Q1 2022 Krispy Kreme Inc Earnings Call

May 11, 2022

Good day, and thank you Cristina by welcome to the Crispy clean first quarter 2022 earnings calls at.

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After the speaker's presentation, there will be a question and answer session.

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I would now like to hand, the conference over to your Speaker today, Rob <unk>, Vice President of Investor Relations.

Please go ahead.

Good morning, and welcome to Crispy Creams first quarter 2022 earnings call. Thank you for joining US today, our first quarter earnings release and accompanying earnings presentation deck are available on the Investor Relations portion of our website at investors Dr. Chris.

<unk> Dot com.

Turning me on the call. This morning is Mike <unk>, President and Chief Executive Officer, Josh Charlesworth, Chief operating and financial Officer, Joey Chief Accounting Officer.

After prepared remarks by Mike Josh There 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 Securities Litigation Reform Act of the 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 cause actual results to differ materially from.

Those contained in any forward looking statements.

These factors and other risks and uncertainties are described in detail in the company's registration statement on form S. One forward looking statements made today speak only as of today. The company assumes no obligation to publicly update or revise any forward looking statement, except as may be required by law.

Additionally, today's call will include certain non-GAAP financial measures a reconciliation between non-GAAP financial measures and their closest GAAP measures can be found on the company's first quarter earnings press release, and our Form 10-Q, which will be furnished shortly to the SEC and available at Investor <unk> Krispy Kreme dot com with that I'll turn the call over to Mike.

Good morning, and thank.

Thank you everyone for joining us today.

We are pleased to share our first quarter 2022 results as we built on strong momentum established in 2021.

I wanted to start today's call by thanking our amazing group of Crispy Cremers. Our team members for their continued hard work to create moments of joy for our customers, especially while navigating significant uncertainty across the world RP.

Our people continue to be at the forefront of delivering on our mission of becoming the world's most loved suite three brands.

We have accelerated investments in our talent to ensure we continue to attract engage and retain our most vital assets. We are already seeing improvements across the key people measures to start the year.

The purpose of our company is to touch and enhance the lives of others, taking the Jordan its crispy cream.

Last quarter, we discussed the strong positive impact crispy Creamers have had on the community in 2021.

We continue those efforts this year, including our blood donation campaign in conjunction with the Red Cross in January to help save lives.

Another Great example of this year include celebrating international Women's day across the globe with our here from Hurricane.

Which put the spotlight on talented female illustrators globally and encourage our customers to share their own voice as well as donating product and proceeds to women based organizations.

This campaign spark social conversations across the world with a theme of celebrating special women in each of our lives.

Both of these campaigns perfectly highlight our key brand value of joy generosity in connection with our consumers, which we know drives strong brand love.

We are proud to be a global company operating in more than 30 countries and campaigns like these highlight the good we can do how we can really drive genuine consumer connections with our brand in an impactful way.

Turning to our performance the continued progress on our long term strategy was well apparent in the first quarter with organic revenue up 15% driven by strong performance across all three segments.

Our organic growth was led by <unk> through our Omnichannel model.

This growth was driven by engaging and buzzworthy seasonal and limited time offerings are <unk>.

Such as our successful Twix Donut campaign in the U S and nearly $2000 increase in our points of access from a year prior.

The increase in price points of access to 11000 globally, including 600, new points in the first quarter alone shows how we can leverage the economies of scale of our 415 production hubs to delivery fresh Donuts every day.

Our strong revenue growth in the quarter led to an increase in adjusted EBITDA over the prior year to $48 9 million with consolidated margins in excess of 13% as we expanded margins in the U S and Canada and market development segment and.

And excluding that onetime benefit in the previous year, our international segment as well.

These results results were in the face of macro issues, such as supply chain disruption omicron inflationary pressure and the warranty Ukraine.

These troubling times for all of US we are doing our part to help our communities with acts of Joy.

Beat the pump promotion in the U S.

To selling original glazed donut for the price of it.

A gallon of gas on Wednesdays.

This promotion increased our transactions in the middle where he can generated several billion media impressions.

We have and will continue to successfully navigate these challenges what is a constantly changing environment through our omnichannel model and the dedication agility and hard work of our crispy creamers.

Our biggest growth opportunity is getting to more than 50000 fresh global points of access.

Largely driven by low capital delivered breast daily our DFT doors.

I wanted to spend a little bit of time. This morning doing a deeper dive on our DSD strategy.

DFT is the delivery of fresh donuts to grocery and convenience stores from one of our production hubs and Krispy kreme branded merchandising units.

Allowing us to leverage the fixed cost of our production facilities and ensure our.

Customers receive a breast donut daily in a convenient location too that we.

We know that fresh Max as our customers tell us. This is the most important attribute when purchasing this retreat.

These points of access typically cost between 2000 to 10000.

Capex for merchandising unit.

Our capital light way to increase accessibility to consumers.

We've seen strong growth in DFT door camera and a 27% increase in sales per DMT door in the U S and Canada over the last year, but we still have significant room to grow.

We will achieve higher sales per door by focusing on premium rising our DSD options in the U S, including adding <unk> this year and upgrading our merchandising units with more menu choices and better displays.

These are improvements that will drive higher sales per door increased the bottom line and improved margins.

Similarly, as illustrated this quarter in all of 2021, we continue to make great progress in expanding our global points of access in a capital efficient manner, both from our existing grocery and convenience customers as well as adding new customers. Likewise, we see significant opportunity for growth in both our existing <unk>.

And in markets, we do not currently operate.

We have strong visibility to our pipeline of DFT expansion globally over the next three years and remain highly confident that we can deliver at least 10% increase in points of access each year.

Primarily through highly profitable capital light DFT doors.

Importing this expansion will be.

The addition of 10 to 15, new equity hubs added per year as well as 5% to 10 frame franchise hubs.

Each will be located and designed to maximize the hub and spoke system with 50% to 80 additional points of access for hub over time.

Each new hub investment has a goal of a three year total payback period.

In the U S and Canada segment, our performance was driven by the strength of our fresh business in insomnia cookies organic.

Organic revenue grew nine 7% in the first quarter, while total revenue grew 13, 8%.

Our DMT business continue to gain momentum as we added over 200 points of access during the quarter, bringing us to nearly 6000 locations in the U S and Canada, well on our way to exceeding 500 doors in 2022.

The increase in our points Abaxis is strong growth growth in revenue per DMT door allowed us to expand adjusted EBITDA margins by 90 basis points in the first quarter to 13, 3% even in this inflationary environment.

In Sanya cookies had another strong quarter.

Growing double digit organic growth revenue and adjusted EBITDA, We added seven new cookie shops during the quarter and with a strong pipeline. We are confident that we will add more than 30 shops. This year and delivered unit growth in the mid teens each year moving forward.

Finally in our branded <unk> business quality package shelf stable Donut basin with many crawlers, we continue our plans to expand points of distribution growing to 18000 points in the first quarter. We continue to invest in this great opportunity to drive future growth.

Our international segment delivered another quarter of strong performance.

<unk> growth for the quarter was 36% with sales per hub up nearly 50% from a year ago with the same number of hubs showcasing our ability to increase revenue in a very capital efficient manner.

We saw strong performance across all of our international units, including 42% organic growth in Mexico from the prior year and we continue to see significant runway for growth across the entirety of our international segment.

Our market development segment also had a great start of the year with organic growth of 10% and margins expanding nearly 200 basis points to 35%.

This was led by a robust performance in our franchise business as well as our equity owned Japan market, where we are implementing our omnichannel model with the expansion of E Commerce and the launch of delivered breast daily.

Krispy Kreme, it's truly a global brand.

Roughly half of our system wide sales and adjusted EBITDA are outside the U S.

As you know our goal is to open at least three new countries per year going forward.

Last quarter, we announced signed agreements in Switzerland in Chile.

And we're pleased to announce two additional signed agreements to bring Krispy kreme to Costa Rica and Jordan.

On average, we expect each new market entry.

Entry will provide 400 to 500 additional points of access.

With a proven model.

We're building a very strong pipeline for new market entries with both existing and new franchise partners as well as looking at equity Stakes in strategic markets.

We expect to be able to announce further country increase later this year as we continued our journey to become the most luxury brand in the world.

Turning to a few other drivers of our growth.

E Commerce is a core pillar of our Omnichannel strategy in the first quarter 17.

4% of our retail sales came from e-commerce up from less than 10% pre pandemic and 17, 2% for the full year 2021.

With a goal to achieve ecommerce penetration of over 25% globally long term.

We continue to strengthen our capabilities with our app in order to improve the user experience enhancing.

Enhancing our customer targeting more than 10 million loyalty members, including.

Including this weekend and double doesn't promotions and we continue to expand accessibility with additional third party partners.

In addition to e-commerce innovation branding and marketing our key capabilities that drive our business segments and keep us relevant across all of the consumer touch points in our Omnichannel model.

Innovation remains a significant driver of frequency as we create and introduce premium fresh and buzzworthy offerings to customers across our points of access.

We had a highly successful seasonal activations across the globe during the quarter.

<unk> lunar new year, and Valentine's day campaigns.

We've continued our momentum on innovation and branding into the second quarter, including our successful hand cut and rolled sentiment enrolls on Sunday and the introduction of our new cinnamon toast Crunch Donuts.

<unk> packaging emotional storyline connection really matter for our customer.

All of these initiatives driven by innovation and premium amortization gives us real pricing power.

Time's up to 50% more per individual item than our original glazed donut and.

And continue to be scalable opportunities for our business and provide a notable offset to current inflationary pressures.

He's also a hit right in the sweet spot of gifting purchasing still affordable treats and larger quantities for sharing and celebrating as evidenced by the 13% increase in donuts sold this quarter compared to a year ago.

To wrap up.

I want to once again state how enthusiastic we are about the long term growth in our business.

Our ability to execute our omnichannel model and ultimately expand to more than 50000 points of access globally in a very capital efficient manner Levered.

Leveraging our innovation and <unk>.

<unk> connection with expanding points of access in our existing markets and opening 15 to 25, new hubs across the globe across the global system. Each year gives us strong confidence that we can achieve double digit organic revenue growth in 'twenty two and beyond.

I'll now turn it over to Josh to walk you through the Q1 financials and our 2022 outlook Josh.

Thanks, Mike and good morning, everyone.

In the first quarter Krispy Kreme and so once again showing that our beloved brand.

Only channel approach, there's no line in the Brazilian and this covenant microenvironment continues to thrive.

With net revenue growing 15, 8% year over year to $373 million.

Organic revenue growing 15, 7% and adjusted EBITDA, increasing five 4% to $48 $9 million or a margin of 13, 1%.

This performance reflects the effectiveness of our strategy to maximize sales from our production hubs, sending more fresh donuts shops by e-commerce and into local grocery and convenience stores.

This also helps us work through the disruption for a moment back in January we refreshed are not always available even if we lost a few operating hours when Christie <unk>.

During the quarter, we added 600 of these points of access across the world, mostly in the form of capital light Ddos.

Now have more than 11000 points of access and increase of nearly 2000 from a year ago.

Along with our successful brand activation initiatives around the world. This directly resulted in double digit sales increases across all our business segments.

The resulting operating leverage explains a 90 basis point increase in first quarter U S and Canada segment EBITDA margin yet.

Company adjusted EBITDA margin was 130 basis points lower than the same quarter last year due to the impact of public company costs and we also think that the receipt of a business interruption insurance payments in the UK, one year ago, Australia Hoffman and those now.

Nevertheless, a margin of 13, 1% is higher than we saw across the second half of 2021 and shows how the efficiencies of expanding our hub and spoke model plus the pricing. We took during the course of 2021 were enough to cover inflation.

In the first quarter GAAP net income $6 $5 million or <unk>, <unk> diluted EPS compared to a GAAP net loss of $400000 while negative.

Diluted EPS in the same period a year ago.

Adjusted net income for the quarter was $16 1 million and adjusted diluted EPS in the first quarter was eight cents.

A drop of <unk> largely due to the increased share count from the IPO.

Net leverage was three six times on a trailing 12 month basis at the end of the quarter.

The decrease from a year ago.

In the U S and Canada business segment total revenues increased 13, 8% in the first quarter to $253 million.

On organic growth was nine 7%.

We saw growth across all channels and for the first time, we were able to activate Valentine's day absent Patrick's day across all our French stone of channels in the U S.

This meant fresh specialty diamonds were available during these weeks simultaneously.

That shops by E Commerce, and local question convenience stores.

Adding to the overall success story this year as these seasonal events.

This contributed to a 27% year over year increase in SaaS put DSD adult.

We also have added 270 <unk> in the first quarter, taking the total to 5411.

A 15% increase year over year.

We expect to add at least 500 DFT does in the U S and Canada for the full year 2022.

So in the first quarter, we brought the unique LCL experience Krispy Kreme doughnuts made.

I haven't stopped with Twix Bose.

As well as the return of our beloved cinnamon roll with cinnamon rolls someday.

These are important to our performance not just because of the additional excitement they bring to the brand, but because of specialty donuts. They are priced at a significant premium to our original place.

E Commerce revenue in the US and Canada grew to 810, 6% of retail sales in the quarter.

<unk> the benefits of integration with third party Aggregators, which now work alongside.

E Commerce platform.

All of these factors combined to increase revenue per hub in the U S and Canada to $4 $3 million on a trailing 12 month basis in the first quarter.

Compared to $4 million for 2021, and $3 6 million a year ago.

Hubs and spokes in the U S and Canada was flat at 125.

In previous earnings calls I've showcased former franchise city markets, which following our acquisition have seen profitability guidance. Following the introduction of the fresh hub and spoke model.

Tom I wanted to give the example of a long time company owned market in Nashville.

Then we converted from the legacy wholesale business in late 2020, it didn't have much fresh dating which led to a 200 basis point increase in local EBITDA margins to 24% in the first quarter.

Adjusted EBITDA for the total U S and Canada segment in the first quarter increased 22% to $34 million.

With margins expanding 90 basis points to 13, 3%.

The increase in EBITDA and margins was driven by strong revenue growth and a fresh start up business as.

It reflected sales by Hep growing 19% year over year.

Pricing taken during the course of 2021 offset wage and commodity inflation in the quarter.

We did not take further pricing pressure in the first quarter.

Our digital first and so their cookies business overcame disruption in the quarter from both omnicom and weather events in the northeast to deliver double digit revenue growth, which marked with margins again in line with the average for the U S and Canada segment.

We opened seven new coffee shops in the first quarter.

Reaching 217 in total across the U S.

We remain excited about the long term potential of this rapidly growing brand with plans to double the number of cookie shops in the next five years just in the U S.

We're also developing plans for international expansion in the coming years.

As Mike indicated we continued to grow our presence without startup Brian Sweet treats.

Additionally, we are improving our manufacturing and distribution capabilities and have sold our service level issues from last year, delivering a fulfillment rate of 98% by the end of the first quarter.

Sweet treats remains on track to be profitable by the middle of this year.

It.

Moving onto our international segment net revenue grew 31% in the first quarter to $87 million and organic revenue increased 36%.

Revenue growth was strong across all the international segment countries with Valentine specialty donuts resonating across the world.

We have the logical first vegan done in the U K and had several successful brand partnerships, including a hershey's done in Australia and <unk> rollout in.

In the U K.

It's worth noting that foreign currency exchange did have a negative 4% revenue impact on our international growth during the quarter. So our results would have been even stronger.

International points of access expanded by more than 300 in the first quarter alone as we were able to pull forward some points into the first quarter and by more than 500, new points over the last year.

The increase allowed us to leverage our 37 international hubs to grow international sales to hub to $9 7 million up from $9 1 million at the end of 2021 and $6 5 million.

Yes.

International adjusted EBITDA for the first quarter grew 12, 4% to $17 million led by a 55% increase in Mexico.

<unk> declined to 19, 8% down 330 basis points compared to a year ago, but excluding the previously mentioned business interruption reimbursement claim from last year International margins would have expanded by 180 basis points in the quarter.

Now to the business segment market development, which is made up of our franchise business around the world and the equity in Japan market.

Total revenues in the first quarter decreased one 9% to $32 million.

Due to franchise acquisitions as well as the negative three 5% impact from foreign currency exchange.

Organic revenue growth from a market development was plus nine 5%.

Adjusted EBITDA in the first quarter for market development increased three 6% to $11 $3 million with margins expanding 190 basis points to 35%.

Overall, we continue to be very optimistic about our growth potential which is reflected by our reaffirmed 2022 outlook. As a reminder, in 2022, we expect revenue growth between 11, and 13% and organic growth between 10, and 12% with over 1000 more points of access.

Then last year.

We expect all three reporting segments contribute to this growth and after the strong start the year, we now expect to be at.

Top end of this range.

We continue to expect adjusted EBITDA to grow Boston.

Up 12% to 16% to between $210 million to $219 million.

We're pleased to be able to maintain this guidance range. Despite an estimated $3 million incremental impact from foreign exchange rates for the full year.

<unk> to our early estimates even at the time of elevated in place.

While the environment has changed we're still highly confident in our guidance. We are seeing significant inflation on our key ingredients and input costs, but have contracts and rates already locked in all of them for the remainder of the year and have now also started securing positions into 2023.

Plus more than 70% about debt has a fixed interest rate.

As I mentioned last quarter and is good for the second half of the year will be higher than earlier in the year and we expect adjusted EBITDA each quarter sequentially will be higher than the preceding quarter.

The operating leverage from our fresh hub and spoke model is proven and our pricing actions have been successful.

We will take further pricing as needed.

So literally using discounts and promotions without over 10 million loyalty customers still 90% of <unk> sales are made at the falling price.

We continue to expect the income tax rate between 23, and 25% and adjusted net income diluted of $65 million to $69 million, an increase of 18% to 24% with adjusted diluted EPS of <unk> 38 to <unk> 41.

Excluding share count impact from the IPO adjusted EPS growth will be similar to adjusted net income growth.

After spending $25 million on Capex in the first quarter for the full year, we still expect to spend between 115 or $120 million.

Yes Tonight to set the revenue, including investing in approximately 15 production hubs and we will do that.

So Charles.

Overtime, we expect Capex as a percentage of revenue to reduced 6% and we expect a rolling three year return on invested capital to be over 20% by the end of 2020 client a key priority for crispy cream.

We continue to be well on our way towards our long term goal of two times net leverage and we continue to expect free cash flow conversion for 2020 to over 20%.

Lastly, we remain confident in our long term growth algorithm of 9% to 11% annual organic revenue growth.

14% annual adjusted EBITDA growth and 18% to 22% annual adjusted diluted net income growth.

Operator.

Can open the call up now to Q&A. Please.

Thank you.

As a reminder to ask a question at this time. Please press Star then one on your telephone withdraw.

Withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Yes.

Our first question is from Sarah Senatore with Bank of America. Your line is open.

Hi, Good morning. This is Katherine Griffin on for Sarah Thanks for taking the question. So.

So first I just wanted to make I appreciate kind of the download on the DFT Doris strategy, but I wanted to just kind of drill down specifically into first quarter. It was pretty significant year over year growth in sales per access point. There. So is that the kind of growth. We should expect going forward or were there was there anything unique.

And the kind of doors that you opened this quarter that would suggest maybe the year over year growth does not.

Apples to apples I think any any color there would be helpful.

Yes, I think so thank you for the question.

If you look about the growth that we had in the first quarter over 600 doors.

And then again at 27% growth that we had.

You'll see a mix of that from either the new door growth and then the existing door growth thats coming in so it's just as we add new customers as we expand more routes not just in the U S. But also in international and you'll see the mix in terms of the number of growth, maybe you're thinking about quarter by quarter. Some of that you get front loaded a little bit from the.

Last thing about Q4, there is some pruning of doors that tends to happen at the back end of the year. So then it gets a little bit frontloaded in the first quarter. So do you anticipate again, the 10% that we said year over year is what we still target for the back end of the year.

Great and then just I wanted to follow up on on the <unk>. So I think at the last time, we spoke.

Back in March we heard a little bit about some of the innovation being done on digital.

You can direct customers.

Joe location to the close.

Either <unk> access point, where you can you can get those premium products. So im curious if theres anything.

That's been helping helping drive <unk> success in terms of like the digital side or whether it's app, whether it's loyalty.

I understand like it's definitely innovation in premium innovation, that's driving that but I am curious if there is sort of the keys on digital or loyalty.

That you can couple to sort of optimize growth there.

So I'll break it down into a couple of things Theres a lot of questions that you kind of approach. There. So one of the first things that we tried to do in innovation when we come up with something pretty unique and differentiated as a social media strategy that really push right. So you get these impressions that you get out then you get the brand awareness remember, we don't spend and we're not a heavy.

Spend on the marketing side right. So we use the power of the brand and its uniqueness in products, whether it's a twist on it that was in the middle of a doughnut.

Even as you just saw it today, we launched in the U S. Honeybee line, right, where you're trying to get something pretty unique from a new flavor profile social media and how we play that is really where you get the expansion from e-commerce and pieces, what youll see as we connect that either through the delivery App, where you can link on innovation and then make sure that.

There is an opportunity for everybody to see that.

I think you were referencing geo fencing or something like that when we were talking about the dark shops, which allows us to add a location and launches a delivery.

Zone into a market. So that gives you more access to customers. So that's how you can see the expansion of that and that's how innovation can get to customers. Our number one challenge that we have increased the Greens, we really like our 415 hubs that produce our donut shops.

Not getting access to the customers and using the DSD methodologies as well as unlocking e-commerce.

Mike do anything all that.

That is on the LTE, specifically using loyalty.

We do communicate to our loyalty customers.

Given the opportunity to.

Get a free LTE when they come in with the code and what have you been to the store. So thats one way that we leverage the loyalty program to make sure. The VLT is top of mind and bring them in just one more time.

Thank you that's really helpful and congrats on the quarter.

I appreciate it thank you.

Thank you. Our next question comes from John <unk> with Jpmorgan. Your line is open.

Hi, Thank you just looking at in the U S. I think it was 50 411 DFT.

Points of distribution I mean, it got me thinking.

As you you talked about expanding 10 to 15 equity stores I think that was in the U S.

Where do you expect those stores to be meaning will they be in completely Greenfield markets. For example, like new England or Minneapolis, too that it gets us like pop into memory.

Or do you have an opportunity to locate those stores, where the DFT market will be completely new in other words the DFT.

Outlets that those new stores would serve would be truly incremental crispy cream versus those that are necessarily pulled out of existing outlets.

Good morning, John .

The way that we've thought about this when we took control of the system.

We finally took control of some of the largest market. So when we're doing 10 to 15, new equity hubs right. So equity hubs that we're talking about that would be equity across the international markets, where were equity owners as well as the U S.

The prioritization that we'll continue to look for those hubs will be in those new markets potentially where you would have incremental among new DFT tours right. So you will be expanding in the U S. You'll start to get to that 50 to 75.

Since of access as you open up the hub and in due time it starts to get into points of access.

But you continue to look at the base of hubs today, and you'll continue to fine tune and add more houses we think that the route becomes more interesting you can see dark shops will add on to the existing base and you can look at continuing to look at either fresh ups. Another piece that will drive the business deeper so it's about leveraging so there'll be more new growth on the.

DSD as we open up hubs, but also continued.

We leverage our existing pumps to see how we can continue to driving our points of access.

Understood and the DFT strategy, it's really just a couple of years old and you obviously made that transition very quickly and broadly across the U S.

I guess, the intelligence of measuring profitability on the <unk> changed or improved.

As you think about the overall DSD opportunity now in the U S. There are probably some locations where you didn't expect to be profitable and you are maybe other locations you thought it would be good and arent yet.

I guess, the overall intelligence of mapping out DSD in the U S. Changing now that you have.

A decent body of I guess experience with you, which I guess on a post COVID-19 world actually pretty short amount of experience.

As you think about mapping out the future.

Sure Hi, John .

As Josh so.

Youre right its 85 year old system that we're transforming here.

Nevertheless, recent times with the costing acquiring franchise shops, and all sorts of different situations.

In key cities, but not always set up.

The strategy. So a lot of the focus has been converting on adjusting those shops, and then engaging the local customers and the new DSD program.

We have enjoyed the cause of that.

It is important to.

To have grocery stores convenient stores that have high traffic. The locally located it's important for us to then manage the rounds. So that drivers can really efficiently get to them. This is all expertise we've been building.

<unk> been adding route management software, we've been adding demand planning capabilities and labor management capabilities in our humps to not only make sure that the drive throughs working well the e-commerce integrations with them well, but indeed that we get the doughnuts, how quickly and efficiently. So all of that is a learning journey and definitely.

We are finding some of the oldest stores.

Need need adjustment, maybe modeling and even need the space adjusting to make sure that it works effectively and efficiently.

We're seeing a whole range of performance, but overall $3 to 400 basis point increase in margins when we deployed the DSD program.

And we now have cities as I mentioned in today's call and Nashville, previously time for our Albuquerque, and others, where we're already over 20% local EBITDA margin I'm rivaling those international well. So we'll continue to deploy all of these operational best practices. We've learned from international folks and then we learn as we go as you say.

I think.

Just go ahead.

Yes.

Yes, Thats important John is if you take the base that you talked about Oman, instead of just pruning doors right Theres still an opportunity to start to get into the single serve I'd imagine in the Colgate World. It got pretty selective of what you could do as you get into merchandising in a different way.

It completely takes your base and moves to a different way of how the consumer is going to actually engage with your brand so getting into that single use it becomes an opportunity to capture so there's a lot still to do in the existing base beyond just opening up the new DSD doors, you have two strategies that you are actually doing and exactly what John talked about how the Max.

<unk> profitability as you're going through this they do get more occasions as you start to get into the single basic opens up different platforms different customer base et cetera.

Yes, definitely I think the smallest one I've seen in my local stores six and to your point.

They're meant to be a daily thats not always not for everyday a single use occasion, maybe some days it is but that's another topic, but I guess how.

As you hopefully you got that Joe.

You've talked about kind of like the potential of DFT again that 50 411, I mean are you prepared to talk about what that white spaces in the U S. Again, I mean is that.

Fewer more profitable doors is it more doors I mean, I'm, just really trying to just push about what you're kind of thinking in this post COVID-19 world as you know how the experience set.

How that number may be evolving in terms of your ultimate target.

Yes.

<unk> believes this is 10000.

D point of Axis opportunity largely DSD in North America opportunity versus you had a five and a half thousand DSD doors. We have today, we have mapped out with the U S and now being Canada, which we control as well.

City by major city customer by customer the opportunity based on either way, we have hubs today or where we see hub opportunity and it's actually pretty even when you look at going from a 5000 10000, where that opportunity is about half of it is in new cities versus cities that were already distributing DSD in.

About half of it is new customers versus existing customers. So.

Brian now.

We are continuously adding largely.

With the existing hubs that we have adjusting those to maximize the capacity we have but indeed as Mike mentioned, we'll be adding seven to 10 hubs in North America.

Over the next few years to go after the Minneapolis.

Boston is this world. Most recently, we opened up the first time, Colorado Springs Tucson. So we are bringing these donuts and indeed the DSD.

Swiftly through across the system. So yeah, we have a clear line.

Line of sight to that and our confidence obviously is high given the momentum we've had over the last two years in transforming from the old legacy wholesale business. Thanks.

Thanks for the time.

You bet.

As a reminder to ask a question at this time. Please press Star then one on your Touchstone telephone.

Our next question comes from Bill Chappell with <unk> Securities. Your line is open.

Hey, Good morning, guys. This is Steve and Lyne go on for Bill Chappell.

I wanted to circle back to Labor I was wondering if you guys could provide us some additional color on the labor market as you expand your distribution points.

Given the backdrop of the consumer environment have you seen more or less improvements and access to labor and labor sorry, any color there would be great. Thank you so much.

Yes, so from a labor perspective.

We'll continue to be able to really like about the brand.

The cultures were still able to attract.

Plenty of labor to come into our business.

We're averaging about bringing bringing about 500, new crispy creamers into the business in the U S to give you an example.

And we don't see we havent seen any material.

<unk> to labor it could be little pockets.

Somewhere in the United States, where there might be some opportunity, but it's really about the culture that they want to come into the business. We are at growth system. So people continue to look for growth online and the opportunities they.

They see what's happening with.

The logistics opportunity as you start to get into the delivery system to the DFT doors et cetera.

From a driver's standpoint, everybody is really concerned about that but on average we're talking about 4% to six drivers per shop.

So thats not an overwhelming number for us to do we continue to be competitive in every market that we're going to be we will do that against making sure that that's not the barrier and the benefits and actually it's really about helping our crispy creamers hit their dreams and goals and growth.

<unk> companies.

Yeah.

Great. Thank you very much.

Thank you and I'm currently showing no further questions I would like to turn the call back over to Mike <unk> for closing remarks.

Yes. So thank you everybody for being on the call I can't say enough about what our crispy creamers due on a daily basis to make this brand amazing and be able to accomplish that the purpose of the company is to touch and enhanced flex above your suite enjoyed its crispy cream. They looked at every single day, when we can do that really well.

Drive our culture.

We can become the most light sweet treat brand in the world and deliver the type of performance.

We lay out in front of us. So thank you for participating in our call today, we look forward to continued chats and growth and crispy cream.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, and thank you for standing by welcome to the Krispy Kreme first quarter 2022 earnings calls.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone.

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Sorry further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Rob Ballew, Vice President of Investor Relations. Please.

Please go ahead.

Krispy Kreme dot com.

Joining me on the call. This morning is Mike <unk>, President and Chief Executive Officer, Josh Charles Horn, Chief operating and financial Officer, Joe <unk>, Chief Accounting Officer.

After prepared remarks by Mike and Josh There 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 Securities 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 cause actual results to differ materially from.

Those contained in any forward looking statements.

Additionally, today's call will include certain non-GAAP financial measures a reconciliation between non-GAAP financial measures and the closest GAAP measures can be found on the company's first quarter earnings press release, and our Form 10-Q, which will be furnished shortly to the SEC and available at investors <unk> Krispy Kreme dot com with that I'll turn the call over to Mike.

Good morning, and thank.

Thank you everyone for joining us today.

We are pleased to share our first quarter 2022 results as we built on strong momentum established in 2021.

I want to start today's call by thanking our amazing group of Crispy Cremers. Our team members for their continued hard work to create moments of joy for our customers, especially while navigating significant uncertainty across the world RP.

Our people continue to be at the forefront of delivering on our mission of becoming the world's most loved suite three brands.

We have accelerated investments in our talent to ensure we continue to attract engage and retain our most vital assets.

<unk> already seen improvements across the key people managers to start the year.

The purpose of our company and to touch and enhance the lives of others are going to join that its crispy cream.

Last quarter, we discussed the strong positive impact crispy Creamers have had on the community in 2021.

We continue those efforts this year, including our blood donation campaign in conjunction with the Red Cross in January to help save lives.

Another Great example of this year include celebrating international Women's day across the globe with our here from Hurricane.

Which put the spotlight on talented female illustrators globally and encourage our customers to share their own voice as well as donating product and proceeds to women's based organizations. This.

This campaign spark social conversations across the world with a theme of celebrating special women in each of our lives.

Both of these campaigns perfectly highlight our key brand value of joy generosity in connection with our consumers, which we know will drive strong brand love.

Turning to our performance the continued progress on our long term strategy was well apparent in the first quarter with organic revenue of 15% driven by strong performance across all three segments.

Our organic growth was led by breast <unk> through our Omnichannel model.

This growth was driven by engaging and Buzzworthy season on limited time offerings are <unk> such.

Such as our successful Twix Donut campaign in the U S and in nearly $2000 increase in our points of access from a year prior.

The increase in price points of access to 11000 globally, including 600, new points in the first quarter alone.

So it's how we can leverage the economies of scale of our 415 production hubs to delivery fresh Donuts every day.

Our strong revenue growth in the quarter led to an increase in adjusted EBITDA over the prior year to $48 9 million with consolidated margins in excess of 13% as we expanded margin in the U S and Canada and market development segment.

And excluding a one time benefit in the previous year, our international segment as well.

These results results were in the face of macro issues, such as supply chain disruption omicron inflationary pressure and the warranty training.

In these troubling times for all of US we are doing our part to help our communities with acts of Joy.

I beat the pump promotion in the U S.

To selling original glazed donut for the price of it.

Gallon of gas on Wednesdays.

This promotion increased our transactions in the middle where he can generated several billion media impressions.

Our biggest growth opportunity is getting to more than 50000 <unk> global points of access.

Largely driven by low capital delivered breast daily our DFT doors.

I wanted to spend a little bit of time. This morning doing a deeper dive on our DSD strategy.

DFT is the delivery of fresh donuts to grocery and convenience stores from one of our production hubs and Krispy kreme branded merchandising units.

Allowing us to leverage the fixed cost of our production facilities and ensure our.

Customers receive a breast donut daily in a convenient location too that we.

We know that fresh Max as our customers tell us. This is the most important attribute when purchasing a sweet treat.

These points of access typically cost between 2000 to 10000.

Capex for merchandising unit, a capital light way to increase accessibility to consumers.

We've seen strong growth in DFT door, count and a 27% increase in sales per DMT door in the U S and Canada over the last year, but we still have significant room to grow.

These are improvements that will drive higher sales per door increased the bottomline and improve margin.

Markets and in markets, we do not currently operate.

We have strong visibility to our pipeline and <unk> expansion globally over the next three years and we remain highly confident that we can deliver at least 10% increase in points of access each year.

Primarily through highly profitable capital like DFT doors.

Supporting this expansion will be the addition of 10 to 15, new equity hubs added per year as well as 5% to 10 franchise hubs each will be located and designed to maximize the hub and spoke system with 50% to 80 additional points of access for hub over time.

This new hub investment has a goal of a three year total payback period.

In the U S and Canada segment, our performance was driven by the strength of our fresh business in insomnia cookies.

Organic revenue grew nine 7% in the first quarter, while total revenue grew 13, 8%.

Our DMT business continue to gain momentum as we added over 200 points of access during the quarter.

Bringing us to nearly 6000 locations in the U S and Canada, well on our way to exceeding 500 doors in 2022.

The increase in our points Abaxis and strong growth growth in revenue per DMT door allowed us to expand adjusted EBITDA margins by 90 basis points in the first quarter to 13, 3% even in this inflationary environment.

In Sanya cookies had another strong quarter growing.

Finally in our branded <unk> business quality pack in shelf stable Donut basin with many crawlers, we continue our plans to expand points of distribution growing to 18000 points in the first quarter. We continue to invest in this great opportunity to drive future growth.

Our international segment delivered another quarter of strong performance.

Panic growth for the quarter was 36% with sales per hub up nearly 50% from a year ago with the same number of hubs showcasing our ability to increase revenue in a very capital efficient manner.

Our market development segment also had a great start of the year with organic growth of 10% and margins expanding nearly 200 basis points to 35%.

Krispy Kreme is truly above global brand.

Roughly half of our system wide sales and adjusted EBITDA are outside the U S.

As you know our goal is to open at least three new countries per year going forward.

Last quarter, we announced signed agreements in Switzerland in Chile.

And we're pleased to announce two additional signed agreements to bring <unk> to Costa Rica and Jordan.

On average we expect each new market.

Entry will provide 400 to 500 additional points of access.

With a proven model we are building a very strong pipeline for new market entry for both existing and new franchise partners as well as looking at equity Stakes in strategic markets.

We expect to be able to announce further country increase later this year as we continued our journey to become the most luxury three brand in the world.

Turning to a few other drivers of our growth.

E Commerce is a core pillar of our Omnichannel strategy in the first quarter 17.

4% of our retail sales came from e-commerce up from less than 10% pre pandemic and 17, 2% for the full year 2021.

With a goal to achieve ecommerce penetration of over 25% globally long term.

We continue to strengthen our capabilities with our app in order to improve the user experience enhancing.

Enhancing our customer targeting a more than 10 million loyalty members, including this weekend and double doesn't promotions and we continue to expand accessibility with additional third party partners.

In addition to e-commerce innovation branding and marketing our key capabilities that drive our business segments and keep us relevant.

Across all of the consumer touch points in our Omnichannel model.

Innovation remains a significant driver of frequency as we create and introduce premium fresh and buzzworthy offerings to customers across our points of access.

We had a highly successful seasonal activations across the globe during the quarter, including our lunar new year and Valentine's day campaigns we've.

We've continued our momentum on innovation and branding into the second quarter, including our successful hand cut hand rolled sentiment enrolls on Sunday and the introduction of our new cinnamon toast Crunch Donuts and product <unk>.

<unk> emotional storyline connection really matter for our customer.

All of these initiatives driven by innovation and premium amortization gives us real pricing power <unk>.

Sometimes up to 50% more per individual item than our original glazed donut.

And continue to be scalable opportunities for our business and provide a notable offset to current inflationary pressures.

He is also a hit right in the sweet spot of gifting purchasing still affordable treats and larger quantities for sharing and celebrating as evidenced by the 13% increase in donuts sold this quarter compared to a year ago.

To wrap up.

I want to once again state how enthusiastic we are about the long term growth in our business.

Our ability to execute our omnichannel model and ultimately expand to more than 50000 points of access globally in a very capital efficient manner.

Leveraging our innovation and brand connection with expanding points of access in our existing markets and opening 15 to 25, new hubs across the globe across the global system. Each year gives us strong confidence that we can achieve double digit organic revenue growth in 'twenty two and beyond.

I'll now turn it over to Jos to walk you through the Q1 financials and our 2022 outlook Josh.

Thanks, Mike and good morning, everyone.

In the first quarter, our crispy cream has once again shown that our beloved brand and our Omnichannel approach is no longer the resilience in this turbulent macro environment that continues to thrive.

With net revenue growing 15, 8% year over year to $373 million.

Organic revenue declined 15, 3% and adjusted EBITDA, increasing five 4% to $48 $9 million or a margin of 13, 1%.

This performance reflects the effectiveness of our strategy to maximize sales from our production hubs, sending more fresh donuts through our shops by e-commerce and into local grocery and convenience stores.

This also helps us work through the disruption for a moment.

In January with fresh Donuts always available even if we lost a few operating hours with Krispy kreme and skill set.

During the quarter, we added 600 of these points of access across the world, mostly in the form of capital light the Ddos.

Now have more than 11000 points of access and increase of nearly 2000 from a year ago.

Along with our successful brand activation initiatives around the world. This directly resulted in double digit sales increases across all our business segments.

The resulting operating leverage explains a 90 basis point increase in first quarter U S and Canada segment EBITDA margin year over year.

Total company adjusted EBITDA margin was 130 basis points lower than the same quarter last year due to the impact of public company costs and we also lapped the receipt of a business interruption insurance payments in the UK, one year ago, Australia Hoffman at those now.

In the first quarter GAAP net income $6 5 million or <unk>, <unk> diluted EPS compared to a GAAP net loss $400000 or negative <unk> <unk>.

Diluted EPS in the same period a year ago.

Adjusted net income for the quarter was $16 1 million and adjusted diluted EPS in the first quarter was eight.

A drop of three largely due to the increased share count from the IPO.

Net leverage was three six times on a trailing 12 month basis at the end of the quarter.

Second decrease from a year ago.

In the U S and Canada business segment total revenues increased 13, 8% in the first quarter to $253 million.

On organic growth was nine 7%.

We saw growth across all channels and for the first time, we were able to activate Valentine's day, and Saint Patrick's day across all our fresh stern of channels in the U S.

This meant fresh specialty donuts, where available during these weak simultaneously at our donut shops by e-commerce and at local grocery convenience stores.

Adding to the overall success story this year as these seasonal events.

This contributed to a 27% year over year increase in sales to DSD, though we also have added 270 <unk> in the first quarter, taking the total to 5411.

And a 15% increase year over year.

We expect to add at least 500 DFT does in the U S and Canada for the full year 2022.

Also in the first quarter, we brought the unique experience of Krispy Kreme doughnuts made Todd.

And stuffed with twix bars.

As well as the return of our beloved cinnamon roll with cinnamon Rolls Sunday.

E Commerce revenue in the US and Canada grew to 810, 6% of retail sales in the quarter, reflecting the benefits of integrating third party Aggregators, which now work alongside.

E Commerce platform.

All of these factors combined to increase revenue hub in the U S and Canada to $4 $3 million on a trailing 12 month basis in the first quarter.

<unk> 4 million for 2021, and $3 6 million a year ago.

Hubs and spokes in the U S and Canada was flat at 125.

In previous earnings calls I've showcased former franchise city markets, which following our acquisition have seen profitability gains following the introduction of the fresh hub and spoke model.

This is Tom I wanted to give the example of a long time company owned market in Nashville.

Then we converted from the legacy wholesale business in late 2020, this fresh daily, which led to a 200 basis point increase in local EBITDA margins to 24% in the first quarter.

Adjusted EBITDA for the total U S and Canada segment in the first quarter increased 22% to $34 million.

With margins expanding 90 basis points to 13, 3%.

The increase in EBITDA and margins was driven by strong revenue growth and a fresh start up business as reflected in sales by hub growing 19% year over year.

Pricing taken during the course of 2021 offset wage and commodity inflation in the quarter.

We did not take further pricing of <unk> in the first quarter.

Our digital first in Soviet cookies business overcame disruption earlier in the quarter from both omnicom and weather events in the northeast to deliver double digit revenue growth, which marked with margins again in line with the average for the U S and Canada segment.

We opened seven new coffee shops in the first quarter reached.

Reaching 217 in total across the U S.

We remain excited about the long term potential of this rapidly growing brand with plans to double the number of cookie shops in the next five years just in the U S.

We're also developing plans for international expansion in the coming years.

As Mike indicated we continued to grow our presence without startup Brian Sweet treats.

Brian It's sweet treats remains on track to be profitable by the middle of this year.

Moving onto our international segment net revenue grew 31% in the first quarter to $87 million and organic revenue increased 36%.

Revenue growth was strong across all the international segment countries.

With Valentine's specialty donuts resonating across the world.

We have the launch of our first <unk> in the U K and had several successful brand partnerships, including a Hershey has done in Australia, and <unk> rollout in the U K.

It's worth noting that foreign currency exchange did have a negative 4% revenue impact on our international growth during the quarter. So our results would have been even stronger.

International points of access expanded by more than 300 in the first quarter alone as we were able to pull forward some points into the first quarter.

More than 500, new <unk> over the last year.

The increase allowed us to leverage our 37 international hubs to grow international sales hub to $9 7 million.

Up from $9 1 million at the end of 2021 of $6 5 million a year ago.

International adjusted EBITDA for the first quarter grew 12, 4% to $17 million led by a 55% increase in Mexico.

Now to our third business segment market development, which is made up of our franchise business around the world and the equity owned Japan market.

Total revenues in the first quarter decreased one 9% to $32 million.

Due to franchise acquisitions as well as the negative three 5% impact from foreign currency exchange.

Organic revenue growth from a market development was plus nine 5%.

Adjusted EBITDA in the first quarter for market development increased three 6% to $11 3 million with margins expanding 190 basis points to 35%.

Then last year.

We expect all three reporting segments contributed to this growth and after the strong start the year, we now expect to be.

Top end of this range.

We continue to expect adjusted EBITDA to grow faster than sales.

Up 12% to 16% to between 210 $219 million.

We are pleased to be able to maintain this guidance range. Despite an estimated $3 million incremental impact from foreign exchange rates for the full year compared to earlier estimates even at the time of elevated inflation.

While the environment has changed we're still highly confident in our guidance. We are seeing significant inflation in our key ingredients and input costs, but have contracts and rates already locked in on nearly all of them for the remainder of the year and have now also started securing positions into 2023.

Plus more than 70% of our debt has a fixed interest rate.

As I mentioned last quarter earnings growth in the second half of the year will be higher than earlier in the year and we expect adjusted EBITDA to each quarter sequentially will be higher than the preceding quarter.

The operating leverage from our fresh hub and spoke model is proven and our pricing actions have been successful we.

We will take further pricing as needed while selectively using discounts and promotions without over 10 million loyalty customers still 90% of <unk> sales are made at the full menu price.

We continue to expect an income tax rate between 23, and 25% and adjusted net income diluted of $65 million to $69 million, an increase of 18% to 24% with adjusted diluted EPS of <unk> 38 to <unk> 41.

Excluding share count impact from the IPO adjusted EPS growth will be similar to adjusted net income growth.

After spending 29 $5 million on Capex in the first quarter for the full year, we still expect to spend between $115 $120 million.

The 9% of revenue, including investing in approximately 15 production hubs and more than 30 some shops.

Overtime, we expect Capex as a percentage of revenue to reduced 6% and we expect a rolling three year return on invested capital to be over 20% by the end of 2025, the key priority for <unk>.

We continue to be well on our way towards our long term goal of two times net leverage and we continue to expect free cash flow conversion for 2020 to over 20%.

Lastly, we remain confident in our long term growth algorithm of nine to 11 annual organic revenue growth.

14% annual adjusted EBITDA growth and 18% to 22% annual adjusted diluted net income growth.

Operator, we can open the call up now for Q&A. Please.

Thank you.

A reminder to ask a question at this time. Please press Star then one on your telephone.

Withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question is from Sarah Senatore with Bank of America. Your line is open.

Hi, Good morning. This is Katherine Griffin on for Sarah Thanks for taking the question. So.

So first I just wanted to make I appreciate kind of the download on the DFT door strategy, but I wanted to just kind of drill down specifically into first quarter and it was pretty significant year over year growth in sales per access point. There. So is that the kind of growth. We should expect going forward or were there was there anything unique.

And the kind of doors that you opened this quarter that would suggest maybe the year over year go does not.

Apples to apples I think any any color there would be helpful.

Yes, I think so thank you for the question.

If you look about the growth that we had in the first quarter over 600 doors.

And then again at 27% growth that we had.

Youll see a mix of that for me that the new door growth and then the existing door growth thats coming in so it's just as we add new customers as we expand more routes not just in the U S. But also in international and Youll see the mix in terms of the number of growth maybe you think about quarter by quarter. Some of that you get front loaded a little bit from the.

Great and then just I wanted to follow up on on the <unk>. So I think at the last time, we spoke.

Back in March we heard a little bit about some of the innovation being done on digital.

You can direct customers.

Joe location to the close.

Either do you have any door access point, where you can you can get those premium products. So im curious if theres anything.

That's been helping helping drive the LTR success in terms of like the digital side or whether it's app, whether it's loyalty.

I understand like it's definitely innovation in premium innovation, that's driving that but I'm curious if there is sort of a key non digital or loyalty.

That you can couple to start us off.

Optimize growth there.

So I'll break it down into a couple of things Theres a lot of questions as you kind of approach. There. So one of the first things that we tried to do in innovation when we come up with something pretty unique and differentiated is that social media strategy that really push right. So you get these impressions that you get out then you get the brand awareness remember, we don't spend and we're not a heavy.

Spend on the marketing side right. So we use the power of the brand and its uniqueness in products, whether it's a <unk> that was in the middle of a doughnut.

Even as you just saw today, we launched in the U S. Honeybee line, right, where you're trying to get something pretty unique from a new flavor profile social media and how we play that is really where you get the expansion from ecommerce and pieces, what youll see as we connect that either through the delivery App, where you can link on innovation and our nation.

If there is an opportunity for everybody to see that.

I think you were referencing geo fencing or something like that when we were talking about the dark shops, which allows us to add a location and launches a delivery.

Zone into a market. So that gives you more access to customers. That's how you can see the expansion of that and that's how innovation can get to customers. Our number one challenge that we have increased <unk>, we really like our 400 <unk> hubs that produce our donut shops, it's about getting access to the customers and.

Using the DSD methodologies as well as unlocking e-commerce.

And Mike the only thing I'll add to that.

That is on the <unk>, specifically using loyalty.

We do communicate to our loyalty customers and give them the opportunity to get a free LTE, though when they come in with the code and what have you into the store. So thats one way that we leverage the loyalty program to make sure that the VLT is top of mind and remember just one more time.

Thank you that's really helpful and congrats on the quarter.

I appreciate it thank you.

Thank you. Our next question comes from John of Aimco with Jpmorgan. Your line is open.

Hi, Thank you just looking at in the U S. I think it was 50 411 DFT.

Points of distribution I mean, it got me thinking.

As you you talked about expanding 10% to 15 equity stores I think that was in the U S.

Where do you expect those stores to be meaning will they be in completely Greenfield markets. For example, like new England or Minneapolis to that I guess like pop into memory.

Or do you have an opportunity to locate those stores, where the DFT market will be completely new in other words the DFT.

Outlets that those new stores would serve will be truly incremental crispy cream versus those that are necessarily pulled out of existing outlets.

Good morning, John .

Think the way that we've thought about this and when we took control of the system.

The prioritization that we'll continue to look for those hubs will be in those new markets potentially where you would not incremental among new DSD tours right. So you will be expanding in the U S. You'll start to get to that 50 to 75.

Points of access as you open up the hub and in due time it starts to get its points of access.

But you continue to look at the base of hubs today.

And you'll continue to fine tune and add more houses, we think that the route becomes more interesting you can see dark shops will add onto the existing base and you can look at continuing to look at either fresh ups. Another piece that will drive the business deeper. So it's about leveraging so there'll be more new growth on the DSD as we open up hubs, but also continued.

Really leverage our existing hubs to see how we can continue to driving our points of access.

Understood and the <unk>.

<unk> strategy, it's really just a couple of years old and you obviously made that transition very quickly and broadly across the U S.

How has I guess the intelligence of measuring profitability on the <unk> changed or improved.

You think about the overall DSD opportunity now in the U S. There are probably some locations where you didn't expect to be profitable and you are maybe other locations you thought it would be good and aren't yet.

I guess, the overall intelligence of mapping out DSD in the U S. Changing now that you have.

Somebody else I guess experience with you, which I guess on a post COVID-19 world actually pretty short amount of experience.

As you think about mapping out the future.

Sure Hi, John This is Josh.

Youre right its 85 year old system that we're transforming here.

The recent times, we've of course been acquiring franchise shops, and all sorts of different situations.

In key cities, but not always set up fully strategy. So a lot of the focus of the converting of adjusting those shops, and then engaging the local customers and the new DSD program.

We have in during the course of that.

It is important.

To have grocery stores convenient stores.

High traffic the locally located it's important for us to then manage the routes. So that drivers can really efficiently get to them. This is all expertise. We've been building we've been adding route management software, we've been adding demand planning capabilities and labor management capabilities in our humps to not only make sure that the dry.

<unk> is working well that the e-commerce integrations with them well and indeed that we get.

Donuts out quickly and efficiently. So all of that is a learning journey and definitely we are finding some of the oldest stores.

Need need adjustment, mainly modeling uneven needed space adjusting to make sure that it works effectively and efficiently.

We're seeing a whole range of performance, but overall, 3% to 400 basis point increase in margins when we deployed the DSD program.

And we now have cities as I mentioned in today's call and Nashville, previously tanker Albuquerque, and others, where we're already over 20% local EBITA margin and rivaling those international will continue.

We need to deploy all of these operational best practices, we've learned from the international folks and then we learn as we go as you cite I think.

Just go.

Go ahead.

And Thats important John is if you take the base that you talked about.

Instead of just pruning doors right Theres still an opportunity to start to get into the single serve I'd imagine in the Colgate World right. It got pretty selective of what you could do as you get into merchandising in a different way.

Clearly takes your base and moves to a different way of how the consumer is going to actually engage with your brand. So getting into that single uses it becomes an opportunity to capture so there's a lot still to do in the existing base beyond just opening up the new DSD doors, you have two strategies that you are actually doing and exactly what John talked about how do we maximize.

Z profitability as you're going through this <unk> get more occasions as you start to get into the single base and opens up different platforms different customer base et cetera.

Yes, definitely I think the smallest one I've seen in my local stores six and yes to your point.

They're meant to be a daily thats not always not for everyday a single use occasion, maybe some days it is but that's another topic, but I guess how.

As you've hopefully you got that Joe.

Kind of like the potential of DFT again that 50 411, I mean are you prepared to talk about what that white spaces in the U S. Again, I mean is that.

Fewer more profitable doors is it more doors I mean, I'm, just really trying to just push about what you're kind of thinking in this post COVID-19 world as you know how the experience set how.

How that number may be evolving in terms of your ultimate target.

Yes.

<unk> believes this is 10000.

D point of Axis opportunity largely DSD in North America opportunity versus the five five.

DSD duals, we have today, we have mapped out with the U S and now being Canada, which we control as well.

About half of it is new customers versus existing customers.

Right now.

We are continuously adding largely.

With the existing hubs that we have adjusting those to maximize the capacity we have but indeed as Mike mentioned, we'll be adding seven to 10 hubs in North America.

Over the next few years to go after the Minneapolis is.

Boston is this world. Most recently, we opened up the first time, Colorado Springs to songs. So we are bringing these donuts and indeed the DSD.

Swiftly through across the system. So yeah, we have a clear.

Line of sight to that and our confidence obviously is high given the momentum we've had over the last two years in transforming from the old legacy wholesale business. Thanks.

Thanks for the time.

You bet.

As a reminder to ask a question at this time. Please press Star then one on your Touchstone telephone.

Our next question comes from Bill Chappell with <unk> Securities. Your line is open.

Hey, Good morning, guys. This is Steve and Lyne go on for Bill Chappell.

I wanted to circle back to Labor I was wondering if you guys could provide us some additional color on the labor market as you expand your distribution points.

Given the backdrop of the consumer environment have you seen more or less improvements and access to labor and labor sorry, any color there would be great. Thank you so much.

Yes, so from a labor perspective.

They'll continue to be able to when we really like about the brand.

Just its cultures were still able to attract.

Plenty of labor to come into our business among we're averaging about bringing we can bring in about 500, new crispy creamers into the business in the U S to give you an example.

And we don't see we havent seen any material.

<unk> deliver it could be low pockets.

They see what's happening with that.

The logistics opportunity as you start to get into the delivery system to the DSD doors et cetera from.

From a driver's standpoint, everybody is really concerned about that but on average we're talking about 4% to six drivers per shop amongst so thats not an overwhelming number for us to do we continue to be competitive.

Market ever going to be we will do that against making sure that that.

That's not the barrier and the benefits and actually it's really about helping our crispy creamers hit their dreams and goals and growth with differentiated companies.

Okay.

Great. Thank you very much.

Thank you and I'm currently showing no further questions I'd like to turn the call back over to Mike <unk> for closing remarks.

Yes, Thank you everybody for being on the call.

I can't say enough about what our crispy creamers due on a daily basis to make this brand amazing and be able to accomplish that.

Purpose of the company is to test enhanced flags of others, who have enjoyed its crispy cream. They looked at every single day, when we can do that really well and drive our culture.

We can become the most loved sweet treat brand in the world and totaled over type of performance.

We lay out in front of us. So thank you for participating in our call today, we look forward to continued chats and growth and Christy cream.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 Krispy Kreme Inc Earnings Call

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