Krispy Kreme Q1 2025 Earnings Report

Krispy Kreme EPS Results

• Actual EPS: -$0.05
• Consensus EPS: -$0.05
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.07

Krispy Kreme Revenue Results

• Actual Revenue: $375.18 million
• Expected Revenue: $383.97 million
• Beat/Miss: Missed by -$8.79 million
• YoY Revenue Growth: -15.20%

Krispy Kreme Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:30AM ET

Krispy Kreme (NASDAQ:DNUT), together with its subsidiaries, produces doughnuts in the United States, the United Kingdom, Ireland, Australia, New Zealand, Mexico, Canada, Japan, and internationally. The company operates through three segments: U.S., International, and Market Development. The company offers doughnut experiences through hot light theater and fresh shops, delivered fresh daily branded cabinets and merchandising units within grocery and convenience stores, quick service restaurants, club memberships, drug stores, and ecommerce, as well as through its branded sweet treat line comprising Krispy Kreme branded sweet treats. It also provides cookies under the Insomnia Cookies brand, cookie cakes, ice cream, cookie-wiches, and brownies; and operates Krispy Kreme company-owned shops and franchise shops. The company was formerly known as Krispy Kreme Doughnuts, Inc. and changed its name to Krispy Kreme, Inc. in May 2021. Krispy Kreme, Inc. was founded in 1937 and is based in Charlotte, North Carolina.

Krispy Kreme Q1 2025 Earnings Call Transcript

Key Takeaways

• Management is prioritizing profitable U.S. expansion and a capital‐light international franchise model to reach 100,000 points of access, while aggressively paying down debt and targeting positive cash flow.
• To boost consumer relevance and margins, Krispy Kreme is spotlighting its Original Glazed doughnut with new flavored glazes and a targeted marketing push around National Doughnut Day, and has refined its discount strategy to drive higher transaction values.
• The company is expanding distribution through delivered‐fresh‐daily (DFD) partnerships with club stores (Costco, Sam’s Club), mass channels (Walmart, Target, Kroger ecommerce) and selective convenience/QSR outlets, while closing underperforming doors to focus on profitable locations.
• Although the McDonald’s rollout has reached over 2,400 restaurants, new openings are paused in Q2 as Krispy Kreme and McDonald’s work together to stimulate demand, simplify operations and ensure sustainable economics before further expansion.
• In Q1, net revenue was $375.2 million (organic –1%), with adjusted EBITDA of $24 million (6.4% margin) and EPS of –$0.05; the full‐year outlook has been withdrawn, and Q2 guidance calls for $370–385 million in revenue and $30–35 million in adjusted EBITDA.

Presentation

[Operator]

Hello, everyone, and thanks for standing by. My name is Ian, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Krispy Kreme First Quarter twenty twenty five Earnings Call. I would now like to turn the call over to Alexander Eldridge, Krispy Kreme Investor Relations. Please go ahead.

[Alexandre Eldredge, Senior Manager of IR at Krispy Kreme]

Thank you. Good morning, everyone. Welcome to Krispy Kreme's first quarter twenty twenty five earnings call. Thank you for joining us today. We will be referencing our earnings press release and presentation during the call.

[Alexandre Eldredge, Senior Manager of IR at Krispy Kreme]

These are available on our Investor Relations website @investors.krispykream.com. Joining me on the call this morning are President and Chief Executive Officer, Josh Charlesworth and Chief Financial Officer, Jeremiah Ishukian. After prepared remarks, there will be a question and answer session. Before we begin, I would like to remind you that during this call, we will be making forward looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events or future financial performance. Forward looking statements involve a number of risks, assumptions and uncertainties, and we caution investors that many factors could cause actual results to differ materially from those contained in any forward looking statements.

[Alexandre Eldredge, Senior Manager of IR at Krispy Kreme]

These factors and other risks and uncertainties are described in detail in the company's Form 10 ks filed with the SEC and in other filings we make from time to time with the SEC. Forward looking statements made today are only as of today. The company assumes no obligation to publicly update or revise any forward looking statements except as may be required by law. Additionally, we will be referring to non GAAP financial measures. Please refer to our earnings press release and presentation on our website for additional information regarding these non GAAP measures, including a reconciliation to the closest comparable GAAP measures.

[Alexandre Eldredge, Senior Manager of IR at Krispy Kreme]

Jeremiah will take us through our financial performance in a moment, but first, here's Josh.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Thanks, Dre. Good morning, everyone, and thank you for joining us. We remain dedicated to our strategy of transforming into a bigger and better Krispy Kreme. With global brand awareness far exceeding household penetration, we are focused on Krispy Kreme's biggest growth opportunities to reach our long term goal of 100,000 points of access, namely profitable US expansion and capital light international franchise growth. However, in this challenging macro environment, we are prioritizing paying down debt and deleveraging our balance sheet, generating positive cash flow and pursuing only profitable growth based on sustainable revenue streams.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

With our newly restructured leadership team in place, we are well positioned to take swift and decisive action. I will now review the key actions and progress we are making to drive consumer relevance, expand availability, increase hub and spoke efficiency, improve capital efficiency, and inspire engagement. We are taking action to drive consumer relevance and better leverage the power of our iconic brand to deliver profitable growth. We are spotlighting our most beloved and most affordable original based doughnut, our strongest point of differentiation. Our Original Glazed doughnut appeals to value conscious consumers due to its lower price point and delivers a higher margin.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

We are already seeing the benefits from this focus, especially as we innovate with our flavored glazes. At the April, we sold out of our Fruity Pebbles glaze every day, and more flavored glazes are coming through the year. After testing new original glazed marketing campaigns, which drove both higher sales and a positive mix shift, we'll now be launching a new multimedia original based marketing campaign on June 6, National Doughnut Day, reminding consumers of that feeling they get from a fresh doughnut hot off the line. I said last quarter we would offer fewer days on discount as we improve our discount strategy, which we began in Q1, our cash flow and average transaction value, making us better. Our new approach limits discounts to times we can drive demand and create buzzworthy events.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

In the first quarter, we did this successfully with our Hershey's Chocomania collection. And just yesterday, we offered a free Original Glazed doughnut for real ID day, relieving the stress from those long DMV lines. As we expand availability, we are taking important actions to become better. This means profitable growth based upon sustainable revenue streams with strategic scale DFD partners where we can deliver higher sales per door, utilize more efficient routes, and present better displays. In The U.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

S, we are now present and growing in multiple DFD channels, each with different characteristics and average sales volumes. At one end of the range are club stores where we now sell unique larger packs at these high volume shopping destinations, averaging more than 1,000 in fresh donut sales per week. We've already started with Costco and have also just begun a new multi system pilot with Sam's Club. With our mass and grocery customers, we are adding secondary displays to improve display and visibility. These secondary cabinets offer an additional opportunity to showcase our unique fresh donor offering and drive incremental sales.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

During the quarter, we added nearly 100 cabinets bringing our total to more than 600 in this DFD channel. We're also aiming to increase sales at Walmart, Target, and Kroger with Krispy Kreme recently made available through their e commerce channels. At the other end of the range are convenience stores and QSR doors where we deliver mostly unpackaged doughnuts, and they average about $400 sales per week. Pushing only profitable growth with sustainable revenue streams means that we're also choosing to close inefficient doors. These generally consist of lower volume doors with smaller scale regional grocery and convenience store partners.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Turning to McDonald's. Six months after the national rollout began, we're now in more than 2,400 restaurants. Our two companies have partnered closely together during this time to support execution, marketing, training, delivering a great consumer experience, we are pleased with many aspects of the program. However, we are seeing that after the initial marketing launch, demand drops below our expectations, requiring intervention. To deliver sustainable profitable growth, we are partnering with McDonald's to increase sales by stimulating higher demand and cutting costs by simplifying operations.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

At the same time, we are reassessing our deployment schedule together with McDonald's while we work to achieve a profitable business model for all parties. Given this, we do not expect to launch any additional restaurants in Q2. That said, we continue to believe in the long term opportunity of profitable growth through our U. S. Nationwide expansion, including McDonald's.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

I'd now like to share that we are increasing Hubbansburg efficiency by better managing costs to drive profitable growth. We have already begun outsourcing our fresh donut delivery, and we expect that 15% of the network will have been outsourced by the May. Service rates are excellent, costs are now predictable, and we're seeing savings over our in house delivery model. We expect to launch with a second carrier shortly and sign two additional contracts soon. Our goal is to fully outsource US logistics by the middle of next year.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

This frees up time for our Krispy Kremeers to focus on what they do best, serve our consumers and make fresh donuts, simplifying both our DFD and in shop business. And our new chief operating officer, Nicolas Steele, is off to a great start, prioritizing lower costs and reducing waste by focusing on simplifying operations, reducing complexities, and improving drive through service. She has already improved labor efficiency in the short time she's been in the role. When it comes to better capital efficiency, we are focused on deploying capital to pay down debt and fund profitable growth. As we grow bigger through our US nationwide expansion, we will add production hubs to serve both in shop guests with our iconic hotline signaling fresh donuts as well as profitable DFD customers.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

We are actively value engineering our footprint to lower costs as we grow. A great example is our new Minneapolis hub, which is under construction. Rather than building from the ground up, we're retrofitting an existing building in a high traffic trade area, which is delivering a 20% savings in capital and real estate costs. The site already includes critical infrastructure like highway access, loading bays, and a drive through, making it a smart, efficient choice for us. Internationally, we're advancing our capital light franchise strategy, which we believe is the best way to drive global growth by partnering with strong local operators who bring scale and regional expertise.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Just last week, we opened in Brazil, and in the first two days alone, Krispy Kreme's global appeal was on full display with $100,000 in sales, surpassing even our France launch in 2023. We are evaluating opportunities to refranchise Australia, New Zealand, Japan, Mexico, The UK and Ireland. Proceeds from these efforts will be used to delever and strengthen our balance sheet. Our international franchise partners, whether in emerging markets like Brazil and France or more established ones like Korea and The Middle East, continue to deliver strong results, underscoring the value of local scale master franchise partners. The better execution required to grow bigger demands passion, dedication, and hard work from all Krispy Kremeers, and therefore, we must inspire engagement across our organization.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

First, we have upgraded teams at all levels, including internal promotions of our strongest district managers and hired outside talent with deep QSR expertise. Second, we have invested in new technology to measure shop execution. Our shops can now better assess performance and make data driven decisions to improve quality, service, and efficiency. Third, as we discussed a moment ago, we are simplifying our operations. This frees up time for our Krispy Kreme's to focus on the guest experience.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

And to better support them, we launched role based training, new onboarding programs, and a goal setting and manager review process to support Krispy Kremeers growth within the company. This work has already helped us to improve turnover by over 30% year over year. To accelerate the benefits of all these improvements, we've also launched a new incentive program to support the team to deliver on a bigger and better Krispy Kreme. With that, I'll pass it over to Jeremiah.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Thanks, Josh. As Josh mentioned, we must get better as we grow bigger. As such, we're taking immediate actions to improve our financial flexibility, strengthen our balance sheet so that we can deliver positive cash flow, profitable growth and create shareholder value. We have a clear plan with actions already underway. I will discuss these in more detail after a review of our first quarter results.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

In Q1, net revenue was $375,200,000 which falls within the guidance we provided last quarter and reflects continued growth through our omnichannel model, offset by the sale of Insomnia Cookies. Organic revenue declined 1%, largely due to expected consumer softness in a challenging macro environment. Adjusted EBITDA was $24,000,000 with margin of 6.4%, driven by the sale of Insomnia Cookies, reduced organic revenue, costs associated with our U. S. Nationwide expansion and residual cybersecurity impacts.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Turning to The U. S. Segment. Growth in Points of Access and DFD revenue was more than offset by the aforementioned consumer softness and planned reduction of discount days, resulting in organic revenue decline of 2.6%. Adjusted EBITDA declined to $15,900,000 due to softness in our Retail segment, the sale of Insomnia Cookies, costs associated with our U.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

S. Nationwide expansion and an estimated $5,000,000 of operational inefficiencies related to the twenty twenty four cybersecurity incident. Average revenue per door per week, or APD, was $587 down from the same period one year ago, reflecting the shift in customer mix as we introduced McDonald's. Within our equity owned international markets, organic revenue grew 1.5%, led by growth in Canada, where we see strong results with Costco. Points of Access grew 6.3%, reflecting expansion in Australia with Kohl's and BP.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

We are also seeing international QSR as a promising opportunity and are expanding our tests with Hungry Jacks in Australia. Adjusted EBITDA declined $14,900,000 with margin of 12.5% due to lower transaction volumes in our Retail business impacting operating leverage. Our new management team in The UK is revitalizing the brand's consumer relevance by bringing back family centric offerings and an updated price back architecture. Our donuts were recently added to Tesco's Meal Deal, a great value offering that is delivering consumer buzz. In our most profitable, entirely franchised segment, Market Development, organic revenue grew 2.7% by the expansion of our franchise business, including growth in The Middle East and launch of Delivered Fresh Daily through our joint venture in France.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Adjusted EBITDA declined 7.2%, driven by the impact of franchise acquisitions in 2024, now reflected in The U. S. Segment. Adjusted EBITDA margin improved to 58.1%, driven by revenue mix and a greater contribution from international franchisees. Adjusted earnings per share were negative $05 in Q1, a decline from prior year driven by expected lower revenue and EBITDA.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Cash flow was also impacted by lower earnings. We used $20,800,000 in cash for operating activities as we caught up payment delays following the twenty twenty four cybersecurity incident. We expect this to normalize throughout the year. Importantly, we expect to deliver positive operating cash flow in 2025 as we continue to reduce our capital intensity and improve working capital. As I mentioned earlier, we have a clear plan and are taking immediate steps to improve our balance sheet, which I'll discuss in detail now.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

We're focused on improving financial flexibility, generating positive cash flow and deleveraging the balance sheet, deploying capital to fund profitable growth, expanding margins through greater operational efficiency and SG and A improvements pursuing quality growth based on sustainable, profitable revenue streams. We're committed to deleveraging the balance sheet through working capital initiatives and inorganic opportunities, including refranchising certain international markets, as Josh mentioned earlier. We have also made the decision to discontinue the quarterly dividend. This decision was made after careful consideration of our capital allocation strategy, and we expect this capital to now be used to pay down debt. To improve financial flexibility, we've increased liquidity by amending our term loan in May to add $125,000,000 in capacity, which we expect to use primarily to pay down the revolver.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

To drive return on invested capital, we are prioritizing the highest returning investments as we value engineer our footprint to lower cost as we grow. To expand margins, we will see SG and A benefits of the restructuring completed in 2024 and are focusing on improving operational efficiency while at the same time simplifying our portfolio and closing underperforming DFD doors in The U. S. We expect a negative revenue impact of 10,000,000 to $15,000,000 in the year, but to immediately deliver margin improvement. As Josh mentioned, pursuing quality growth means scaling with strategic national partners and also focusing on our core offerings.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Given the scope of these actions amid macroeconomic softness and uncertainty around McDonald's, we are withdrawing our prior full year outlook and not updating it at this time. That said, I'll provide some insight into our second quarter expectations, reflecting the actions I just outlined. We expect to deliver revenue of $370,000,000 to $385,000,000 and adjusted EBITDA of 30,000,000 to $35,000,000 I am confident that this pivot to driving cash, deleveraging the balance sheet and focusing on profitable growth is the right path forward, and we have the right team in place to ensure we are becoming a better business as we grow into a bigger business. With that, I'll turn it back to Josh for his closing remarks.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Thanks, Jeremiah. We're taking swift and decisive action to deleverage the balance sheet and achieve profitable growth through driving consumer relevance by spotlighting our core offerings, expanding availability by focusing on profitable growth based on sustainable revenue streams, increasing hub and spoke efficiency by simplifying operations and outsourcing US logistics, improving capital efficiency by evaluating international refranchising and inspiring engagement by strengthening our performance based culture. Thank you. We will now open it up for Q and A.

[Operator]

We will now begin the question and answer session. Our first question comes from the line of Rahul Krapali with JPMorgan. Your line is open.

[Rahul Krotthapalli, Vice President - Equity Research at JP Morgan]

Good morning, guys. Two questions. First, how are you thinking about the CapEx given you are going through this exercise currently and after all the changes for capital reallocation? And then second part, on the McDonald's decision to pause, was it your decision or was it the company's? I'm just trying to understand the dynamics of the demand driven versus your capital exercise driven.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Yes. Thanks, Rahul, and good morning. I'll take the first question around CapEx. And I think about capital priorities for us across the business, obviously, number one being strengthening the balance sheet, so things like using cash to reduce our reliance on supply chain financing and paying down debt. The second being business reinvestment, which is the core kind of where you were at or capital.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

We are not providing a full year update with respect to CapEx spend, but we are becoming even more disciplined, what I would say, respect to capital allocation, and investing in only things that have the highest return, from a capital perspective. We're obviously also looking at, the rephasing of McDonald's launch to take an opportunity to kind of reduce and adjust spend as we go throughout the year.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Raul. Yes. Regarding your second question, overall, we're confident in the profitable expansion of The U. S. By increasing availability and leveraging excess capacity in the system.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

But it's important that we ensure that we're positioned for profitable growth as we expand, and that includes McDonald's. I remain confident in the long term national opportunity, but we need to work together with them to identify levers to improve sales, simplify operations. And once we're positioned for profitable growth, we'll expand further.

[Operator]

Thank you. Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Your line is open.

[Daniel Guglielmo, Equity Research Analyst at Capital One Securities, Inc]

Hi, everyone. Thank you for taking my questions. I appreciate that you all are taking a more conservative capital approach, you mentioned it in your prepared remarks. But how aggressive do you plan to be around pruning underperforming or inefficient locations in The U. S, whether that be hot light or DFD doors?

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Dan. We're super focused this year around driving profitable growth, which includes, you mentioned, rationalizing unprofitable doors, but also products within our portfolio. As we look forward in The U. S. Specifically, we could see us exiting as much as 5% to 10% of doors in our U.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

S. Network. And that's how we're thinking about managing the kind of footprint of doors in The U. S. This year.

[Daniel Guglielmo, Equity Research Analyst at Capital One Securities, Inc]

Okay. That's really helpful. Thank you. And then on the refranchising of certain international markets, can you just talk about how that process works high level? And then is there a time line or a certain cash proceeds number that you all are working towards?

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Yeah. I mean, right, first off, we don't need to refranchise the fuel growth in The US, and we have ample liquidity. As we mentioned on the call in Q1, we launched a process to refranchise certain equity owned international markets. I think it's important to note that these markets all have continued opportunity to grow. And as we think about decapitalizing the business, we know that it's critical to find the right partner to grow the business over the long term in a capital efficient way.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

And so we're going to take our time to find that partner. What I would say is we'll use any proceeds that we will come across to pay down debt.

[Daniel Guglielmo, Equity Research Analyst at Capital One Securities, Inc]

Okay. Thank you.

[Operator]

Our next question comes from the line of Sarah Sanatore with Bank of America. Your line is open.

[Analyst]

Hi, good morning. Thanks for the question. This is Isaiah Austin on for Sarah Santor. Just a question around the McDonald's pause. If there's any difference that you guys could speak to on why you didn't see the fall off in demand just in test markets in Kentucky or with the early launch in in Chicago.

[Analyst]

Just, you know, franchisees seem pretty bullish, at that point. So I just wanna see if there's any difference between that and the and the broader rollout. And also just a question about the profitability issues. Is that exclusively on Krispy Kreme just giving you guys bear the cost and, you know, buy back unsold donuts? So it it kinda seems like the economics for McDonald's are are stable in this situation, if there's any color you can give on those two things.

[Analyst]

Thank you.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Yeah. We're pleased with many aspects of of the McDonald's partnership. Yeah. The the execution across all the cities has been very good. Our teams have worked well together, make sure we have awesome fresh donuts readily available.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

I think it's also important to understand that we need it to be profitable on a sustainable basis over a long term. So really, what we're doing working with them is to make sure that the availability and the visibility of the donuts is consistently prominent and that our operations are as simplified and streamlined as they can be. So really, our focus through 2,400 restaurants we're in today is making sure we're positioned for profitable growth before we expand further.

[Analyst]

Thank you.

[Operator]

Our next question comes from the line of Andrew Wolf. Your line is open.

[Andrew Wolf, SVP & Senior Research Analyst at C.L. King & Associates]

Thanks. Just wanted to ask about the $5,000,000 you called out on the inefficiencies related to the cybersecurity. Was that expected at was that the number was in your guidance? Or was that more than expected? And secondly, is that ongoing?

[Andrew Wolf, SVP & Senior Research Analyst at C.L. King & Associates]

Is that still some of that impact in the second quarter guidance?

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Yes. Thanks for asking, Andrew, and I can take that. It was contemplated in the guide that we provided in Q1, and it's related to, our inability to manage labor and materials efficiently, as we're still restoring back, back of house systems as we went through that. The back of house system piece is now behind us, and we're operating, much more efficiently than we were in the first, five to six weeks of the year and and should be behind us.

[Andrew Wolf, SVP & Senior Research Analyst at C.L. King & Associates]

Okay. And secondly, on the sales per hub being down 2%, obviously, the distribution points being up quite a lot. There's different ways to unpack that. But is that more could you kind of speak to it vis a vis what you're saying about McDonald's and maybe convenience stores diluting that number? Or is it more just driven by your average grocery store or Walmart or those folks being down whatever percent their sales per door, even though it's a healthy business for you, being down based on the consumer environment.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

Got it.

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

I think revenue for the quarter

[Jeremiah Ashukian, EVP & CFO at Krispy Kreme]

for the quarter was largely in line with our expectations. I mean, recall, The US segment, in particular, net revenue is impacted by the sale of Insomnia Cookies, as that had a kind of a large decline, year over year. But when you think about, increased points of access and D and D revenue, being up, it was more than offset by consumer softness in our retail channel. And also a planned reduction in discount days as we look to be more efficient and drive more profitable growth on the business, which resulted in an organic revenue decline of 2.6%.

[Andrew Wolf, SVP & Senior Research Analyst at C.L. King & Associates]

Fair enough. Okay. Thank you.

[Operator]

Our next question comes from the line of Bill Chappell with Truist Securities. Your line is open.

[Bill Chappell, Managing Director at Truist Securities]

Thanks. Good morning. Following up on McDonald's, guess, maybe just to clarify the earlier question, was it your decision to

[Bill Chappell, Managing Director at Truist Securities]

stop it, flood this pause, was

[Bill Chappell, Managing Director at Truist Securities]

it McDonald's decision, was it combined? And then with that in mind, trying to understand, over the past few months, I think you've publicly said, hey. This is it's a slow ramp. We expected to it. It's going at kind of expected.

[Bill Chappell, Managing Director at Truist Securities]

I'm trying to figure out, you know, and as we get more national advertising, as we get more scale, it it will continue to grow. Was it the sales were not working

[Bill Chappell, Managing Director at Truist Securities]

kind

[Bill Chappell, Managing Director at Truist Securities]

of as you expected and they fell off a cliff? Or was it the unit economics fell off a cliff and said, okay, wait a minute, we're going to lose our shirt if we continue to expand at this level? Just trying to understand kind where the change came from, too.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

I'll start by saying, as with all our customers, we make decisions with them. And so obviously, we partner with McDonald's to make decisions about rolling out distribution. And so I very much reinforce that this is something we're working together with them on and appreciate their partnership. Regarding your last point around sales, the sales started strong with the local marketing, and then they dropped below what we're expecting once that had passed. We remain confident in the long term opportunity when you have national distribution, where we really need to make sure that we're positioned for profitable growth before we expand any further.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

And so we're working with them on ways to drive the sales and improve costs. I mean you heard just at the end of the quarter that we've begun outsourcing logistics, for example, to simplify our operations, seem very good early read on that. And that's an example of ways we can work together to make sure we're positioned for profitable growth before we expand further.

[Bill Chappell, Managing Director at Truist Securities]

Got it. I mean, I guess the question most people have today is why if you had a kind of thirty or sixty day pause or a slowdown on a three year program, you would make a pause. So I think there's some questions of why that happened so quickly. But I guess related, I'm trying to understand kind of your CapEx spend because I thought the impression was you needed to kind of spend $25,000,000 a year to get a build out distribution so you could have the national distribution and or build out manufacturing so you have the national distribution. Like are those projects now paused as well?

[Bill Chappell, Managing Director at Truist Securities]

Or are they shovels in the ground that are being pulled back out? How does that work?

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Well, regarding the speed of decision making, I very much believe that it's important to make take decisive action, make decisions that ensure the profitable growth of the business. So it's natural that we would work with McDonald's to make sure that we only expand further when we get that profitable growth. Regarding supporting the network, remember, we are expanding with several scale customers right now. We announced today, for example, we even started a new program with Sam's Club following starting with Costco late last year. And we continue to see success with a number of national scale customers that we need to support with a network that is now going national.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

I mentioned earlier on the call, for example, that our Minneapolis hub is currently under construction, and we still expect to open five to seven new production hubs during the course of this year, mainly serving those underserved geographies where our customers, national ones like Target, for example, in Minneapolis can be supported. But do remember, we do have excess capacity in the network, which we're also leveraging. Hence, we can make very thoughtful capital allocation choices, be focused on capital efficiency and overall, make sure that we are positioned to deleverage the balance sheet as we drive this profitable growth.

[Bill Chappell, Managing Director at Truist Securities]

Okay. Thank you.

[Operator]

There are no further questions at this time. I would like to hand the call back over to Josh Charlesworth for some closing remarks.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Well, thank you, everybody, for your interest in Krispy Kreme today. Thank you also to our hardworking Krispy Kremeers all over the world, who remain dedicated to our strategy of transforming Krispy Kreme into a bigger and better business. We are taking action now to drive profitable growth and deleverage the balance sheet. Thank you.

[Operator]

This concludes today's call. You may now disconnect.

[Joshua Charlesworth, President & CEO at Krispy Kreme]

Thank you.

Participants

Executives

• Alexandre Eldredge, Senior Manager of IR
• Joshua Charlesworth, President & CEO
• Jeremiah Ashukian, EVP & CFO

Analysts

• Rahul Krotthapalli, Vice President - Equity Research at JP Morgan
• Daniel Guglielmo, Equity Research Analyst at Capital One Securities, Inc
• Analyst
• Andrew Wolf, SVP & Senior Research Analyst at C.L. King & Associates
• Bill Chappell, Managing Director at Truist Securities