Executives of Krispy Kreme, Inc. expect partnerships, such as a recent one with McDonald’s, and international expansion to keep increasing global points of access, which reflect all locations where the company’s fresh donuts and cookies can be purchased.
Charlotte-based Krispy Kreme in October said its donuts will be available in six-packs or individually at nine McDonald’s restaurants in Louisville, Ky., and surrounding areas.
“Obviously, this is a small test to partner with a global company, but we think this represents the type of opportunity that shows why we remain very confident in our long-term goal of achieving more than 50,000 points of access globally,” said Michael J. Tattersfield, president and chief executive officer, in a Nov. 15 earnings call to discuss third-quarter financial results. “We believe that strong global partners could be a great fit to significantly grow our DFD (delivered-fresh-daily) business. We continue to look for new partners and channels across the globe as we build out our hub-and-spoke model to increase access to customers, and we look forward to updating you on this journey.”
Joshua Charlesworth, chief operating officer and chief financial officer, added, “I mean, we do have clearly excess capacity across the US to build out the DFD door network, whether it’s Walmart, McDonald’s or others.”
Global points of access in the quarter increased 17% when compared to a year ago. Consumers now have access to Krispy Kreme products in more than 11,700 locations globally. International expansion played a role.
“As you know, our goal is to open in at least three new countries per year going forward,” Tattersfield said. “So far, in 2022, we’ve signed development deals in seven international countries, including announcing Jamaica this morning as well as a recently announced joint venture in France for 2023, which together represent more than 5,000 points of access or nearly 50% of our existing points of access.”
A loss attributable to Krispy Kreme was $13.1 million in the quarter, which compared with a loss of $5.7 million in the previous year’s third quarter. A negative impact of $5 million came from impairment charges related to planned shop closures, Mr. Tattersfield said. Adjusted EBITDA slipped 7% to $38.5 million from $41.4 million. Negative impacts came from higher promotional activity through Labor Day (Sept. 5) and increased labor and commodity costs.
“But since September, we’ve significantly reduced our promotional activity without any impact on revenue, which has led to significantly improved gross profit trends,” Tattersfield said.
Krispy Kreme began raising prices for the first time this fiscal year in the third quarter.
“I would definitely say that was the beginning of a catch-up,” Charlesworth said. “We certainly didn’t anticipate the level of food inflation in the US or the UK at the beginning of the year as we saw, and we’re pleased with the success of those pricing initiatives. We’ve then taken further pricing in October in both UK and the US. We do find that, in this environment of price increases, we can almost instantaneously increase the pricing on retail, but obviously, we need to work with our partners on DFD. So that does lag a little bit behind.”
Third-quarter net revenue increased 10% to $377.5 million from $342.8 million. Foreign currency translation had a negative impact of 3.3% on net revenue because of a strong UD dollar. Organic revenue increased 12%.
In the United States and Canada, net revenue in the third quarter increased 12% to $252.6 million from $225.8 million. Adjusted EBITDA increased 10% to $21.9 million. In International, net revenue increased 5.4% to $91.9 million from $87.3 million. Organic revenue grew 16%.
“In our international market, all of our international countries, including those in Market Development, had positive organic growth in the third quarter, led by robust performances in Mexico, Australia and Japan,” Tattersfield said.
Adjusted EBITDA in International fell 16% to $18.3 million due to a $2.4 million negative impact from the higher US dollar and a challenging environment in the United Kingdom.
In Market Development, which is made up of franchise businesses around the world, net revenue increased 11% to $33 million from $29.7 million driven by a 33% increase in points of access. Adjusted EBITDA increased 15% to $10.4 million.Over the first three quarters, a loss attributable to Krispy Kreme of $12.9 million compared with a loss of $25.8 million in the same time of the previous year. Net revenue increased 11% to $1.13 billion from $1.01 billion.