 11.0% to $211.6 million. Adjusted Net Income, diluted declined to $46.2 million from $49.6 million in the prior period. Adjusted diluted EPS declined $0.02 to $0.27 from $0.29 in the prior year, due to increased depreciation and amortization, as we invested in our global expansion, including Insomnia Cookies' international development, as well as higher tax rates as a greater portion of earnings came from higher tax rate jurisdictions.

Diluted weighted average common shares outstanding for the full year 2023 were 170.5 million, compared to 169.5 million for the full year 2022.

Fourth Quarter 2023 Segment Results (vs Q4 2022)

U.S.: In the U.S. segment, net revenue grew $25.2 million, or 9.3% with organic revenue growth of 13.7%. Organic revenue growth was driven by successful marketing activations including specialty offerings and seasonal events, the continued expansion of our DFD strategy, and 16.3% organic growth at Insomnia Cookies. Sales per hub in the U.S. increased 8.9% to $4.9 million and DFD average sales per door per week increased 8.0% to $665, driven by continued premiumization efforts and a significant increase in DFD door count year over year. Ecommerce as a percentage of U.S. Fresh retail doughnut sales increased 320 basis points to 15.9%.

U.S. Adjusted EBITDA increased 19.4% to $42.1 million with Adjusted EBITDA margin expansion of 120 basis points to 14.2%, driven by the productivity benefits of our hub and spoke model, labor optimization, and waste mitigation.

International: In the International segment, net revenue grew $14.1 million, or 15.2%. International organic revenue grew 9.0%, driven by POA growth of 686, or nearly 20%, and continued premiumization efforts.

International Adjusted EBITDA grew 7.8% to $22.1 million with adjusted EBITDA margin declining approximately 140 basis points, as strength in Australia was offset by lower volume in the U.K. leading to deleveraging throughout the statement of operations.

Market Development: In the Market Development segment, net revenue grew $7.0 million, or 17.2%. Organic growth in the segment was 19.2%, driven by strong organic growth in Canada and our International Franchise businesses, led by Turkey, South Korea, and the Philippines. Additionally, Krispy Kreme opened in both France and Ecuador during the quarter.

Market Development Adjusted EBITDA grew 21.1% to $16.9 million. Adjusted EBITDA margins expanded 120 basis points to 35.4%, driven by the expansion of our hub and spoke model in Japan and Canada.

Balance Sheet and Capital Expenditures

During the fourth quarter 2023, the Company invested $32.8 million in capital expenditures, driven primarily by investments in the growth of our Hub and Spoke model alongside selective remodeling activity and investments in information technology capabilities. For the full year 2023, capital expenditures as a percentage of revenue were 7.2%.

In 2023, the Company generated operating cash flow of $45.5 million, while reducing the use of vendor finance programs by $81.7 million.

As of December 31, 2023 the Company has total available liquidity of $197.2 million, including $38.2 million of cash and cash equivalents as well as undrawn capacity of roughly $159.0 million under available credit facilities. In 2023, the Company extended maturities of its primary debt facility to 2028 and as of December 31, 2023 has a net debt of $857.4 million.

2024 Financial Outlook

Krispy Kreme issues the following guidance for the full year 2024 (vs FY2023)

• Net Revenue growth of +5% to +7%
• Organic Revenue growth of +6% to +8%
• Adjusted EBITDA growth of +8% to +11%
• Adjusted Diluted EPS of $0.27 to $0.31
• Income Tax rate between 26% and 28%
• Capital Expenditures of 7% to 8% of net revenue
• Interest Expense, net of $55 million to $65 million

The above guidance assumes nominal impact from foreign exchange. The Company continues to expect to reduce its net leverage in 2024, as we make progress towards our 2026 goal of approximately 2.0x to 2.5x net leverage.

On October 3, 2023, the Company announced it is exploring strategic alternatives for Insomnia Cookies. Guidance for the full year 2024 includes operations from Insomnia Cookies.

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 Branded Sweet Treats. 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 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 39 countries through its unique network of fresh doughnut shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business with more than 14,000 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 "continue," "towards," "expect," "outlook," "guidance," "explore," 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, Diluted, 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.

Reconciliation of Non-GAAP Financial Measures

(unaudited and in thousands, except per share amounts)

We define "Adjusted EBITDA" as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for share-based compensation, certain strategic initiatives, acquisition and integration expenses, and other certain non-recurring, infrequent or non-core income and expense items. Adjusted EBITDA is a principal metric that management uses to monitor and evaluate operating performance and provides a consistent benchmark for comparison across reporting periods.

We define "Adjusted Net Income, Diluted" as net loss attributable to common shareholders, adjusted for interest expense, share-based compensation, certain strategic initiatives, acquisition and integration expenses, amortization of acquisition-related intangibles, the tax impact of adjustments, and other certain non-recurring, infrequent or non-core income and expense items. "Adjusted EPS" is Adjusted Net Income, Diluted converted to a per share amount.

Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS have certain limitations, including adjustments for income and expense items that are required by GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as share-based compensation. Our presentation of Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS supplementally.