Third quarter net revenue grew 10.1% compared to Q3 2021

Organic revenue growth accelerated to 12.0%

Added 294 Points of Access in Q3 and 1,276 year to date, exceeding our full year target

Reiterating 2022 Guidance with strong momentum to start Q4

Krispy Kreme, Inc. (NASDAQ: DNUT) (“Krispy Kreme” or the “Company”) today reported financial results for the third quarter ended October 2, 2022 with net revenue growing 10.1% year-over-year to $377.5 million, or 13.4% in constant currency, while organic revenue grew 12.0%. Foreign currency translation resulted in a negative 3.3% impact on net revenue growth during the third quarter due to the strength of the U.S. dollar. Sales per Hub in the U.S. and Canada increased by 18.4% year-over-year to $4.5 million while International Sales per Hub grew 16.3% to $10.0 million.

Organic growth was driven by the solid performance and expansion of Krispy Kreme’s omni-channel model, with a 17% increase in Global Points of Access and strong organic revenue growth in all three business segments in our seasonally low quarter. Global Points of Access, which reflect all locations where fresh doughnuts and cookies can be purchased, increased by 294 during the quarter, providing consumers access to Krispy Kreme in more than 11,700 locations around the world.

GAAP Net Loss for the quarter was $11.8 million with Adjusted Net Income of $5.9 million. GAAP Loss per Share for the quarter was ($0.08) while Adjusted Diluted EPS was $0.03 for the quarter. Adjusted EBITDA in the third quarter was $38.5 million, which included approximately $3.1 million negative impact from the strong U.S. dollar.

Commenting on the Company’s performance, President and CEO Mike Tattersfield stated, “We were pleased with our strong organic revenue growth in the third quarter, led by an acceleration in growth in the U.S. and Canada and Market Development. Margins improved significantly in the final period of the quarter as we successfully implemented price increases in the U.S. coupled with decreased promotional activity after Labor Day. Strong momentum continues into the fourth quarter enhanced by further recent pricing actions in the U.S. and U.K. and a robust global Halloween performance.”

Mike continued, “Our international expansion strategy is progressing at a healthy pace. Just recently we opened in Jordan and announced a joint venture to enter into France in 2023. We are excited to also announce a new development agreement to open in Jamaica next year, bringing our total development deals signed in 2022 to 7 international countries, representing over 5,000 new potential points of access.”

Financial Highlights

Key Operating Metrics

Third quarter 2022 Consolidated Results

Net revenue grew 10.1% in the third quarter to $377.5 million, or 13.4% in constant currency, and organic revenue grew 12.0% in the quarter. Organic revenue growth was driven by strong performances in our Hubs with Spokes, both domestically and internationally, leveraging a 16.6% increase in points of access from a year ago, and robust Ecommerce revenue growth.

GAAP Net Loss for the quarter was $11.8 million, compared to a GAAP Net Loss of $3.8 million in the third quarter of 2021. Adjusted EBITDA in the quarter declined 6.9% to $38.5 million, due to an approximately $3.1 million negative impact from the strength of the U.S. dollar, higher promotional activity from the Beat the Pump promotion in the US through Labor Day and increased labor and commodity costs. Operating margins declined 80 basis points to -0.3%, while Adjusted EBITDA margin declined 190 basis points to 10.2% from the same quarter in 2021 driven by margin declines in our International segment and FX headwinds. However, Adjusted EBITDA margins improved significantly as the quarter progressed and were higher in the final period of the third quarter compared to a year ago.

Adjusted Net Income for the quarter declined 53.5% to $5.9 million compared to the same quarter in 2021. GAAP Diluted Net Loss per share in the quarter was ($0.08) compared to a net loss of ($0.04) in the same quarter last year with Adjusted Diluted EPS decreasing to $0.03 from $0.06 in the third quarter of 2021.

Diluted weighted average shares outstanding for the third quarter of 2022 were 169.3 million, compared to 168.1 million in the third quarter of 2021.

Third Quarter Market Segment Results

U.S. and Canada: In the U.S. and Canada segment net revenue in the third quarter of 2022 grew 11.9% to $252.6 million, driven by the continued execution of our omni-channel strategy, including our Pumpkin Spice limited time offering across all channels including Branded Sweet Treats, Hubs with Spokes strength and Insomnia Cookies. Organic revenue increased 8.9% driven by increased points of access and successful price increases in retail locations in July and Delivered Fresh Daily (“DFD”) doors in September. Points of Access increased by 206 in quarter to 6,259 and represents a 9.4% increase in Points of Access from a year ago.

U.S. and Canada Adjusted EBITDA increased 10.0% to $21.9 million in the third quarter of 2022 compared to the third quarter of 2021 with a slight Adjusted EBITDA margin decline of 10 basis points to 8.7%. Hub and Spoke efficiency and a strong performance from Insomnia offset inflationary pressures, higher promotional activity in the first two periods of the third quarter and margin erosion at Hubs without Spokes. Adjusted EBITDA margins improved significantly as the quarter progressed, including strong margin expansion in September over the prior year, as promotional activity returned to normal levels and sales remained robust. This momentum has continued in the fourth quarter. Also during the third quarter, we closed 8 underperforming Hubs without Spokes that were previously announced.

International: In the International segment, net revenue grew 5.4% to $91.9 million, with organic growth of 15.5%. Organic growth in the quarter was driven by strong growth in Mexico, Australia and New Zealand. Points of Access increased by 14 to 3,439, or 548 year to date. Foreign currency translation had a negative 10.1% impact on our International net revenue growth during the quarter.

International Adjusted EBITDA declined 15.7% to $18.3 million in the third quarter over the same period of the prior year, due to a $2.4 million impact from the higher U.S. dollar as well as a continued challenging environment in the U.K. Adjusted EBITDA for Mexico and Australia & New Zealand markets grew 18.1% in the third quarter compared to the same period in the prior year. International Adjusted EBITDA margin was 19.9% in the third quarter, down 490 basis points compared the same period last year due to reduced margins in the U.K. from lower organic revenue growth and elevated inflation.

Market Development: In the Market Development segment, net revenue increased 10.9% to $33.0 million driven by a 32.7% increase in Points of Access compared to the prior year to 2,005, partially offset by franchise acquisitions and an 8.6% adverse impact from foreign currency exchange. Organic revenue growth accelerated to 26.0% compared to the same period in 2021 driven by a strong performance in our franchise markets, including South Korea and India, and our equity-owned Japan market where the Company is implementing its omni-channel model with the expansion of Ecommerce and the launch of DFD. Points of Access in the quarter increased by 74 and 192 year to date.

Market Development Adjusted EBITDA grew 14.6% to $10.4 million in the third quarter of 2022, with strong organic revenue growth partially offset by domestic franchise acquisitions and a foreign currency impact of negative $0.7 million. Adjusted EBITDA margins increased 100 basis points to 31.4% in the quarter.

The Company has signed development agreements in 2022 with franchise partners to open in Switzerland, Costa Rica, Jordan, Jamaica and Chile as well as a joint venture in France and a new partner in Turkey.

Balance Sheet & Capital Expenditures

During the third quarter of 2022, the company invested $23.5 million in capital expenditures, or 6.2% of revenue. For the first three quarters of 2022, the Company invested $75.0 million in capital expenditures, or 6.7% of revenue.

As of July 3, 2022, the Company had $28.1 million of cash and cash equivalents, $750.5 million of bank debt and $30.9 million of other debt-like items, for a total net debt of $753.3 million.

2022 Financial Outlook

Krispy Kreme re-iterates its guidance for the full year 2022 as follows:

• Net Revenue of $1.49 billion to $1.52 billion
• Organic Revenue growth of 10% to 12%
• Adjusted EBITDA of $189 million to $195 million
• Adjusted Net Income to Krispy Kreme shareholders, diluted, of $49 million to $54 million
• Adjusted Diluted EPS of $0.29 to $0.32
• Approximately 170 million weighted average Diluted shares outstanding
• Adjusted Income Tax rate between 23% and 25%
• Capital Expenditures between $105 million to $110 million (approximately 7% of revenue)
• Net Leverage of approximately 3.6x, including the short-term impact from the U.S. Midwest franchise acquisition and FX headwinds, with a goal of 3.0x by the end of 2023

The Company’s guidance includes an Adjusted EBITDA impact of approximately negative $10 to $12 million from foreign currency translation and input costs as a result of the strengthening of the U.S. dollar or approximately negative $0.05 per Diluted share. At current exchange rates, we expect to come in near the high end of the estimated impact range for 2022.

December Investor Day

Krispy Kreme previously announced it will host an Investor Day on December 15, 2022 at its headquarters in Charlotte, NC and virtually via webcast. The Company will provide further detail on our strategic vision and long-term growth goals and introduce our initial 2023-2026 outlook. To register for the event, please refer to the Events section of the Krispy Kreme’s Investor Relations website.

Conference Call

Krispy Kreme will host a public conference call at 8:30 AM Eastern Time today to discuss its results for the third quarter of 2022. 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.

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, Food Trucks and Other, 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 our legacy wholesale business and our Branded Sweet Treat Line. 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, Food Trucks and Other, and/or DFD Doors, but excluding Fresh Revenues derived from those Hubs not currently producing product for other shops, Carts, Food Trucks and Other, and/or DFD Doors.
• Total Net Leverage Ratio: Calculated using Net Debt (including both bank debt and financing leases as part of debt) divided by Adjusted EBITDA.
• Free Cash Flow: Defined as cash provided by operating activities less purchases of property and equipment.

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 over 30 countries through its unique network of fresh doughnut shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business with more than 11,000 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 “believe,” “may,” “could,” “will,” “should,” “anticipate,” “estimate,” “expect,” “outlook,” “guidance,” “working towards” 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 2, 2022, 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, 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.

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.