Q3 2021 Krispy Kreme Inc Earnings Call
Good day and thank you for standing by welcome to the Crispy Cream 232021 earnings call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to fret Dar one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would not like to hand, the conference over to your speaker today, Rob the Loo Bye.
<unk> President of Investor Relations. Please.
Thank you good afternoon, everyone and welcome to Crispy Creams third quarter 2021 earnings cool. Thank you for joining US today, our third quarter earnings release me, an accompanying earning presentation deck are available on our investor relations website that investors that crispy cream dot com.
Joining me on the call. This afternoon is Mike Satterfield, Chief Executive Officer, Josh Charlesworth, the Chief operating and financial officer enjoy for Chief Accounting Officer.
After prepared remarks by Mike Adjuster will be a question and answer session.
Before we begin I would like to remind you that this call contains forward looking statements made pursuant to the safe Harbor provisions of the private security in litigation Reform Act of 1995, including statements of expectations future events or future financial performance forward looking statements involve a number of inherent risks and uncertainties and we caution investors that these risks could call. His actual results to differ materially from those contained in.
Any forward looking statements.
The factors and other risks and uncertainties are described in detail in the company's registration statement on our form S. One forward looking statements made today speak only as of today. The company has an obligation to publicly update or revise any forward looking statements, except as may be required by law.
Additionally, today's call will include certain non-GAAP financial measures reconciliation between non-GAAP financial measures and their closest get measures can be found at the company's third quarter 2021 earnings release, and our Form 10-Q, which we filed shortly with the SEC and available at Investor Dot Crispy cream Dot com.
For your convenience today's conference call is being webcast and recorded for replay on our Investor Relations website with that I will now turn the call over to Mike.
Good afternoon, and thank you everyone for joining us today.
Pleased to review, our third quarter results and share more today about the continued advancements we're making here at Krispy kreme on our journey to becoming a most love sweet treat brand in the world.
That is a bold statement.
But the reality is that key countries, including the U S U K and Australia have already achieved this milestone.
I truly believe it's about our focus on fresh donuts.
Romney channel strategy, and effectively and efficiently serve customers with premium and innovative brand initiatives across the globe.
We compete in the 650 billion dollar global Sweet treat broad category against some of the best known brands across channels.
Our focus on fresh Donuts and sure doesn't occasions is clearly resonated with our customers.
I want to emphasize that we are able to produce these results because we have an amazing group of crispy creamers.
What we call our team members and.
I want to thank them for their dedication to our business and our customers each and every day I would also like to welcome a new head of Investor Relations.
Rob Blue as we continue to build out our team in this new phase of public life and.
In the quarter.
We continue to clearly demonstrate that are fundamental business as strong or.
Hudson Spokes supported by a world class Omnichannel strategy and e-commerce capabilities of the core of our fresh donut business and everyday these assets help us to deliver millions of doughnuts that people around the world.
As we continue to build our momentum globally, we also see opportunities to bring crispy cream to more households, who the expansions of our global footprint, which is where we will continue to invest while we maintain focus on delivering our long term growth algorithm.
Turning to our high level results in the quarter.
Excluding the impact of our legacy wholesale business, which we fully exited in the first half of 2021.
Our organic growth was 14% in the quarter.
Our new press of 22% on the two year stack.
Including the legacy of wholesale business total company organic revenue growth was 6% or.
14% on a two year stack basis.
We also surpassed 10000 points of access in the quarter.
A 46% increase year over year.
This growth was led by investments, meaning R. U S and Canada segment, where we increased our points of access by 75% compared to last year.
Is a significant achievement.
We now have the capability to deliver fresh donuts within this points of access daily, which will unlock further growth in a capital efficient manner.
Our international segment performed exceptionally well in the quarter and is truly an amazing business.
Which continues to grow and strengthen the worldwide appeal of our brand.
Internationals organic revenue growth on a two year stack basis was 18% in our company owned channel and 42% in our franchise channel.
This growth.
Combined with strong profitability serves as a reminder, that having the right business model, where the appropriate number of health and points of access and the best locations provides an incredible opportunity to unlock future value within the business.
Ah recovery from the initial impact of the pandemic accelerated in the quarter.
And our international franchise business continues to show growth and adoption of our Omnichannel model.
Operational safety is our number one priority as markets continue to reopen and Ram to pre COVID-19 levels.
We have also become significantly more efficient than we were prepandemic with greater points of access and higher profitability.
Driven by the scalability of our hub-and-spoke model and strong omnichannel capabilities.
This is clearly evident with many of our international franchise partners across the Globe for example.
Over the past two years or South African partner has expanded over 200 doors, while leveraging their existing four hubs. This is driven gfd sales growth up 200% over the past two years.
And the company owned and operated markets like Australia, and New Zealand, where our hub-and-spoke model is reached scale, we are able to expand efficiently as we continue to grow our operations and sales base are omnichannel approach in this market has enabled solid growth. Despite the fact that these countries have been under 200 day Lockdown.
We have actually grown sales and EBITDA, while sustaining margins and adding 100 doors with minimal capital costs.
Primarily through a partnership with the National grocer.
This continued growth has allowed the customers in Australia, and New Zealand greater access to fresh doughnuts in their local neighborhoods, while leveraging our existing eight hubs in these geographies.
Overall, our international markets have a proven model for what we envision the rest of our Hudson's folks could be globally one scale.
Optimal mix led by select experiential hotline shops.
Widespread delivered fresh daily doors and ecommerce.
Across our operations the move to delivered breast daily has resonated with our customers who demand exceptional quality when opting first retreat location or.
Our focus on driving it doesn't business opens up sharing celebration and gifting opportunities for our customer and we are seeing hire purchase seemed frequency and increase the points of accessibility improved merchandising. This focus on our model and sweet treat okasan continues to differentiate us from restaurant companies in our industry.
Right.
Overall, we see a great deal runway for international growth and are working to expand efficiently, particularly in neighboring markets. We can both leverage existing core equity markets and franchise partnerships.
This balanced approach will maintain our focus on brand quality, while open up access to more customers.
This will also allow us to realize economies of scale and as a result increased total company profitability and brand reach.
And the U S and Canada segment, we're continuing our hub-and-spoke transformation to emulate the success, we've seen in our international segment.
As of the end of the quarter, we had over 5700 points of access and saw sales per hub of three $8 million on a trailing 12 month basis.
Up 15% from a year ago.
Expansion of this model will enable us to increase our margins and sales per hub to align more closely to those we see in our international segment.
At a manageable cost thanks to our capital efficient model.
And hope that we converted in the last two years were seen great success.
Delivered fresh Dave.
Or DFT is driving incredibly strong performance with over 100% sales growth compared to our third quarter of 2020.
If you look at our growth year over year, our momentum is accelerating making opening new points of access easier and allowing us to expand into more profitable initiatives like.
Like utilizing limited time offers such as our pumpkin Spice doughnuts in our Gfd channel.
We have many large markets in the us to develop and leverage our existing base one market that is right for growth and where we are directing investments as New York City, which reopened in 2020.
New York City's a fantastic example of a white space opportunity in a densely populated in premium market.
This market specifically is the epitome of what we're trying to do as we build our hub and spoke transformation in the U S and Canada and is an excellent example of Omnichannel execution.
We actually view this market similar to open entirely new country, we see that much potential.
We see this opportunity as being very similar to a London market, where we have five hubs and roughly 600 spots.
We currently operate New York City, with one hub and 150 spokes and see a massive opportunity to starting to materialize as fresh ups and DFT doors are gaining traction month by month across all the boroughs as people continue to return to the city as restrictions are lifted and vaccination rates increase.
Took us 10 years to fully build out the London market to the highest mark margin market, but we think we can do the same kind of expansion in New York and half the time.
The majority of our upfront investing is complete and our profitability will continue to improve as the rest is built out in capital light.
We also see an incredible opportunity for growth in Canada.
On October 4th we took majority control of our franchisee operations in Canada and have begun the integration of those former franchise locations and to our systems.
This means we now control, 75% of our operations across our global network.
We're also planning to build on our physical presence in Canada, and you will start seeing spoke development next year with a greater number of hubs in place by 2023.
To give you some greater perspective, we currently have just 10 points of access, including four hubs throughout the Ontario, and Quebec markets and planned to target 700, 800 points of access throughout the provinces over the next five years with the expectation that this will mirror market of similar size like Australia and new Z.
England that currently has margins comparable to our international business.
We just left our one year anniversary in the third quarter of launching a brand new sweet treat line.
An opportunity for us to expand the reach of our love to retrieve brand into the category, where most American shop and.
In the U S market, we continue to be pleased with how the U S consumer engages with our brand just as importantly every individual skew continues to be in the top quartile the sweet treat category inside of Walmart.
We are still in early days of this opportunity as we continue to explore with the appropriate pacing both on investment and consumer reach.
Finally, turning to insomnia cookies.
Pleased that this brands once again exhibit strong growth in the quarter.
We opened seven new shops in the quarter or 28 since the time this time last year.
Increasing our national presence 206 shops across the us the insomnia brand is loved by our customers and recently received an incredible attention during that annual PJ Party in September as we've welcome college students back to campus.
We're so excited to have their students back in person since.
It is a huge driver for our business. Our team is incredibly excited about the long term opportunity and building out the insomnia cookie business and leveraging our company expertise in this retreat category.
It is important to highlight that all of our business segments are supported by strong capabilities across E Commerce innovation.
Branding and marketing.
These unique capability support the global growth of our brand and products and a capital efficient manner that ultimately drive the value for the business.
In the quarter.
Commerce represented roughly 17% of our overall retail sales as we continue to work towards our goal of 25%, which we believe is the optimal mix.
Loyalty programs continue to engage our customers and our largest market the U S.
Has grown membership by 24% compared to the third quarter of last year and now has a total of 8 million members.
One key driver of frequency across our hub-and-spoke is creating in introducing fresh and innovative offerings as we continue to deliver premium donuts to our customers we.
We've had extremely successful seasonal activations across the globe such as Halloween Assortments.
And in the UK, we also benefited from a national television campaign with ecommerce delivery partner Jesse.
We have also pilot a new premium offerings like hand cut cinnamon rolls and linked with powerful partners like X box pokemon and minions to drive demand and uniqueness.
All of these initiatives initiatives give us pricing power.
Sometimes up to 50% more than per individual item and continue to be scalable opportunities for our business.
These also hit right in our sweet spot of gifting and purchasing sweet treats in larger quantities for sharing and celebrating.
According to our annual global brand tracking study conducted by service management group, we have achieved another milestone during the quarter.
We have become the number one most love sweet treat brand and the total category of all sweets and chocolates and the US Australia, and the UK and number two and Mexico Korea, and several others just behind global chocolate brands.
Overall, our brand love improved year over year by more than 50%. This is significant because it shows the power of our donuts.
The Omnichannel model led by our experiential hotline shops, and fresh points of access approach that resonates with our customers and a focused social media strategy to center on what we do every day.
Create often fresh donuts celebrate and build community all of its which have helped us growth donut volumes over 20% year to date compared to 2020.
Before I turn the call over to Josh I want to take a moment to look ahead is there a variety of dynamics at play in the global market, which were taken into consideration as we move forward. We are excited that snacking trends are strong globally.
Discussed consumers desire sweet treats to celebrate with family and friends and this will continue to be a tailwind for us.
We grew and continue to transform our donor company in 2020 during the pandemic to a global Omnichannel business, we're better position than ever before to take advantage of the increasing foot traffic as the globe begins to open up with over 10000 points of access, including 381 hotline, they're shops worldwide.
That will open lobbies and broader access.
We're also premiumizing, our business in new and exciting ways, which reinforced or strengthened the category and give us a pricing.
On the flip side as we mentioned last quarter, we continued to continue to see pressure in commodity costs.
Wage inflation is also impacting our cost as anticipated along with labor shortages in.
In particular, we're seeing a lot of available drivers to run routes as we continue to build out our help from spokes.
As I mentioned earlier in my remarks for incredibly grateful for our hard working crispy creamers and recognize our achievements are not possible without them.
To that end, we continue to invest in our people and we're going to do it right. We work every day to ensure crispy cream into competitive in the job market and then we have the right people across all of our operations.
It's about ensuring that we have the appropriate rates per roll and benefits that fit more importantly, it's about a company for the great culture growth in a place where crispy cream or dreams and goals will be met.
This will ultimately be a differentiator for us as we constantly find ways to ensure our employees work at fulfilling their compensation is appropriate and personal development is available to take their career and themselves to the next level.
To account for these global pressures and investment we implemented brand price increases in late September the largest to with two within the U S.
Josh will talk about this more in a moment, but we have experienced with inflationary environments, given the global nature of our business and take thoughtful and strategic price increases as we deem appropriate.
Additionally, as I discussed earlier, we will continue to a premium is our product feel relevant innovation and a unique delivered fresh daily model.
We will continue to position as well driving incremental efficiencies and access.
Before I wrap up I want to once again state how enthusiastic we are about the growth in our business and to reiterate our confidence in advancing our omnichannel model, particularly in new Hudson's both globally and the transformation where continued in the U S.
October of our stronger is the strongest month every year and we have momentum or.
Ah brand is particularly suited to engage with customers during the holiday season, as gifting and sharing occasions or more prevalent and customers look for a sweet treat I'll look forward to sharing more in the coming months I'll now turn it over to adjust to walk through the financials and our outlook Josh.
Thanks, Mike and Hello, everyone.
<unk> said, we are pleased to report a robust third quarter with net revenue of $343 million, which represents 18% total company growth and 6% organic growth year or the year.
We are lapping 8% organic growth in the same quarter last year, showing the long term strength of our powerful brand and enduring effectiveness of our omnichannel strategy that matter of the macroeconomic environment.
Excluding legacy wholesale sales from last year of business, we have now fully exited a year or the year organic growth was 14% in the quarter.
This growth was driven by the performance and expansion of our capital efficient hub-and-spoke model.
Mike mentioned, we have grown global points of access which are locations, where our fresh doughnuts can be convenient purchased by 46% year over year to 10040 room significantly increasing the accessibility and availability of crispy cream and surpassing our own expectations for 2021 already.
The focus of our growth strategy is capital line delivered fresh daily covenants Ah merchandising units placed in grocery and convenience tools, which typically typically require an investment of less than 5000 votes.
We added 9400 disease delivered fresh daily duels globally in the third quarter and as a reminder, annual goal is to go at least 800 to 1000 points of access here.
This network points of access is supported by our 410 doughnut production hubs around the world, mostly experiential hotline shows.
During the third quarter, we added 31, net additional shops globally, including three hotline fit shops in Florida, Mexico in Egypt.
We've mentioned the maturity of the hub-and-spoke marble throne sales per hub Kpis Ah.
The higher the sales per hub or more we are leveraging the fixed costs and capital already invested in our production hubs.
And the third quarter, we saw international sales per hub, 31% year over year to eight 6 million votes, with 9% growth compared to quarter three 2019.
We also saw U S sales per hub, Greg, 15% in the past year to $3.8 million with 20% growth compared to Q3 2019.
The main reason international sales to hub is much higher because 45% of our sales are made outside of the donut shop to deliberate French daily any comments.
The growth in the U S and Canada segment reflects the transformation of the modal to exclusively for SW Donuts, particularly in the wholesale channel with 33% of sales now made outside of the donut shop.
We expect sales per hub to continue to grow in the U S and Canada as we add new fresh Prince of access and strengthen R. E Commerce platform.
Globally E Commerce grew rapidly during 2020 amidst the pandemic. This sales channel is now firmly established and we again saw e-commerce sales at 17% of retail sales in the third quarter, highlighting the convenience of outages will channels.
75% of the sales and the closer to revive delivery, which past studies have shown highly incremental towards donut shop sales.
Sales and make both or any sort of our own web platforms and five third party aggregators.
Total company adjusted EBITDA was $41 million in the third quarter, which represents a 10% increase year over year driven by the accelerated growth of our highest EBITDA margin international businesses, where the proven efficient hub-and-spoke fresh donut model is most mature.
Total company third quarter, adjusted EBITDA margin was 12.1%.
Around 90 basis points from a year ago as I explained in the lost earnings call. We are seeing significant commodity inflation across all major input costs, prompting us to take additional price increases.
A much loved fresh donuts, which are usually shed in Austin gifted with relatively low purchase frequency all largely resilient to pricing actions. We've seen this resilient so already in October in the U S floating the price increase in September.
The margin benefit from pricing was limited in the third quarter, but we expect to see more of an impact in the fourth quarter.
On a year to date basis are adjusted EBITDA margin has improved 80 basis points to 13.8% juice.
Deficiencies as consultants both model.
Our goal is still to achieve 15% total company adjusted EBITDA margin in 2023 with the growth and are already high margin international businesses and the changes we are making to a U S and Canada segment, combining to drive margin accretion.
As a result of our EBITDA, Greg and tight working capital management, we generate $242 million operating cash flow in the third quarter we.
We invested $31 million and largely growth oriented capital expenditures, primarily building out global markets, where we see tremendous opportunities letting to $11 million posted free cash flow for the quarter.
Turning toward results at the business segment level International grew net revenue, 37% to $87 million in the third quarter with organic growth up 29% year over year.
On a <unk> stack organic growth was 18%.
Illustrating how these markets are even stronger following the COVID-19 pandemic.
International segment sales growth was particularly robust in the UK in Mexico in the third quarter and both we saw successful limited time, Brian partnerships, including Microsoft textbooks, Kellogg's and Thats laced healthy Chris perform well.
Points of access have also grown 26% in the international segment in the last year, reflecting the continuing opportunity to increase availability of fresh donuts, even immature hub-and-spoke markets.
Points of access grow again in the third quarter by over 150, mostly in new DFT dose across the UK, Australia and Mexico.
In addition international E Commerce represented 18% of retail sales in the quarter showing as continued importance even as we emerged from the pandemic.
Adjusted EBITDA in the International segment grew 43% to $22 million in the third quarter, and that's 54% when compared to the same quarter in 2019.
A strong adjusted EBITDA growth and international has come even without an increase in the number of production humps in the last 12 months showing the financial benefits leveraging existing production homes through incremental points of access.
International adjusted EBITDA margin was 25% in the third quarter up 100 basis points versus a year ago with all markets contributed even Australia, New Zealand, which is Mike said his face significant COVID-19 restrictions.
Dry food DSD and he comments all combined to offset the impact of reduced in ship traffic that as we have seen throughout the world during the course of the pandemic.
Now turning to the U S and Canada segment, where the transformation hub-and-spoke is well underway.
With 100% of our Donuts now so fresh daily.
Since 2019 were converted a number of hubs with spokes that distribute fresh donuts to local points of access from 76 to 121 and.
And this has enabled us to grow delivered fresh daily dose by over 80% year over year to 5220.
The transition to fresh Donuts as also led to growth in sales Purdue by over 50% in the quarter when compared to the prior year.
Additionally, ecommerce represented 17% of retail sales in the quarter.
All these factors combined to give us confidence in the effectiveness milk business transformation strategy in the U S and Canada.
U S and Canada net revenue grew 12% to $226 million in the quarter with organic revenue down 2% year over year.
The <unk> organic growth for 17%, reflecting the sustained performance and resilience of opera and over the last two years in the U S.
The temporary slight organic growth climb for the quarter is because the growth and fresh daily done a sales was as expected offset by the strategic exit from our lexi wholesale business.
And the fact that we are lapping a significant pipeline Phil from our national launch the Brian to Sweet treat line with Walmart and the third quarter of 2020.
Excluding the impact of exiting the legacy wholesale business U S and Canada organic growth was 9% year over year on the two year basis organic growth was 28%. Excluding this now fully exited business.
Coming back to brand new Sweet treats consumer demand remains healthy with Nielsen scan sales up 33% in the third quarter versus the second quarter. Both do two additional distribution, which reached 9600 outlets in the quarter and higher sales velocities, which grew double digits.
In the third quarter customer order fulfillment was only 65% as we work to expand production capacity and a tie.
Labour market.
As of the beginning of the fourth quarter. We have added two additional production lines, which are now fully operational and plan to add a third allowing us to fulfill over 90% of orders by the end of the fourth quarter.
Adjusted EBITDA of $20 million remain consistent in the U S and Canada segment.
We have seen the efficiency benefit to the fresh hub-and-spoke Muddle funding example of the international segment.
As a reminder, all your cities of now transition from legacy wholesale to delivered fresh daily and those you at cities with a hub-and-spoke melisma mature we are already seeing 300 to 400 basis points benefit to margins in the third quarter.
This is due to the high price points achieved with these fresh steady donuts and the efficiency benefits of a local delivery model, especially in covering fixed costs back of the production hubs. This also explains our confidence in the U S and Canada segment going forward and our goal of 15% adjusted EBITDA margin for the segment within three years.
Adjusted EBITDA margin was 9% in the third quarter, a decrease of 110 basis points versus a year ago.
The third quarter is seasonally our lowest margin quarter, but as I mentioned earlier, we also faced higher commodity inflation, including in wheat, sugar edible oils and gasoline.
A price increase in September is already helping to offset the impact with the full benefits come in the fourth quarter.
Also in on startup business branded sweet treats additional costs were incurred as we work to build out on production capabilities to meet customer demand.
We now expect Brennan sweet treats to be profitable in the first half of 2022.
As Mike said, we also continues to invest in our frontline crispy cream team members.
The combination of a rapid expansion in industry trends is now driving wage inflation to high single digit levels. We will watch this time closely and all prepared to take further pricing action before the end of the year if needed.
Now a good use example of the benefits of the Hub-and-spoke model is Tampa, Florida.
We bought this franchise in August of 2019 for $4 million annualized revenues in 2019 were a little under $18 and local market EBITDA margin was under 10%.
There was one highlight data show and three fresh shows.
We have since remodeled the legacy shops added another hotline theater show on 120, new DSD dose.
Trading Tovar revenue is already over $12 million to the third quarter and growing quickly and local market EBITDA margin was over 25%.
We have invested just under $4 million of additional capital since the temper acquisition, but expect to invest minimum levels moving forward leaning a rapid payback quinol investments overall.
Mike also took earlier about our plans to Canada following the franchisee acquisition that.
Our plan is to take what is just under 20 million U S dollars annual revenue business today with EBITDA margins already above 20% to become a 50 to 60 million U S dollars business in less than five years.
Distributing to 700 to 800 points of access from nine to 11 production homes across the country.
As a benchmark studies revenues, just under 100 million U S dollars and we distribute to nearly 1000 points of access that so I have a high confidence level in this plan.
By using on Capitol efficient Hub-and-spoke model will also quickly be able to finance this growth within Canada.
Moving onto our last segment market development.
Total net revenue grew 23% to $30 million compared to the prior year driven mainly by the acquisition of crispy cream, Japan in the fourth quarter of 2020.
Organic revenue group, 18% year over year as a result of improved market conditions for the international franchise locations as restrictions related to COVID-19 continued to that.
It just it EBITDA remained flat in the quarter compared to the prior year.
Turning now to our gap income statement, we continue to see a shift of expenses from product and distribution costs, two operating expenses when comparing to the prior year due to our acquisition of franchisees in the back half of 2020 and in early 2021.
Operating expenses include items, such a sharp and delivery labor distribution costs and maintenance rent expense all of which increase with our control of the global system.
Additionally, we incurred high labor costs in part due to support needed for the hub-and-spoke mobile transformation and investments as a result of the current labor markets.
This should improve as we see efficiencies from the shifts the hub-and-spoke model in the U S and Canada business and with the full impact of all recent price increase.
SG&A continues to reduce as a percentage of sales as we leverage Greg.
Enough to offset an increase in share based compensation and public company called since the IPO.
We also saw a substantial reduction in interest expense due to the paydown of debt using IPO proceeds at the beginning of the quarter.
On the bottom line or GAAP net loss for the course, it was $4 million a significant improvement from last year's loss of $30 million as acquisition related expenses have declined and we no longer have related policy interest expense.
He'll get diluted loss per share was full sense for the quarter with adjusted diluted EPS decreasing to <unk> from eight in the third quarter of 2020 as a result of increased share count following the IPO.
Weighted average shares outstanding for the third quarter of 2021 increased to $166 million compared to $125 million in the third quarter of 2020.
On our balance sheet as of October the third we have $45 million of cash and net debt $691 million, bringing bringing on net leverage ratio to three seven times.
Our net debt reduced 40% from the end of the second quarter as IPA proceeds will used to pay down outstanding obligations given the impact of the acquisition of our Canadian franchisee in the fourth quarter. Our goal is to be on the three times. The average in the next 12 months.
Finally move into our expectations for the rest of the year of business is performing well and we are reaffirming a full year 2021 guidance for net revenue of 1.34 billion to $138 billion.
<unk> growth of 19% to 23%.
Organic revenue growth of 10% to 12% adjusted EBITDA of $178 million to $185 million for growth of 22% to 27% and adjusted net income of $62 million to $68 million or growth of 46% to 61%.
Additionally, we continue to remain confident in a long term outlook of organic revenue growth of 9% to 11%.
Just did EBITDA growth, 12% to 14% and adjusted net income growth of 18% to 22% per year on average.
As a reminder, we anticipate we will exceed these targets in 2022, as we will no longer be lapping the exit of our lexi wholesale business in the U S and continued to see strong momentum in international markets.
To summarize we're very pleased with our performance around the world and the expansion of our capital efficient Hub-and-spoke model, we remain resilient to the changes in the macro environment with the pricing power to manage inflation as needed and we have a healthy capital structure to support our investments and profitable growth, while continuing to pay down debt.
With that I'll turn it over to the operator to open the Q&A session.
As a reminder, Catholic question, you would need to plant star one on your telephone.
Sure Your question press the pound key.
Thank you please limit yourself to one question and one follow up question. Please stand by will be compiled the Q&A roster.
Our first question comes from the line of John Brown from Morgan Stanley. Your line is now from.
Thanks, very much Joshua you just go back to the the performance of the U S business in the quarter I think maybe initially you thought organic.
Sales growth might be closer to flatter a little better.
Do you think the difference is simply the sweet treats business or maybe can you talk about the fresh business decor fresh business and particularly common.
Common internationally on the on premise business for the shops, how was the on premise business since that's still a majority of the U S business. Thanks.
Hi, Joan Great to hear from you.
So we saw good sales growth in the fresh Donna business across all the channels, obviously already reference to deliver first daily was was exceptional but the donut shop E. Commerce, we're all all growing.
Out there I hear about labor market challenges challenges impacting fresh boost.
Important growth process is negligible.
You reference it going going negative as I mentioned in the call. We had these sort of one time lapping effects versus last year, but indeed.
I also mentioned, we had a fulfillment issue.
The branded sweet treats very strong demand.
We weren't able with the third party.
Co manufacturer.
One of our lines to keep up with the ramp up and demand with the labor market. The way it was that for them. So that was the slideshow full but overall happy with where we finished.
Okay and can you talk to what what the pricing actions, where you took in September what you think those do does that cover the inflation. You are currently experiencing would you still lag that based on on maybe what was inflation in the commodities and labor just so we understand that dynamic in the third quarter.
Yeah sure. So we've taken pricing earlier in the low single digit pricing is what we planned and implemented but you're right. The commodity inflation has been more than we expected coming into the year double digit commodity inflation across a number of hall of our input costs. So we took and.
The low single digit price increase in the U S in September.
We seeing.
<unk> acceptance of that with customers in October.
Is intended to cover all commodity unhandy wage inflation that we see out there in the market Mike talked about investing in our crispy creamers.
But we will keep a close eye on the inflation trends.
We will on all prepared to take further pricing action if needed.
To make sure we carry that momentum into next year as well.
Thank you. Our next question comes from the line of Johnny Banco from J P. Morgan. Your line is now from Hyde.
The question was.
Or intelligence around managing DFT per account <unk> per day per account.
Can imagine if his stores getting delivered donuts to seven days a week one.
That would be difficult to measure demand.
And if the doughnuts are getting removed after 24 hours, just getting the shrink and overall.
Having too much having too little must be a challenge, especially when managing profitability and a high labor cost environment with drivers and also with obviously fuel costs as well, so where I guess are you in terms of.
Not just talking about the.
The revenue of DFT, but actually looking at the profitability of DFT, even getting down to the per door basis, or even day per door basis.
Hey, John It's Mike One thing I want you to think through.
The legacy business that we have built before which was a DSD business.
Now we are delivering fresh daily.
Alright that delivered fresh daily and having those fresh access points has allowed us to take pricing power, which is significant sometimes up to 50% over what the other DSD business was so we're able to leverage that.
In terms of.
This is done on a daily basis. So we are able to see the waist and we're getting into demand planning to actually look at what is the appropriate level of drop sides as well as manage through that so that'll be incrementally get better as we continue to look at the business of DFT. This isn't just a learning.
And the United States. This has been going on in the UK in our Tesco business as well as an Australian are 711 business, where there is an exceptional knowledge and discipline about how to manage this per drop per doughnut, sometimes even the DFT have more than one drop per day right.
Alright, so unique places. So there is that skill set we will continue to manage how do you manage that flow through of the <unk> business just given its importance about how we move to the fresh business and really evolving beyond or just a singular hotline donut shops.
So just to add.
It's not just.
A theoretical transformation.
We are moving from being a franchise will to an operator, we spend a lot of time on operation operating capabilities in terms of people processes and systems to manage those returns you describe about to manage demand planning in full constant and we're starting to see the benefits is very important with those high price points you can get efficient.
Cu reference.
I mentioned on the call that in the cities, where we have made the change to legacy holes from legacy wholesale we're seeing three to 400 basis points improvements. So we're seeing those benefits come through I reference Tampa, but Denver.
Is one where we've converted and we've gone from 18% margin last year to 24% margin Dallas I see 10 basis points of margin increase where we've introduced DFT for the first time. So we're seeing multiple occasions I know you can't sit in the overall Q3 numbers yet with the number of puts and takes in the commodity inflation in pricing timing, though.
<unk>, but this is a great underlying margin improvement that gives us a lot of confidence so that we can leverage those skills that might references from the UK in Australia and elsewhere alright.
Alright, Thank you and secondly, I don't want to go a different direction.
Comments on New York, basically being New York City, basically being a country and its owner.
Kristin, there's actually I remember gosh, I'm only 20 plus years ago. There was actually a very funny Seinfeld episode, where crispy cream was featured.
This is a brand that actually got a lot of attention when it first opened in the market I mean, there were a number of different factory stores.
That for a while actually did extremely well and obviously for any number of reasons. The brand went away in that market can you.
Summarize just kind of a history lesson, just using New York City as a specific example, I mean.
I guess, what you think.
Wrong with the brand and maybe some history lessons that were learned that will basically maximize your return and minimize your risk as you penetrate that market going forward.
John I think very.
Very very succinct question, which is how will we continue to develop New York, We look at New York very similar to what we've done in London, Okay. London today has five hubs and 600 points of access.
It really is about doing that omnichannel approach, so you leverage or your hotline shops, and then you'll get to the points of access that drive the margin and the profitability as well as the scarcity of hotline shops, and how that channel works as well as freshmen as you get to the 600 points of access and we think.
New York that is one hub today.
With 150 points of access so again, we see this is the investment is starting to be there. It's about developing the additional points of access which is getting the freshness to where the customers are and then building that out and it's capital efficient first so instead of opening up a lot of hotline shops, all over new year.
York City, the discipline is actually building the hub getting the route and it's just not just New York City Ray because I've talked about this is a different country and that's the approach that we take on a country by country basis across the world, but this will unlock how we do Toronto. This will unlock how we do Mexico City, where you live.
<unk> the existing base of the hotline capacity and then build the route system. So you get pressed Donuts then as you start to figure out how we can do additional merchandising or other products that we can bring to those access points you continue to evolve the business much different than it was in the past.
Thank you. Our next question comes from the line of Jarod Garber from Goldman Sachs. Your line is now open.
Hi, Thanks for thanks for the question I wanted to circle back on the on the cost side of the business, particularly as it related.
I know you are seeing some rising commodity costs, particularly.
The sugar and edible oils, but the.
The the labor side and I think you made a comment earlier that you are finding somewhat challenging defined delivery drivers and I think that's a kind of a crucial point here as we think about that.
Dft's strategy and that hub-and-spoke strategy. So can you comment on on maybe where you are in terms of those drivers and maybe how understaffed you are and is there a scenario in which you're not able to sort of.
Secondly, deliver doughnuts on a daily basis, which is obviously a key part of the strategy.
We don't have an issue in the fresh done our business.
With growth when it comes to Labour availability.
On drivers, we are expanding and adding new routes.
And parts of the U S and of course entering expanding our business in this labor market is challenging, but thus far with the level of recruitment.
The attraction of coming in working at Crispy cream, we hide 2100 people in the third quarter is the highest in our history in the U S were able to match the growth needs that we have.
Okay I guess.
Think about I.
I think expanding routes, which would presumably mean higher hiring more drivers to affect some of those.
Those those deliveries.
Correct and I guess further just wanted to get a sense of maybe how we should be thinking about that other off our that operating expense line.
If there is pressure from incremental drivers and higher wages paid to those drivers.
As big number 2100, and that's the whole system, including the shops and making sure that we've always got the right number crispy creams in front of our customers, but when it comes to adding those drivers for new routes. We added just over 150 delivered fresh daily duels last quarter.
Driver can cover 15 14 15, so stop so you can quickly do the math and realized that that's not that many drivers that we had challenged by to find.
And so in terms of our ability to expand relatively speaking, it's just no no the challenge for us.
Even in this marketplace and add on one thing the just remember this the global business right. So the learning from how we do the drop in the UK.
It hasn't appeared could be a challenge as they continue to manage through this is used to have that same approach.
In Australia, where we do know drops where we've opened up a new grocery system. We don't have that either of these are built in these are a lot of crispy creamers, but sometimes they might be a driver, but they can also be a processor right. So you're starting to figure out how to use cross training and then figure out that's a career path that both like to see and they see the off.
Fortuity for growth as they wanted to one day be a manager or something else in the south. So you got to give a broader lens not just a specifically just hiring a driver.
As a reminder to ask a question you won't need to press star one on your telephone to withdraw your question press. The pound key we ask that you. Please limit yourself to one question and one follow up question.
Our next question comes from the liner Bryan Molen from Deutsche Bank. Your line is now from.
Hey, Thank you just a question on the DFT business and the international segment had nights sequential.
For growth in the quarter again.
Speaking of ultimate expansion opportunity over the next several years specifically across this current group of company on markets and do you expect the additional growth across all the markets to any color on the ultimate.
Opportunity in that segment.
Relative to the approximately 2400 doors that you have today. Thank you.
So again, we've reiterated our long term growth and some of those links to the points of access right. We see point of access growth of 800 to 1000 on a yearly basis half of that being outside of the United States.
Even within the existing countries that were in two day. This does not even include as we open up and leveraged our existing base in new partnership countries start to open up they will start to think about the points of access approach as well. So there is significant growth inside of international both of our growing points.
Access and we continue to see that 2800, we have in the company owned markets within the international segment.
UK is the biggest part of that it's really interesting to see the UK continuously adding bills every quarter. It shows how even in a mature market.
Different grosses.
Convenience stores too.
Grow, but most obviously, Mexico seems to be the biggest absolute DSD inputs of access opportunity.
Whether it's over 100 million of your countrymen Mykoo crispy cream, and we know and we see the opportunity to expand access that so if you say that we've got 2800 today.
You could look the UK.
Mexico, and Australia have we'd see about another 3000 opportunity just in those markets.
And it's great to see the momentum sustain so it will be more than that but we are going after that right now I mean, the real interesting thing about the DFT will be about even how our franchise partnerships continue to build it up alright, I'll give you that example, South Africa, you start to add up to 200 doors that they build out within the last year.
<unk>.
Thank you just a follow up to keep them to the theme of the white space you have as many markets.
Over the long term just want us about China.
Is that a market, where you're devoting any roofs resources to exploring today or perhaps.
More feasible several years from now and any.
Any high level thoughts on what that might look like one day, whether company owned or can you think of local partner would eventually makes sense on the line.
One of the things that we did when we acquired or six businesses that are the countries that we currently operate from an equity business was to make sure that we could leverage them.
So they really build the partnership you specifically mentioned, China, there could be other countries like Brazil among countries in western Europe that will look to develop.
There, we choose to do that both on a partnership side or a franchise sign.
Those are things, we received the growth significant but I see a lot of growth on the franchise sizes particular, and internationals that will continue to grow and.
And we'll look in pace and development, China or other countries as we see fit we have a lot of growth to do and the core business that we're in today not just an international but as long as the transformation that continues in the United States and we see continued growth in.
Further.
Countries with the franchise partners as well.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Mike pattern field for closing remarks.
So thanks, operator, and thank you again, everyone for joining us today.
Trust you can hear all excited Jonathan how're about the business in a runway for growth we have a premium fresh product with exceptional quality majority of control of our operations and are taken a disciplined approach to increasing points of access in order to maximize profitability, we have momentum and convention in our story as we continue.
To advance this iconic Krispy Kreme brand that continues to prove to have long term potential for growth and expansion over the long term I once again want to thank all the crispy creamers for the incredible work and appreciate you taking time to listen and engage with us.
This concludes today's conference call. Thank you for participating you may now disconnect.
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