Krispy Kreme will extend McDonald’s partnership

CHARLOTTE, NC. — Krispy Kreme, Inc. will continue its partnership with McDonald’s and will likely form other partnerships as well, said Joshua Charlesworth, chief financial officer of Krispy Kreme.

Krispy Kreme first began working with McDonald’s in October 2022 when the latter began selling the former’s donuts at nine locations. The test was so successful that both companies expanded this partnership to 160 stores in February 2023.

During a Nov. 9 earnings call to discuss third-quarter financial results, Mr. Charlesworth explained, “The learning has been very interesting through the pilot that we’ve done with them throughout the year in Kentucky, and that is the nature of a lot of the discussions with McDonald’s right now, ongoing analysis and discussion with them, covering the operational execution, making sure the donuts always arrive at the right time, right quality, understanding … the requirements that would be needed to scale beyond Kentucky, and of course, commercial viability of the whole thing. I mean, our confidence in the US DFD (delivered fresh daily) opportunity, including now QSR (quick- service restaurant), is what’s grown. It’s such that we’ve decided to thoughtfully start making additional investments.”

One of these additional investments is Insomnia cookies, which Krispy Kreme acquired in 2018. Krispy Kreme in October said it is exploring strategic alternatives for Insomnia.

“I mentioned our announcement to explore strategic alternatives for the company to enhance both brands’ growth trajectories and enable Krispy Kreme to focus on our core strategy of producing, selling and distributing fresh donuts daily,” said Michael J. Tattersfield, presidentand chief executive officer of Krispy Kreme. “We thank Insomnia for their tremendous partnership in building upon our e-commerce and digital capabilities, all while we help grow the Insomnia business here in the US to roughly 250 cookie bakeries, as well as we expand globally into the UK and Canada.”

Global points of access in the quarter increased 14.4% when compared to last quarter. According to a report, consumers now have access to Krispy Kreme products in almost 14,000 locations across the globe. Just like last year, Mr. Charlesworth cited global expansion for this increase in quarterly sales.

“The 522 points of access that we added in the quarter were across multiple markets, including 453 new delivered fresh daily merchandising displays or DFD doors, 59 fresh shops and 4 hot light theaters,” Mr. Charlesworth said. “The new DFD doors include OXXO convenience stores in Mexico, Woolworths grocery stores in Australia, and Costco wholesale stores in the UK, Australia and Canada, reflecting the increasing diversity of our customer mix.”

Krispy Kreme sustained a loss of $40.46 million in the third quarter ended Oct. 1, which compared with a loss of $13.06 million in the same period a year ago. The loss reflected forecasted effective tax rate and attributable non-cash income tax expense. 

“…we continue to expect an adjusted tax rate of between 24.5% and 26% for the full year 2023,” said Jeremiah Ashukian, chief financial officer and executive vice president of Krispy Kreme.

Meanwhile, adjusted EBITDA in the quarter increased 13.5% to $43.7 million, reflecting improved profitability across all reportable segments of the company.

“The third quarter finished in line with our expectations as we delivered growth on both the top line and adjusted EBITDA with improved performance throughout the business.” Mr. Ashukian said. “We delivered our strongest third quarter adjusted EBITDA growth since our return to the public markets. And if trends maintain, we continue to track toward the mid to high-end of our full-year revenue and adjusted EBITDA guidance.”

Third-quarter net revenue in 2023 increased 7.9% year-over-year to $407.37 million from $377.52 million. Organic growth in the United States was due to successful marketing activations, pricing actions and the expansion of Krispy Kreme’s DFD strategy, the company said. Organic revenue grew 9.6%.

In the United States and Canada, net revenue in the third quarter increased approximately 5.4% to $13.3 million. Adjusted EBITDA in that section increased 8.8% to $22.3 million. Meanwhile, international net revenue increased 15.4% to $14.2 million. Organic revenue in international operations grew 8.2%.

Mr. Ashukian said the organic growth was due to “increased pricing and points of access growth.”

International adjusted EBITDA grew 17.3% to $21.4 million due to continuing pricing and cost control initiatives in the United Kingdom and Australia.

In Market Development, which consists of franchise businesses, net revenue increased 5.9% year-over-year to $41.1 million from $38.8 million, despite the lapping of one-time franchise equipment sales and the impact of certain foreign currencies devaluing against the US dollar, Krispy Kreme said. Adjusted EBITDA in this section grew 13.3% to $13.4 million.

Over the first three quarters, a loss attributable to Krispy Kreme of $40.5 million compared with a loss of $12.9 million at the same time of the previous year. Meanwhile, net revenue increased 9.8% to $1.24 billion from $1.13 billion.