Q1 2024 Krispy Kreme Inc Earnings Call
Audra: Thanks for standing by. My name is Audra, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Krispy Kreme first quarter 2024 earnings call. I would now like to turn the call over to Alexander Eldredge, Krispy Kreme Investor Relations. Please go ahead.
Thanks for standing by my name is Andre and I will be your conference operator today at this time I'd like to welcome everyone to the Krispy Kreme first quarter 'twenty 'twenty four earnings call.
I would now like to turn the call over to Alexandra Eldridge Krispy Kreme Investor Relations. Please go ahead.
Alexander Eldredge: Thank you. Good morning, everyone. Welcome to Krispy Kreme's first quarter 2024 earnings call. Thank you for joining us today.
Alexandra Eldridge: Thank you good morning, everyone welcome to Christy Crane's first quarter 2024 earnings call. Thank you for joining US today, we will be referencing our earnings release and presentation. During the call. These are available on our Investor Relations website at investors <unk> Krispy Kreme dotcom.
Alexander Eldredge: We will be referencing our earnings release and presentation during the call. These are available on our investor relations website at investors.krispykreme.com. Joining me on the call this morning are President and Chief Executive Officer Josh Charlesworth and Chief Financial Officer Jeremiah Ashukian. After prepared remarks, there will be a question and answer session.
Alexandra Eldridge: Joining me on the call. This morning are President and Chief Executive Officer, Josh Charles work, and Chief Financial Officer, Jeremy Sure Ken.
Alexandra Eldridge: After our prepared remarks, there will be a question and answer session.
Alexander Eldredge: 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 and 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 statement. These factors and other risks and uncertainties are described in detail in the company's Form 10-K filed with the SEC for the year ended December 31, 2023, and in the other filings we make from time to time with the SEC.
Alexandra Eldridge: 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.
Alexandra Eldridge: 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.
Alexandra Eldridge: These factors and other risks and uncertainties are described in detail in the company's Form 10-K filed with the SEC for the year ended December 31, 2023 and in the other filings we make from time to time with the SEC.
Alexander Eldredge: Forward-looking statements made today are only as of today, and the company assumes no 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. A reconciliation between non-GAAP financial measures and our closest comparable GAAP measures can be found in our first quarter 2024 earnings press release and Form 8K, filed today with the SEC, and is also available at our investors.krispykreme.com website. Jeremiah will take us through our financial performance in a moment, but first, here's Josh.
Alexandra Eldridge: Forward looking statements made today are only as of today. The company assumes no obligation to publicly update or revise any forward looking statements, except as maybe required by law. Additionally, today's call will include certain non-GAAP financial measures.
Alexandra Eldridge: A reconciliation between non-GAAP financial measures in our closest comparable GAAP measures can be found in our first quarter 2024 earnings press release and form 8-K filed today with the SEC and is also available at our Investor Doc Krispy Kreme Dot Com website.
Alexandra Eldridge: Jeremy will take us through our financial performance in a moment, but first here's Josh.
Joshua Charlesworth: Thanks, Brian.
Joshua Charlesworth: Good morning, everyone. Thank you for joining us. Our strategy of making fresh Krispy Kreme doughnuts more available around the world is working. Excitement for our fresh doughnuts has never been higher. This photo is from our recently opened Hot Light Theatre in France, where Parisians lined up, some waiting overnight, for their first ever hot, original glazed doughnut, fresh off the line.
Joshua Charlesworth: Good morning, everyone. Thank you for joining us we had a strong first quarter, our strategy of making fresh krispy kreme doughnuts more available around the world is working.
Joshua Charlesworth: Excitement for our fresh Krispy Kreme doughnuts has never been higher this photo is from our recently opened a theater in France with Parisians lined up some waiting overnight for its first ever Hot original guidance Donna fresh off the line.
Joshua Charlesworth: I was able to join our team members in Paris who are doing a great job spreading the joy that is Krispy Kreme, not just to eat, but to share and give to others. I wish to thank all our hardworking Krispy Kreme employees who get it done every day in now 39 countries around the world. Let me summarise today's key messages.
Joshua Charlesworth: Obviously, the join our team members in Paris, we are doing a great job of spreading the joy that as Christie, creating not just to eat but to share and give to others I wish to thank all our hardworking Krispy Kreme and so you get it done every day and now 39 countries around the world.
Speaker Change: Let me summarize today's key messages.
Joshua Charlesworth: First quarter organic revenue growth exceeded expectations at 6.7% year-over-year, with strong consumer demand and increased sales through digital channels fueling the results. We're increasing the pace of expansion as we make our fresh donuts more available around the world. In Q1, we grew our points of access for Krispy Kreme fresh donuts by 19.4% year-over-year. We recently launched in France, and we've announced our expansion into Brazil and Germany.
Speaker Change: First quarter organic revenue growth exceeded expectations at six 7% year over year with strong consumer demand and increased sales through digital channels fueling our results.
Speaker Change: We're increasing the pace of expansion as we make a fresh donuts more available around the world.
Speaker Change: In Q1, we grew up points of access of Krispy Kreme fresh donuts by 19, 4% year over year, We recently launched in France, and we announced our expansion into Brazil and Germany.
Joshua Charlesworth: In the U.S., we expect to add 15,000 points of access by the end of 2026. We're accelerating into more grocers and convenience stores. We're excited about our national rollout with McDonald's, which is expected to add more than 12,000 new points of access alone. And we're reaffirming our guidance for the full year with 6% to 8% organic revenue growth, expected to translate into adjusted EBITDA expansion of 8% to 11%. This reflects our intent to drive increasingly profitable growth from our hub and spoke operating model. Let's double click on each of these topics.
Speaker Change: In the U S. We expect to add 15000 points of access by the end of 2026, we're accelerating into more grocery and convenience stores.
Speaker Change: Excited about national rollout with Mcdonald's, which is expected to add more than 12000, new points of access alone.
Speaker Change: And we are reaffirming our guidance for the full year was 6% to 8% organic revenue growth.
Speaker Change: I need to translate into adjusted EBITDAR expansion of 8% to 11%.
Speaker Change: This reflects our intent to drive increasingly profitable growth from our hub and spoke operating model.
Speaker Change: Double click into each of these topics.
Joshua Charlesworth: In the first quarter, engagement with the brand hit all-time highs. We had a record 17.6 billion media impressions, nearly triple the same quarter last year. We launched planned initiatives, like our St. Patrick's Day Specialty Doughnut Collection, and nimbly responded to spontaneous events, such as the AT&T cell phone outage, when we offered free doughnuts to those impacted. Krispy Kreme's fresh and innovative doughnuts continue to resonate with our customers, especially on celebratory occasions.
Speaker Change: In the first quarter engagement with the brand hit all time highs, we had a record $17 6 billion media impressions nearly triple the same quarter last year.
Speaker Change: We launched planned initiatives like Hudson Patrick's day specialty donor collection, and nimbly respond to spontaneous events such as the AT&T sulphide assets when we offered free doughnuts to those impacted.
Speaker Change: Christy creams, fresh and innovative donuts continued to resonate with our customers, especially on celebratory occasions.
Joshua Charlesworth: For example, our Valentine's Day Specialty Donut Collection, available in 33 countries, led to our biggest sales day ever. Sales through digital channels, including for delivery and pickup, increased by 26% in the quarter. And we're excited about our recently launched new and improved loyalty program in the U.S., which has been very well received. So much so that, at one point, our app became the number one download on the App Store last week.
Speaker Change: For example, our Valentines day specialty donor collection available in 33 countries led to our biggest sales day ever.
Speaker Change: Sales through digital channels, including delivery and pickup increased by 26% in the quarter.
Speaker Change: Excited about our recently launched new and improved loyalty program in the U S, which is being very well received so much. So at one point it became the number one download on the App store last week.
Joshua Charlesworth: Following our recent announcement to provide fresh doughnuts daily at McDonald's restaurants in the U.S., we have raised our long-term global points of access goal from $75,000 to $100,000 to improve the quick service restaurant opportunity. Our pace of expansion is also accelerating. For the past three years, our global points of access grew by an average 19% per year to just over 14,000 by the end of 2023. Looking ahead, we expect fresh Krispy Kreme donuts to be available in 33,000 points of access already by the end of 2026.
Speaker Change: Following our recent announcement to provide fresh donuts daily at Mcdonald's restaurants in the U S. We have raised our long term global points of access go from 75000 to 100000 to include the quick service restaurant opportunity.
Speaker Change: Thanks to the expansion is also accelerating for the past three years, our global points of access grew by an average 19% per year to just over 14000 by the end of 2020 looking ahead, we expect fresh krispy kreme doughnuts to be available in 33000 points of access already.
Speaker Change: At the end of 2026.
Joshua Charlesworth: We expect this growth to be driven by a combination of both existing and new customers, as well as new market expansion. For example, our nationwide rollout to McDonald's in the U.S. gives us the opportunity to add distribution at other major customers, such as Walmart, which still only lists us in about 25% of their stores, and Target, with whom we have already agreed to expand our presence. In new markets, our upcoming expansion into Germany, France, and Brazil will provide opportunities for thousands more points of access, and we expect to continue opening three to five new markets per year.
Speaker Change: We expect this growth to be driven by a combination of both existing and new customers as well as new market expansion for.
Speaker Change: For example, our nation.
Speaker Change: <unk> rollout to mcdonalds in the U S gives us the opportunity to add distribution at other major customers such as Walmart.
Speaker Change: Which still on Elisa and about 25% of their stores.
Speaker Change: Target with whom we have already agreed to expand our presence.
Speaker Change: Indian markets, our upcoming expansion into Germany, France, and Brazil provide opportunities for thousands more points of access.
Speaker Change: Expect to continue opening three to five new markets for you.
Joshua Charlesworth: Still, we do expect that the US will be the biggest driver of our profitable expansion. The recently announced agreement with McDonald's is expected to bring Krispy Kreme to more than 12,000 of their U.S. restaurants by the end of 2026 and will provide three of our most popular donuts fresh every day: the iconic original glazed, chocolate ice with sprinkles, and chocolate ice cream filled.
Speaker Change: So we did expect that the U S will be the biggest driver of our profitable expansion.
Speaker Change: The recently announced agreement with Mcdonald's is expected to bring Krispy kreme to more than 12000 to the U S restaurants by the end of 2026.
Speaker Change: Will provide three of our most popular donuts crash everyday iconic original glazed.
Speaker Change: Truckload ice sprinkles and chocolate ice cream.
Speaker Change: They will be available individually and in boxes of six.
Joshua Charlesworth: They will be available individually and in boxes of six. McDonald's is making them available in-restaurant, via drive-thru, and on their mobile app. This follows a successful test of more than 160 McDonald's restaurants in the Lexington and Louisville, Kentucky areas, where consumer excitement and demand exceeded expectations. We are partnering with McDonald's on a phased rollout through to the end of 2026, which we expect to begin before the end of this year. We anticipate nearly tripling our US points of access over the next three years, from 7,775 today to more than 22,000 by the end of 2026.
Speaker Change: Mcdonald's is making them available in restaurant drive through I don't know that mobile app.
Speaker Change: This follows a successful test of more than 160, Mcdonald's restaurants, and the Lexington, and Louisville, Kentucky areas, where consumer excitement and demand exceeded expectations.
Speaker Change: We are partnering with mcdonalds on a phased rollout through to the end of 2026, which we expect to begin before the end of this year.
Speaker Change: We anticipate nearly tripling our U S points of access over the next three years from 7775 today to more than 22000 by the end of 2026.
Joshua Charlesworth: Much of the national rollout can happen using existing capacity, but we will also invest in our business to increase production hubs with Sprogas. We expect to do this in a couple of ways. We'll add approximately 30 new hubs, which will be optimized for the needs of our DeliverFresh daily network, and will also convert about 20 existing hubs that do not currently have spokes to make them able to fully support our DFD expansion.
Speaker Change: Much of the national rollout can happen using existing capacity, but we will also invest in our business to increase production hubs spokes.
Speaker Change: We expect to do this in a couple of ways will add approximately 30, new hubs, which will be optimized for the needs of our deliver fresh data network.
Speaker Change: We will also convert about 20 existing hubs that do not currently have spokes to make them able to fully support our DSD expansion.
Joshua Charlesworth: In all, we expect to have just over 200 hubs with people by the end of 2026. This point of access expansion will allow increased utilisation of our production hubs and increased distribution density on our delivery routes. This means that we expect to get more points of access from the same production hub. Currently, our 154 hubs with spokes each serve, on average, 47 points of access in the U.S. We expect this to increase to over 100 by 2026. The impact is best explained with a couple of examples.
Speaker Change: In all we expect to have just over 200 hubs with folks by the end of 2026.
Speaker Change: This point of access expansion will allow increased utilization of our production hubs and increased distribution density on our delivery routes.
Speaker Change: This means that we expect to get more points of access from the same production hub.
Speaker Change: 154 hubs spokes each serve on average 47 points of access and the yields.
Speaker Change: We expect this to increase to over 100 by 2026.
Speaker Change: The impact is best explained with a couple of examples in Philadelphia, the productivity benefits of a more mature hub and spoke model are expected to bring margin accretive growth and in Minneapolis, where we don't currently sell donuts, we have the chance to be fully optimized from stahl.
Joshua Charlesworth: In Philadelphia, the productivity benefits of a more mature hub-and-spoke model are expected to bring margin accretive growth. And in Minneapolis, where we don't currently sell donuts, we have the chance to be fully optimized from the start. We have a tremendous opportunity ahead of us, and I'm excited to partner with our teams to capitalize on this growth potential. Now, I will turn it over to Jeremiah to talk more about the U.S. business expansion opportunity and our overall financial performance.
Speaker Change: We have a tremendous opportunity ahead of us and I'm excited to partner with our teams to capitalize on this growth potential.
Speaker Change: Now I will turn it over to Jeremy.
Jeremy Sure: More about the U S business expansion opportunity and our overall financial performance.
Jeremiah Ashukian: Thanks, Josh, and good morning, everyone. I wanted to start by illustrating the anticipated financial impact of adding up to 15,000 points of access to our U.S. business. What you see here on this chart is a range of increases in key financial metrics in the U.S. business on an annualized basis. From a growth perspective, we expect that the addition of 14 to 15,000 points of access would result in roughly $340 to $430 million in annualized incremental revenue and $70 to $100 million of additional adjusted EBITDA, creating significant operating leverage on the existing business. Now, I'll discuss our first quarter results.
Jeremy Sure: Thanks, Josh and good morning, everyone I wanted to start by illustrating the anticipated financial impact of adding up to 15000 points of access to our U S business.
Jeremy Sure: You see here on this chart is a range of increases on key financial metrics in the U S business on an annualized basis from a growth perspective, we expect that the addition of 14 to 15000 points of access would result in roughly $340 million to $430 million in annualized incremental revenue of 72 one.
Jeremy Sure: Millions of additional adjusted EBITDA, creating significant operating leverage on the existing business.
Speaker Change: Now I'll discuss our first quarter results.
Jeremiah Ashukian: We outperformed expectations as organic revenue grew 6.7%, adjusted EBTA increased 5.9%, and we maintained positive operating leverage in the quarter, holding adjusted EBTA margins steady at 13.1%. Turning to our U.S. segment results, organic revenue increased 7.4 percent despite weather disruptions to the business in January. Additionally, we continue to see strong growth and availability as points of access increase by 17.5%. We have also improved the quality of points of access by adding another 96 secondary display cabinets to high-traffic grocery doors.
Speaker Change: We outperform expectations as organic revenue grew six 7% adjusted EBITDA increased five 9% and we maintained positive operating leverage in the quarter holding adjusted EBITDA margins steady at 13, 1%.
Speaker Change: Turning to our U S segment results organic revenue increased seven 4% despite weather disruptions to the business in January.
Speaker Change: Additionally, we continue to see strong growth in availability as points of access increased 17, 5%.
Speaker Change: We have also improved the quality of points of access by adding another 96 secondary display cabinets to high traffic grocery doors.
Jeremiah Ashukian: This takes us to 303 total grocery cabinets across the U.S. We have seen these add up to 70% incremental sales to a DFD door. The slight decline in average revenue per door was driven by a mixed impact on the customer base, with smaller grocery customers such as Save Mart being added in the quarter, while underlying door performance remains healthy, helped by the launch of minis. In turn, this drove a 6.5% increase in Sales Per Hub to $4.9 million, up from $4.6 million in the prior year.
Speaker Change: This takes us to 303 total grocery cabinets across the U S.
Speaker Change: We have seen these add up to 70% incremental sales to a DFT door.
Speaker Change: The slight decline in average revenue per door was driven by a mix impact of the customer base with smaller grocery customers such as save Mart being added in the quarter, while underlying door performance remains healthy helped by the launch of many.
Speaker Change: In turn this drove a six 5% increase in sales per hub to $4 $9 million.
Speaker Change: Up from $4 6 million in the prior year. This improvement drove increased utilization across the network, which was a key factor in delivering 70 basis points of adjusted EBITDA margin expansion year over year to 14, 4%.
Jeremiah Ashukian: This improvement drove increased utilization across the network, which was a key factor in delivering 70 basis points of adjusted EBITDA margin expansion year-over-year to 14.4%. The international segment now reflects all of the equity-owned international markets as we move the company-owned Canadian and Japanese businesses into the international segment from the market development segment.
Speaker Change: The International segment now reflects all of the equity owned international markets as we move the company owned Canadian and Japanese businesses into the international segment from the market development segment.
Jeremiah Ashukian: Organic revenue grew 9.8% across all markets and regions, driven by record points of access growth of nearly 24% alongside successful marketing activations. From an adjusted EBITDA perspective, we also saw all markets expand margins in the quarter outside of the UK market. Overall adjusted EBDA increased 8.2%, resulting in a margin decline of 50 basis points to 16.5%. We have a holistic intervention plan in place for the UK and have rationalized parts of our manufacturing network to improve utilization.
Speaker Change: Organic revenue grew nine 8% with all markets and growth driven by record points of access growth of nearly 24%.
Speaker Change: Successful marketing Activations.
Speaker Change: From an adjusted EBITDA perspective, we also saw all markets expand margins in the quarter outside of the U K market.
Speaker Change: Overall, adjusted EBITDA increased eight 2%, resulting in a margin decline of 50 basis points to 16, 5%.
Speaker Change: Have a holistic intervention plan in place for the UK kind of rationalize parts of our manufacturing network to improve utilization.
Jeremiah Ashukian: Similar to the U.S. segment, average revenue per door was driven by a mix of customers as we continue to expand into the convenience channel, including OXO in Mexico and Tesco Express in the U.K., which naturally has a lower revenue per door. Market development is now solely comprised of our franchise businesses, both domestically in the U.S. and internationally. Within the segment, organic revenue declined 14.1 percent, which was driven by timing of equipment sales compared to the prior year.
Speaker Change: Similar to the U S segment average revenue per door was driven by mix of customers as we continue to expand into the convenience channel, including OXXO in Mexico, and Tesco Express in the UK, which naturally has a lower revenue per door.
Speaker Change: Market development is now solely comprised our franchise businesses both domestically in the U S.
Speaker Change: And internationally within the segment organic revenue declined 14, 1%, which was driven by timing of equipment sales versus the prior year.
Jeremiah Ashukian: Adjusted EBITDA in this segment expanded 900 basis points to 54.1%, again largely linked to lower equipment sales, which are lower margin revenues. For the first quarter, we delivered $0.07 in adjusted earnings per share. The higher depreciation and amortization in the quarter reflects the investments associated with the expansion of our hub-and-spoke network. The negative cash flow from operations in the first quarter reflected our strategy to reduce the use of vendor financing
Speaker Change: Adjusted EBITDA in the segment expanded 900 basis points to 54, 1% again largely linked to lower equipment sales, which are lower margin revenues.
Speaker Change: For the first quarter, we delivered seven and adjusted earnings per share the higher depreciation and amortization in the quarter reflects the investments associated with the expansion of our hub and spoke network.
Speaker Change: The negative cash flow from operations in the first quarter reflected our strategy to reduce the reuse of vendor financing. This.
Jeremiah Ashukian: This is now largely complete, and we are still aiming to be cash flow positive in 2024. We also continue to have a healthy balance sheet with access to liquidity to fuel our growth agenda. Today, we are reaffirming our full-year outlook. We have good momentum heading into the second quarter but are mindful of some consumer softness in the current market, which is impacting discretionary spend. While investing in our U.S. expansion, including startup costs for the McDonald's national rollout, we expect to deliver positive operating leverage.
Speaker Change: This is now largely complete we are still aiming to be cash flow positive. In 2024. We also continue to have a healthy balance sheet with access to liquidity to fuel our growth agenda.
Speaker Change: Today, we are reaffirming our full year outlook, we have good momentum heading into the second quarter, but are mindful of some consumer softness in the current market, which is impacting discretionary spend.
Speaker Change: While investing in our U S expansion, including startup costs for the Mcdonalds National rollout, we expect to deliver positive operating leverage Similarly, we anticipate incremental investments to open the new hubs, Josh referenced earlier and expect to trend towards the high end of the range on capital expenditures in 2024.
Jeremiah Ashukian: Similarly, we anticipate incremental investments to open the new hubs Josh referenced earlier and expect to trend towards the high end of the range on capital expenditures in 2024. We anticipate this to continue in 2025 and 2026 before trending towards 6% thereafter. As it relates to the second quarter of 2024, we expect to deliver net revenue growth of 6% to 8% and adjusted EBITDA growth of 8% to 10%. We will continue to closely monitor and adapt to changes in the market and uncertainty in the consumer environment and remain confident in our ability to drive operating leverage consistently throughout 2024. With that, I will turn it over to Josh for his closing remarks.
Speaker Change: We anticipate this to continue in 2025% in 2026 before trending towards 6% thereafter.
Speaker Change: As it relates to the second quarter of 2024, and we expect to deliver net revenue growth of 6% to 8% and adjusted EBITDA growth of 8% to 10%.
Speaker Change: We will continue to closely monitor and adapt to changes in the market and uncertainty in the consumer environment and remain confident in our ability to drive operating leverage consistently throughout 2024 with that I will turn it over to Josh for his closing remarks.
Joshua Charlesworth: Thanks, Jeremiah. In summary, we are expanding availability by adding high-quality, productive points of access, driving operating leverage through the efficiency of our operating model, and maximizing capital return, both by leveraging existing capacity and making selective investments in geographies which have limited access to Krispy Kreme today. All in all, I look forward to us building a bigger and better Krispy Kreme in the years ahead. Operator Let's now open it up to Q&A, please.
Josh: Thanks, Jeremy in summary, we are expanding availability by adding high quality productive points of access driving operating leverage through to the efficiency of our operating model and maximizing capital return, both by leveraging existing capacity and making selective investments in geography.
Speaker Change: Fees, which have limited access to Krispy kreme today, Paul and I look forward to us building, a bigger and better crispy cream in the years ahead.
Speaker Change: Operator, let's now open it up to Q&A. Please.
Audra: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We'll go first to Sara Senatore at Bank of America.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in I would like to ask a question. Please press star one on your telephone keypad to raise your hand in China Q. If you would like to withdraw your question simply press Star one again.
Audra: We will go first to Sara Senatore of Bank of America.
Sara Harkavy Senatore: Hi, this is Sara. Can you hear me? Yeah, we can hear you, Sara.
Sara Harkavy Senatore: Hi, This is Sarah can you hear me.
Sara Harkavy Senatore: Okay, thank you. So I guess I wanted to, you mentioned McDonald's, I guess I wanted to dive in there a little bit. I have a few questions. So one is if you could just clarify what impact, if any, you're including from that partnership, either on the top line, or as I think about G&A, it's I think you've invested ahead of that, you know, ahead of that partnership rolling out, how to think about that growth going forward, or sort of the big upfront costs behind you, you know, or, or how long, how many quarter So just a sort of broader view on the McDonald's partnership implications for your P&L.
Sara Harkavy Senatore: We can hear okay. Okay. Thank you.
Sara Harkavy Senatore: So I guess I wanted to you mentioned Mcdonald's I guess I wanted to dive in there a little that I have a few questions.
Sara Harkavy Senatore: So one is if you could just clarify what.
Sara Harkavy Senatore: What impact if any you are including.
Sara Harkavy Senatore: From that partnership either top line or as I think about G&A. It's I think you've invested ahead of that.
Sara Harkavy Senatore: Yeah.
Sara Harkavy Senatore: How does that partnership rolling out how to think about that growth going forward or sort of the big upfront costs behind you.
Sara Harkavy Senatore: Or how long how.
Sara Harkavy Senatore: How many quarters, perhaps should we expect to see sort of outsized G&A growth. In ahead of ahead of revenue growth. So just the sort of.
Sara Harkavy Senatore: Broader view on the Mcdonald's partnership implications for your P&L.
Jeremiah Ashukian: Yeah, I'll take that, Sara, and thanks for the question. We are collaborating with McDonald's to build a detailed rollout plan and anticipate the launch to start in the tail end of 2024. So from a revenue impact, you know, we do expect that to be fairly minimal this year. What I would say with respect to cost is that we are, as you mentioned, in the investment phase now and are incurring startup costs, SG&A, and OPEX. We're not disclosing exactly how much we're spending on that, but we are pleased that we can reaffirm our guidance, assuming those costs are in our business, you know, beginning in Q1.
Speaker Change: Yeah, I'll take that Sarah and thanks for the question, we are collaborating with Mcdonald's to build a detailed rollout plan.
Jeremiah Ashukian: And anticipate the launch to start in the tail end of 2024.
Jeremiah Ashukian: So from a revenue impact we do expect that to be fairly minimal this year.
Sara Harkavy Senatore: I understand. Okay, thank you.
Jeremiah Ashukian: What I would say with respect to costs. We are as you mentioned in the investment phase now and are incurring startup costs and SG&A and Opex.
Sara Harkavy Senatore: We're not disclosing exactly how much we're spending on that but we are pleased that we can reaffirm our guidance assuming those costs are in our business beginning in Q1.
Joshua Charlesworth: And then just the follow-up question on that is, I know some of the concerns or some of the questions around McDonald's have to do with sort of overlap with your existing distribution, you know, points of access. And can you maybe assuage some of those and talk about what, if anything, you saw during your test with respect to cannibalization? And I know in the past, I think you said, you know, that doesn't seem to be an issue because you're sort of underpenetrated, but anything that you saw regarding your existing POAs in Kentucky and what happened when you launched McDonald's? Yeah, I mean, we've done a bit of work around that.
Speaker Change: Understood. Okay. Thank you and then just a follow up question on that is I know some of the concerns are.
Joshua Charlesworth: Some of the questions around mcdonalds have to do with sort of overlap with your existing distribution.
Joshua Charlesworth: Points of access and can you maybe afraid something areas and talk about what if anything you saw during your cash with respect to cannibalization I know in the past I think you said.
Joshua Charlesworth: It didn't seem to be really an issue because you're sort of underpenetrated, but anything that that you saw.
Joshua Charlesworth: Regarding your existing <unk>.
Joshua Charlesworth: In Kentucky, and what happened when he launched mcdonalds.
Joshua Charlesworth: Yeah, I mean, we've done a bit of work around the incrementality of this, and we believe we expect to see strong incrementality of around 85%. That's what you see in the charts we presented this morning, which will be a mix of higher incrementality in brand new markets but obviously a little bit lower incrementality in existing markets.
Joshua Charlesworth: Yes, I mean, we've done a bit of work around the incrementally of this and we believe we expect to see strong incrementals. They are around 85% and so what you're seeing in kind of the chart that we presented this morning reflects that.
Joshua Charlesworth: Which will be a mix of higher incrementals in brand new markets, but obviously, a little bit lower in <unk> in existing markets.
Speaker Change: Thank you.
John William Ivankoe: We'll go next to Jon Ivankoe at J.P. Morgan.
Speaker Change: We'll go next to John <unk> co at J P. Morgan.
Joshua Charlesworth: Hi, thank you. I have two questions, if I may. First, as you begin to kind of have plans for overall relatively national penetration, are you beginning to have conversations with taking various major grocery and other types of national accounts on a national basis? In other words, as you begin to have the capacity to go into McDonald's, do you expect it to have a number of different simultaneous agreements with other national type, both larger and smaller format retailers?
John William Ivankoe: Hi, Thank you two questions if I may.
Joshua Charlesworth: <unk>.
Joshua Charlesworth: As you begin.
Joshua Charlesworth: Plans for overall relatively national penetration.
Joshua Charlesworth: Are you beginning to have conversations we're taking various major.
Joshua Charlesworth: Grocery and other types of national accounts on a national basis in other words as you begin to have the capacity to go into Mcdonald's do you expect it.
Joshua Charlesworth: To have a number of different simultaneous agreements with other national type.
Joshua Charlesworth: You know, both larger and smaller format retailers.
Joshua Charlesworth: Good morning, Jon. Yeah, by distributing to almost every McDonald's in the country, this does indeed give us the opportunity to profitably add distribution with other major customers, both existing customers that we are underpenetrated into, and indeed, new ones. I mean, it's going to be really exciting to bring Krispy Kreme to Minneapolis, for example, the home of Target, or to bring Krispy Kreme to Walmart in Arkansas. So these are things we haven't done up until now, and we're really excited to do them. And so, yeah, the data that we shared today and our goal of getting to 15,000 points of access in the U.S. by 2026 obviously includes expansion beyond McDonald's as a result.
Speaker Change: Good morning, John Yeah by distributing to almost every Mcdonald's in the country. This does indeed gives us the opportunity to profitably add distribution with with other major customers.
Joshua Charlesworth: Existing customers that we are underpenetrated in and indeed, new ones.
Joshua Charlesworth: And I think the conversations that we've had with them since the announcement I have largely been positive because they can see that we're able to build out our operating model on a national scale and therefore serve them.
Joshua Charlesworth: Nationally I mean, it's going to be really exciting to bring.
Joshua Charlesworth: Christy cream to Minneapolis for example, the homewood target or to bring Krispy kreme to walmart's in Arkansas. So.
Joshua Charlesworth: Things, we haven't done up to now.
Joshua Charlesworth: And we're really excited to do that and so yes, the data that we shared today and our goal.
Joshua Charlesworth: Getting to 15000 points of access in the U S. By 2026, obviously includes expansion beyond Mcdonald's as a result.
John William Ivankoe: You know, and it does remind me that I actually have two more questions. You know, as you guys kind of think about the overall size of the donut market or sweet treat market, I mean, you obviously have a lot of interesting insights both about your current employer and also previous employers, you know, but how big of a prize do you think the U.S. Krispy Cream market really is?
Speaker Change: And it does remind me that I actually have two more questions.
John William Ivankoe: As you guys kind of think about the year overall.
John William Ivankoe: Size of the doughnut marketers Sweet dreams tweet treat market I mean, you obviously have a lot of interesting insights both at your current employer and also previous employers.
John William Ivankoe: But how big of a price do you think the U S. Krispy Kreme market really yes, I mean, you know you can obviously, if you look at it as a percentage of doughnut sales you could argue that krispy kreme share gets to be very very high you know kind of in the out years, but you know is the prize something materially bigger than donut sales how are you defining deals.
John William Ivankoe: I mean, obviously, if you look at it as a percentage of donut sales, you could argue that, you know, Krispy Kreme's share gets to be very, very high, kind of in the later years, but, you know, is the prize something materially bigger than donut sales? How are you defining the overall TAM at this point?
John William Ivankoe: Raul Tam at this point.
Joshua Charlesworth: Well, I think today we brought really good insight on the incremental revenue we expect out to 2026. Jeremiah shared $340 to $430 million in revenue, reflecting 15,000 points of access goal. We actually, following the announcement at McDonald's that gave us insight on the QSR opportunity overall, we've continued to appreciate the opportunity to access these national accounts you referenced at the beginning of this discussion. So we believe we can get about 30,000 points of access in the long run.
Speaker Change: Well I think today, we brought.
Joshua Charlesworth: Really good insight on the incremental revenue, we expect that to 2026 zero mindshare at $340 million to $430 million revenue, reflecting 15000 points of access goal.
Joshua Charlesworth: Actually following.
Joshua Charlesworth: The announcement of Mcdonald's that gave us insight.
Joshua Charlesworth: Insight on the <unk> opportunity overall.
Joshua Charlesworth: We've continued to appreciate the opportunity to access these national accounts you referenced at the beginning of this discussion so.
Joshua Charlesworth: We say, we believe we can get about 30000 points of access in the long run regarding the share of market and what have you would still actually a relatively small player.
Joshua Charlesworth: Regarding the share of the market and what have you, we're still actually a relatively small player with the lowest teams in grocery stores today. And so, you know, there's plenty of upside for us because, you know, we are the best donor in the market. It's an awesome experience. We're constantly innovating, constantly bringing excitement to the brand. And we're fresh, fresh daily. It's a really unique position. So, absolutely. We want to take share from those who aren't able to bring such an exciting brand and product to the consumer.
Joshua Charlesworth: With share in the low teens in grocery stores today.
Joshua Charlesworth: Today.
Joshua Charlesworth: So there's plenty of upside for us because we are the best in the market, it's an awesome experience with constantly innovating constantly bringing.
Joshua Charlesworth: Excitement to the brand and with fresh fresh daily and some really unique positioning so yeah, absolutely we want to take share from from those who are unable to bring such an exciting brand and product to the consumer.
John William Ivankoe: Understandable, and I apologize if I missed that; I was slightly delayed getting on. Did you address the current test and experience with Ryder, you know, handling your last mile distribution? I think it's been DC and LA, you know, with positives and negatives, you know, and I guess at this point, you know, what would keep you from perhaps making that an overall, you know, system-wide decision?
Speaker Change: Understood and I apologize if I missed that it goes slightly delayed getting on.
John William Ivankoe: Did you address kind of the current test and experience.
John William Ivankoe: With Ryder handling your last mile distribution I think it's in D C and L. A.
John William Ivankoe: Positives and negatives.
John William Ivankoe: And as you know and I guess at this point you know what what would keep you from Munich to perhaps making that an overall system wide decision.
Joshua Charlesworth: No, it's a good question. Actually, I was just up with the Krispy Kreme and the Ryder team in D.C. myself, riding the routes. And what I could see was that the service level and the quality of the donuts are being maintained, which is the primary focus of the test right now to make sure that those Krispy Kreme donuts show up in the way we would expect. And the partnership with Ryder has been great so far.
Speaker Change: No. It's a good question.
John William Ivankoe: Really, we now, therefore, need to move into more analysis and understanding of what this could look like in terms of our economy and how it could support the rollout. We are looking to add another city to the test. And indeed, we're also talking to other providers. It's really important that the donuts and the delivery show up as if it was Krispy Kreme, their dedicated trucks, the drivers wearing Krispy Kreme uniforms and presenting themselves in a really positive way. And it looks really promising, but we'll provide updates as we know more about the opportunity to extend that as we support the rollout nationally towards this 15,000 goal by 2026. Sounds good. Thank you.
John William Ivankoe: Mmm towards is 15000 go by 2026.
John William Ivankoe: Sounds good thank you.
Aisling Ronan Grueninger: We'll move next to Aisling Grueninger at Piper Sandler. Hi! Uh, good morning, guys.
Aisling Ronan Grueninger: We'll move next to Aisling Grueninger at Piper Sandler. Hi! Uh, good morning, guys.
Speaker Change: Oh <unk> furniture at Piper Sandler.
Aisling Ronan Grueninger: Hi, Good morning, guys, you've mentioned in the past you're focused around automating. The doughnut production. Just wondering if you have any updates around this I know in the international segment. Some of your production facilities use automation just wondering about the opportunity. This presents for the U S market and just how this could help with the roll out of Mcdonalds.
Joshua Charlesworth: That's a great question. Good morning.
Aisling Ronan Grueninger: Oh, that's a great question. Good morning, you know, we we continue to work on the opportunity to modernize the making and indeed, the moving of Donuts to.
Joshua Charlesworth: You know, we continue to work on the opportunity to modernize the making and indeed the moving of doughnuts to the earlier question. There are transformational improvements we can make and are making with automation. It's still proportionately, a relatively small percentage of the business that we're applying this to largely are non-consumer facing doughnut factories. We have a line, a fully automated line, running in our Bronx facility, for example, in New York where we're topping and filling and even picking the doughnuts off the line automatically.
Joshua Charlesworth: To the earlier question, they're all transformational improvements, we could make we kind of economic and with automation, it's still proportionately.
Joshua Charlesworth: Small percentage of of the business that we are applying to largely all nonconsumer facing donut factories, we have Ah Ah line fully automated line running in a Bronx facility for example in New York.
Joshua Charlesworth: We are talking I'm, feeling and even picking the doughnuts off the line automatically but at this stage you know that's still work that's ongoing.
Joshua Charlesworth: But at this stage, you know, that's still work that's ongoing. We're actually also finding ways to modernize production lines by, you know, improving yield and reducing waste by digitizing the lines and monitoring those variables in that way as well. So, you know, it is an opportunity. We definitely think that this is an area that can help us scale and help us be more efficient. But with the acceleration of points of access growth, you know, we also need to support capacity expansion, particularly across the U.S. So we're being thoughtful about how we bring in new technology as we also expand.
Joshua Charlesworth: She also finding ways to modernize production lines by improving yield and reducing waste by digitizing the lines uhm monitoring those variables in that way as well. So it is an opportunity we definitely think that this is an area.
Joshua Charlesworth: Can help us scale and help us be more efficient.
Joshua Charlesworth: But with the acceleration off points of access growth you know, we also need to support capacity expansion, particularly across the U S. So we're being for how we bring in a new technology as we also expand.
Speaker Change: Great. Thank you for the color I'll pass it back.
Speaker Change: You bet. Thank you.
William Bates Chappell: Our next question comes from Bill Chapel at Truist Securities.
Joshua Charlesworth: Our next question comes from Bill Chapel extra Securities.
William Bates Chappell: Thanks, Good morning.
William Bates Chappell: Morning, Bill. In your comments, you kind of talked about some recent softness around the category and kind of consumers pulling back. Just maybe a little more color on that. I mean, it's not unique.
William Bates Chappell: Okay. Good morning, Bill in your comments, you've kind of talked about it some recent softness around the the the category and can I consumers pulling back just maybe a little more color on that I mean, it's not unique with <unk> seem kind of swelling volumes throughout all of package food over the past few months and just anything more you can talk about that.
Joshua Charlesworth: I think we've seen kind of slowing volumes throughout all of packaged food over the past few months. Anything more you can talk about that, and if you think there are any other things at work impacting that?
Joshua Charlesworth: And if you think that any of the other things that work.
Joshua Charlesworth: Impacting that.
William Bates Chappell: Actually, Bill, although we're mindful of the consumer environment, we actually see the brand being really healthy, with people looking to Krispy Kreme as an affordable sweet treat for those special celebratory occasions. As we mentioned earlier, Valentine's Day was the biggest sales day in the history of the company. I mean, earlier this month, even in April, we saw tremendous engagement with our total solar eclipse doughnut. And so, you know, although we're mindful of the consumer environment, particularly on the international side, the brand is really healthy, with plenty of consumer engagement. And I think it's because of the unique role that Krispy Kreme plays as an occasional sweet treat for special occasions and celebrations.
Bill: Actually fell uhm, although we are mindful of the consumer environment, we actually see the brand being really healthy with people looking at the Krispy Kreme is an affordable sweet tree for those special celebratory occasions, we mentioned earlier Valentine's and being the biggest self died in history.
William Bates Chappell: The company I mean earlier this month, even in April so tremendous engagement with our technical seven or quips Diana.
William Bates Chappell: And so I you know, although it mindful of the consumer environment, particularly on the international side Uhm. The brand is is really healthy plenty of consumer engagement and I think it's because of the evening well that crispy cream place is an occasional sweet treat for special occasions and celebrations.
Joshua Charlesworth: So, I'm sorry you're not seeing any softness. I may have missed that comment.
Speaker Change: So so <unk> I'm, sorry, you're not seeing any softness.
Speaker Change: I made a mistake comment sorry no.
William Bates Chappell: No, I think that the softness we would have talked about would have been in January, just due to weather in the United States, but not necessarily a broader kind of consumer.
Bill: No I think the the softness or we would have talked about it would've been in January just due to weather you'll get.
William Bates Chappell: In the United States on it and that's why I brought her kind of consumer.
William Bates Chappell: Okay. And then just to the McDonald's, I guess two questions that I hear most often. One, trying to understand kind of the level of commitment on McDonald's and the franchisees down the road. I mean, you say you're going to, I think, 12,000 out of 13,000 doors. Is there, and you're obviously spending a lot of money behind it, is there any way McDonald's can say a year, year and a half into this, you know, this isn't working, or this doesn't work for certain franchises, or, you know, and that changes that, or is it full ahead, everybody's fully committed to going to that, that 12,000 by, through 2026?
William Bates Chappell: Okay, and then just to the Mcdonalds I guess.
William Bates Chappell: Two questions that I that I hear most often one trying to understand <unk>.
William Bates Chappell: The the the level of commitment on Mcdonald's of and the franchisees down the road I mean, do you say you're going to I think 12000 out of 13000 doors I mean.
William Bates Chappell: Is there and you're obviously spending a lotta money behind it is there any way.
William Bates Chappell: Way Mcdonalds can say a year year and a half into this you know this isn't working or this doesn't work for certain franchises or you know and that changes that or is it full ahead everybody's fully committed to going to that 12000 by it through 2026.
Joshua Charlesworth: McDonald's has been a great partner so far, and we've really enjoyed the collaboration.
William Bates Chappell: Mcdonalds is being a great partner, so far we've really enjoyed the collaboration.
Joshua Charlesworth: The agreement lasts for one year after the last rollout in 2026 and, of course, can be renewed after that. So, you know, we've already announced our partnership with McDonald's. And, you know, it is about rolling out through to the end of 2026, and the intent is for more than 12,000 restaurants. And that is the phased rollout plan that we're working on with McDonald's. You know, we don't expect it to start until the tail end of the year, but it's really thoughtful.
Joshua Charlesworth: Uhm the agreement.
Joshua Charlesworth: Last one year after the last roll out in 2026 and of course can be renewed after that uhm. So you know, we've already announced I'll shake partnership with Mcdonalds and and you know it is about rolling out through to the end of 2026 and the intent is more than 12000.
Joshua Charlesworth: Restaurants, and and that is the phased rollout plan that we're working on with with Mcdonalds. You know, we don't expect you to start until the tail end of the year, but it's really thoughtful <unk> naturally prioritize places, where we have crispy cream can provide availability faster.
Joshua Charlesworth: You know, we'll obviously naturally prioritize places where we at Krispy Kreme can provide availability faster. But the partnership is going really great so far after what was obviously a great Kentucky test and a very thorough test that demonstrated that consumer demand outstripped both theirs and our expectations.
Joshua Charlesworth: But the partnership is is going really great. So far off to what was obviously a great Kentucky test them very thorough test.
Joshua Charlesworth: <unk> the consumer demand outstripped, both there's and our expectations.
William Bates Chappell: Got it. And then I'll squeeze one more in, and this is kind of a follow-up from an earlier one on incrementality. Just trying to understand – I understand how it maybe interacts with your stores, but how it does when there's a Dunkin' store next by or a convenience store that sells donuts or stuff like that. Just trying to understand how it expands the overall donut market in the same way and kind of what your tests showed from that standpoint.
Speaker Change: Got it and then out to squeeze one more in on the <unk>. This is kind of a follow up from the earlier one on the Incrementality just trying to understand I understand how it maybe interacts with your stores, but you know how it does when there's Duncan store next by or a convenience store that sells donuts or stuff like that it just trying to understand.
William Bates Chappell: How it expands the overall donut market in the same way and kind of what your tests showed from that standpoint.
Joshua Charlesworth: Well, we know that we create buzz and demand when we come to a new market. We've seen that again and again.
William Bates Chappell: Well, we now uhm that we create a buzz in demand when we come to a new market seen that again and again when it comes to the existing market. So obviously had is prolonged period of time with the Kentucky tests to see the impact of that Incrementality, but also bear in mind, we have many.
Joshua Charlesworth: When it comes to existing markets, we obviously had a prolonged period of time with the Kentucky test to see the impact of that incrementality. But also, bear in mind that we have many parts of the country where we already have good availability. Take Atlanta, take areas of the Carolinas, places where they may even be in a town more of the other donut shops you referenced. But they're not really donut shops. They're generally beverage-focused and sandwich-focused.
Joshua Charlesworth: Parts of the country, we're already have good availability taken Atlanta take areas of the Carolinas places, where they may even be in the town I'm more of the others.
Joshua Charlesworth: Donut shop for your reference, but they don't really done it shows the Germany beverage focused sandwich focused we are the ones who offer a unique awesome fresh donut experience. Many some mom this week constantly bringing silent and headlines to the category. So uhm, yeah that doesn't surprise us, but yeah, we we don't.
Joshua Charlesworth: We are the ones who offer a unique, awesome, fresh donut experience. Minis for Mom this week, constantly bringing excitement and headlines to the category. So, you know, that doesn't surprise us. But yeah, we've done the analysis and the numbers. The incrementality that Jeremiah shared today was based on a very thoughtful analysis. Great. Thanks for the color.
Joshua Charlesworth: The analysis and the numbers that Sarah Incrementality Jeremiah shared today was based off a very thoughtful analysis great.
Speaker Change: Great. Thanks for the color.
Andrew Paul Wolf: We'll take our next question from Andrew Wolf at CL King.
Joshua Charlesworth: We'll take our next question from Andrew Wells at <unk>.
Andrew Paul Wolf: Thank you. I just had a couple follow-ups. First, on McDonald's.
Andrew Paul Wolf: Oh, Thank you I just need a couple of follow ups first I'll mcdonalds.
Joshua Charlesworth: Um, expect the rollout, you know, just in terms of stores, you know, where it's rolled into over time to be kind of linear. 40th, is there an exponential build or even a front-end loaded build? I would think more exponential, but just sort of the timing, you know, between now and 2026.
Andrew Paul Wolf:
Andrew Paul Wolf: The rollout you know just in terms of stores, you know where it's rolled into one.
Joshua Charlesworth: Over time.
Joshua Charlesworth: Linear.
Joshua Charlesworth: Is there an exponential build or even a front end loaded building I would think more exponential, but just sort of the timing you know between now and 2026.
Joshua Charlesworth: I'd describe it as balanced. It's balanced around where we have availability today, balanced around where we can bring on new capacity quickly, and then, of course, there are parts of the country where our development pipeline means it's going to take a little while to launch. Donald's conversation with us has been fantastic, as we share with them our development plans, and they've gone through with us how they want to run it, and so it'll be balanced and thoughtful over the period from the tail end of this year up to the end of 2026.
Joshua Charlesworth: Uhm I describe it as balanced it's balanced around where we have availability today Ah balanced around where we can bring on your capacity quickly and then of course, there are parts of the country where where.
Joshua Charlesworth: Uhm development pipeline means it's gonna take a little while to launch an.
Joshua Charlesworth: Donald's conversation has been fantastic as we share with them all development plans and they've taken through with us how they want to run it and so it'll be about balanced and thoughtful over the period from the tail end of this year up to the end of 2026.
Joshua Charlesworth: Thank you. And, you know, in terms of the McDonald's franchisee relationship, you know, I mean, what is your role? Is it more training, or is it kind of getting them excited about it?
Joshua Charlesworth: Thank you and you know to the Mcdonald's franchisee relationship.
Joshua Charlesworth: You know I mean, what is your role is it more training or is it kind of getting them excited about it and I'm sure. It Mcdonalds is kind of you collaborating with them and how you can interact with the franchise. He is but you know what is going to be crispy creams.
Joshua Charlesworth: And I'm sure McDonald's is kind of collaborating with them and how you're going to interact with the franchisees. But, you know, what is going to be Krispy Kreme's interaction with the franchisees to help them, you know, to help make this successful?
Joshua Charlesworth: You know interaction with the franchise east help them you know to help make us successful.
Joshua Charlesworth: Our focus is awesome donuts every time, every day, delivered at the right time, as agreed with the customer, and perfect service level. So really, we're really focused on strengthening operations right now, and we have a lot of discussions about modernizing and improving how we make and move donuts. I think all our customers expect that, whether it's a McDonald's franchisee, Walmart, Kroger, or indeed our international partners, that's our primary focus. That's where our Krispy Kreme Krispy Kreme doughnuts excel. Obviously, it's up to McDonald's themselves to manage their own relationships.
Joshua Charlesworth: Our focus is awesome Diana every time every day.
Joshua Charlesworth: Delivered to the <unk> as agrees with a customer perfect service level. So really we're we're really focused on strengthening operations right now talk a lot about modernizing and improving how we make a move donuts and you know I I think all our customers expect.
Joshua Charlesworth: That whether it's a Mcdonald's franchisee Walmart.
Joshua Charlesworth: Or indeed, our international partners with that as a primary focus that's where a crispy cream is excel and obviously, it's up to Mcdonald's themselves to manage their own relationships. We trust them, we got a great relationship with them and we'll take the guide and provide any insights to them.
Joshua Charlesworth: We trust them. We've got a great relationship with them, and we'll take their advice and provide any insights to them. Do remember, it's a very simple operation, activity, which is we're bringing fresh donuts already made. They just need to be taken from the tray, put in a bag, or even a six-count box handed over to the customer. So it should be a relatively easy activity for the McDonald's crew and the franchisees. So the real focus is just great donuts.
Joshua Charlesworth: But do remember, it's a very simple operating operations uhm.
Joshua Charlesworth: Activity, which is we were bringing <unk> may they just needs to be taken from the try to put in a bag or even six count box handed over to the customer service it should be relatively easy activity.
Joshua Charlesworth: The Mcdonalds crew in the franchisee so surreal focus is just great donuts.
Joshua Charlesworth: Fair enough. And if I could just ask one follow-up question. I was distracted away from the call for a minute, so you might have talked about this, but could you elaborate on the big increase in digital sales and penetration in the US and the sustainability of that?
Speaker Change: Fair enough and if I could just ask one follow up I was distracted away for them to call for a minute. So you might've talked about this but could you elaborate on the.
Joshua Charlesworth: Big increase in the digital sales and penetration in the U S and the sustainability of that.
Joshua Charlesworth: Well, the customer is looking, as we've said before, for us to provide a more convenient way to access Krispy Kreme, and one reason why somebody still tells us that they may not purchase Krispy Kreme is that it's just not convenient for them. And so it's been great, both through our own app and partnering with third parties to grow the digital channel, and it's becoming a significant channel and a big growth
Joshua Charlesworth: Well the the customer is looking as we said before for us to provide a more convenient way to access crispy cream. Your number one reason why somebody still gives us that way.
Joshua Charlesworth: They may not purchased crispy cream is it's just not convenient to them and so it's been great <unk> partner Mister parties to to to grow the digital channel and it is becoming a.
Joshua Charlesworth: Significant channel and and a big growth driver. Indeed, I mean until in terms of go forward, we actually just re launched.
Joshua Charlesworth: I mean, in terms of going forward, we actually just relaunched our loyalty program, and we've seen tremendous response there, tremendous engagement there, energizing both existing loyalty members and new ones. So we actually expect to drive future sales growth with that loyalty program. So digital is here to stay in the modern world for sure, and Krispy Kreme, we're really leveraging that.
Joshua Charlesworth: Loyalty program and we've seen tremendous response that tremendous engagement that and energizing both existing models him Amazon nuanced. So we actually expect them to to drive shoot yourselves gripes without loyalty program. So digital is is here to stay in the.
Joshua Charlesworth: Well for sure and crispy cream, we really we really leveraging ma'am.
Andrew Paul Wolf: Thank you, that'll do it for me. I appreciate it.
Speaker Change: Thank you that'll do it for me appreciate it.
Speaker Change: Thanks Andrea.
Daniel Edward Guglielmo: We'll take our next question from Daniel Guglielmo at Capital One Securities.
Andrew Paul Wolf: We'll take our next question from Daniel <unk> at Capitol One securities.
Daniel Edward Guglielmo: Hello everyone, thank you for taking my question. The international segment has continued to perform well, and now OWN Japan and Canada are in there. I just want to dig into the point of access mix.
Daniel Edward Guglielmo: Hello, everyone. Thank you for taking my question.
Daniel Edward Guglielmo: International segment has can can you confirm well and now on Japan, and Canada in there I just wanted to dig into the point of access next it seems like there are a lot more fresh shops, there relative to the U S segment and would you ever thinking about adding more fresh chopped into the U S. It seems like the logistics and volume of Donuts that would be the.
Joshua Charlesworth: It seems like there are a lot more fresh shops there relative to the U.S. segment. And would you ever think about adding more fresh shops in the U.S.? It seems like the logistics and volume of donuts that would be delivered to McDonald's would be similar to what you would get at a fresh shop.
Joshua Charlesworth: <unk> to Mcdonalds would be similar to what you would get at a pressure.
Joshua Charlesworth: The higher rate of fresh shops international reflects a number of local conditions, including local labor costs and the size of the big metro cities. One of the great things about the Krispy Kreme model is that it can adapt to different environments. Yes, we have a number of fresh shops in the U.S. In some of the big cities, they make sense. But with the vast opportunity of Deliver Fresh Daily, with these great national partners, we're focusing our attention in the U.S. on what is a very capital-efficient model, leveraging the excess capacity of the production hubs through these off-premise DFD doors, which, remember, typically cost between $1,000 and maybe $3,000 to set up if it's one of the more premium cabinets. It's such a good capital return. We've got excess capacity in the U.S. That's our focus rather than the fresh shops.
Joshua Charlesworth: The the the high rate of fresh shots international reflects on a number of local conditions, including local labor costs. The the size of the big Metro cities one of the great things about the Krispy Kreme model is you can adapt to the different environment.
Daniel Edward Guglielmo: Great, thank you. I appreciate the detail.
Daniel Edward Guglielmo: Yes, we we have a number of fresh shops in the U S.
Daniel Edward Guglielmo: In some of the big cities, they make sense, but with the vast opportunity of deliver fresh daily with these great National partners.
Daniel Edward Guglielmo: With focusing our attention on the U S. What is a very capital efficient model leveraging the excess capacity of the production hubs through these off premise D F the tools, which.
Daniel Edward Guglielmo: Remember Timothy costing $193000 to Sara if it's one of the premium cabinets. So you know that it's it's such a good tab over time, we've got excess capacity in the U S. That's our focus rather than the fresh shops.
Joshua Charlesworth: And then just one more on McDonald's. In the history of McDonald's, do they have a partnership like this in the past? I'm just curious if there's like a playbook you all are going off of, or if it's kind of a new playbook that you all are putting together. One thing I've learned about Krispy Kreme is...
Speaker Change: Great. Thank you appreciate the the detail Uhm and then just one more on on Mcdonald's.
Joshua Charlesworth: In the history Mcdonald's do they have a partnership like this in the past and I'm just curious if there's like a playbook you all are going off of or if it's kind of a new playbook.
Joshua Charlesworth: You are putting together.
Joshua Charlesworth: One thing I've learned about Krispy Cream is every day is a new thing; there's so much opportunity here. And I think McDonald's came to us thinking about doing something different, doing something different with their breakfast approach, doing something different with a partner with sweet treats. So I think, certainly from our point of view, Phil's pioneering, but it's a great question. Good, thank you.
Joshua Charlesworth: One thing I've learned about Krispy Kreme is everyday is is is is is anything is so much opportunity here and I think mcdonalds came to us thinking about doing something different doing something different with the breakfast approach do something different with a partner with <unk>. So I think I've I've certainly from our point of view.
Joshua Charlesworth: <unk> pioneering but it's a great question.
Speaker Change: Great. Thank you.
Audra: And as a reminder, if you would like to ask a question, please press star 1. We'll pause just for a moment. And at this time, there are no further questions, and that concludes our Q&A session. I will now turn the conference back over to Josh Charlesworth for closing remarks.
Joshua Charlesworth: And as a reminder, if you would like to ask a question. Please press star one well <unk> just a moment.
Joshua Charlesworth: And at this time there are no further questions and that concludes our Q&A session. I will now turn the conference back over to Josh Charles where it's for closing remarks.
Joshua Charlesworth: Well, thank you, everybody. Thanks for your interest in Krispy Kreme today. And, of course, thank you to all our Krispy Kremers for your ongoing commitment to bring joy to our customers through Krispy Kreme. Have a good day. Take care.
Joshua Charlesworth: Well. Thank you everybody. Thanks for your interest.
Joshua Charlesworth: Kristin crispy cream today and of course, thank you to all our crispy cream is for your ongoing commitment to bring joy to our customers through crispy cream have a good day take care.
Audra: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Joshua Charlesworth: Yeah.
Speaker Change: His conference call. Thank you for your participation you may now disconnect.
Audra: [music].