Q1 2024 Krispy Kreme Inc Earnings Call
Thanks for standing by my name is Laura and I will be your conference operator today.
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.
Laura: This time I'd like to welcome everyone to the Krispy Kreme first quarter 2024 earnings call.
Laura: I would now like to turn the call over to Alexander 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.
Alexander Eldridge: Thank you good morning, everyone welcome to Krispy Kreme as 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.
Alexander Eldridge: Joining me on the call. This morning are President and Chief Executive Officer, Josh Charles Wang and Chief Financial Officer, Jeremy Sure Ken.
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.
Alexander Eldridge: For our prepared remarks, there will be a question and answer session.
Alexander 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 1095, including statements of expectations future events or future financial performance.
Alexander 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.
Alexander 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.
Alexander 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.
Alexander Eldridge: Today's call will include certain non-GAAP financial measures.
Alexander 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.
Alexander Eldridge: Jeremy will take us through our financial performance in a moment, but first here's Josh.
Josh: Right good.
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. 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.
Josh: Good morning, everyone. Thank you for joining us we.
Josh: We had a strong first quarter, our strategy of making fresh krispy kreme doughnuts more available around the world is work.
Josh: Excitement for our fresh Krispy Kreme doughnuts has never been higher.
Josh: It's from our recently opened a theater in France with Parisians lined up some waiting overnight.
Josh: Have a heart 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 hard-working Krispy Kremes who get it done every day in now 39 countries around the world. Let me summarize today's key messages.
Josh: Obviously able to 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.
Speaker Change: I wish to thank all our hardworking Krispy Kreme is to get it done every day and now 39 countries around the world.
Speaker Change: Let me summarize today's key messages.
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.
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 doughnuts 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: We're increasing the pace of expansion as we make all fresh donuts more available around the world.
Speaker Change: In Q1, we grew our points of access of 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.
Joshua Charlesworth: In the U.S., we expect to have 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 throughout 16000 points of access by the end of 2026, we're accelerating into more grocery and convenience stores and we're excited about our 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: 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 models.
Speaker Change: Let's double click into each of these topics.
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.
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, like 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: We launched planned initiatives like Hudson Patrick's day specialty donor collection, and nimbly respond to spontaneous events such as the AT&T cellphone outage, 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 for.
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 US, 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 Donuts collection available in 33 countries led to our biggest sales day ever.
Speaker Change: Sales through digital channels, including for delivery and pickup increased by 26% in the quarter.
Speaker Change: We're 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 I 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 at 33,000 points of access already by the end of 2026.
Speaker Change: Following our recent announcement to provide fresh donuts daily of Mcdonald's restaurants in the U S. We have raised our long term global points of access go from 75000 to 100000 to 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 2023 looking ahead, we expect fresh krispy kreme doughnuts to be available in 33000 points of access already buy.
Speaker Change: 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 US 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 offers. In new markets, our upcoming expansion into Germany, France, and Brazil provides 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 nationwide 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 yeah.
Speaker Change: So we did expect that the U S will be the biggest driver of our profitable expansion.
Joshua Charlesworth: Still, we do expect that the U.S. 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 glaze, chocolate ice with sprinkles, and chocolate ice cream filled.
Speaker Change: The recently announced agreement with Mcdonald's is expected to bring Christy, creating some 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 chocolate ice with 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 restaurants, 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.
Speaker Change: Mcdonald's is making them available in restaurant drive through.
Speaker Change: 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 2020 sales, 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: We anticipate nearly tripling our U.S. points of access over the next three years, from 7,775 today to more than 22,000 by the end of 2026. Much of the national rollout can happen using existing capacity, but we will also invest in our business to increase production hubs with Spogas. We expect to do this in a couple of ways.
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 all deliver first stating that that work well.
Joshua Charlesworth: 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. 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.
Speaker Change: We will also convert about 20 existing hubs, but do not currently have spokes to make them able to fully support our DSD expansion.
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.
Joshua Charlesworth: This means that we expect to get more points of access from the same production hub. Currently, there are 154 hubs with spokes. Each serves, 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: This means that we expect to get more points of access from the same production hub.
Speaker Change: Currently a 154 hubs spokes each served 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.
Jeremiah Ashukian: 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 doughnuts, 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: In Minneapolis, where we don't currently sell Donuts, we have the chance to be fully optimized from stock.
Speaker Change: We have a tremendous opportunity ahead of us and are excited to partner with our teams to capitalize on this growth potential.
Speaker Change: Now I will turn it over to Jeremy to talk 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: 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: 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 70 to one.
Jeremy: Millions of additional adjusted EBITDA, creating significant operating leverage from the existing business.
Jeremy: Now I'll discuss our first quarter results we.
Jeremiah Ashukian: We outperformed expectations as organic revenue grew 6.7 percent, adjusted EBITDA increased 5.9 percent, and we maintained positive operating leverage in the quarter, holding adjusted EBITDA margins steady at 13.1 percent. 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. 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.
Jeremy: We outperform expectations as organic revenue grew six 7% adjusted EBITDA increased five 9% and we maintain positive operating leverage in the quarter holding adjusted EBITA margin steady at 13, 1%.
Jeremy: Turning to our U S segment results organic revenue increased seven 4% despite weather disruptions to the business in January.
Jeremy: Additionally, we continue to see strong growth in availability as points of access increased 17, 5%.
Jeremy: We have also improved the quality of points of access by adding another 96 secondary display cabinets to high traffic grocery doors.
Jeremy: This takes us to 303 total grocery cabinets across the U S.
Jeremy: We have seen these add up to 70% incremental sales to a DFT door.
Jeremiah Ashukian: 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. 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.
Jeremy: The slight decline in average revenue per door was driven by 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.
Jeremy: In turn this drove a six 5% increase in sales per hub to $4 9 million up from $4 6 million in the prior year.
Jeremy: This improvement drove increased utilization across the network, which is a key factor in delivering 70 basis points of adjusted EBITDA margin expansion year over year to 14, 4%.
Jeremy: The International segment now reflects all of the equity one 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 EBITU perspective, we also saw all markets expand margins in the quarter outside of the UK market. Overall adjusted EBITDA 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.
Jeremy: Organic revenue grew nine 8% with all markets and growth driven by record points of access growth of nearly 24%.
Jeremy: Successful marketing Activations.
Jeremy: From an adjusted EBITDA perspective, we also saw all markets expand margins in the quarter outside of the UK market.
Jeremy: Overall, adjusted EBITDA increased eight 2%, resulting in a margin decline of 50 basis points to 16, 5%.
Jeremy: We have a holistic intervention plan in place for the UK kind of rationalize parts of our manufacturing network to improve utilization.
Jeremy: 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.
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 Otso 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.
Jeremy: Market.
Jeremy: <unk> is now solely comprised our franchise businesses both domestically in the U S and internationally within the segment organic revenue declined 14, 1%, which was driven by timing of equipment sales versus the prior year.
Jeremy: Adjusted EBITDA in the segment expanded 900 basis points to 54, 1% again largely linked to lower equipment sales, which are lower margin revenues.
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
Jeremy: 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.
Jeremy: The negative cash flow from operations in the first quarter reflected our strategy to reduce the reuse of vendor financing.
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.
Jeremy: 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.
Jeremy: 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.
Jeremy: 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 a new hub, 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 percent and adjusted EBITDA growth of 8 to 10 percent. We will continue to closely monitor and adapt the 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.
We anticipate this to continue in 2025 and 2026 before trending towards 6% thereafter.
Josh: 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%.
Jeremiah Ashukian: 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 the efficiency of our operating model and maximizing capital return, both by leveraging existing capacity and making selective investments in geography.
Joshua Charlesworth: Police, 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.
Joshua Charlesworth: Yeah.
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'll go first to Sara Senatore of Bank of America.
Sara Harkavy Senatore: Hi, This is Sarah can you hear me.
Sara Harkavy Senatore: Hi, this is Sara. Can you hear me? Yeah, we can hear you, Sara.
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, or how long, how many quarters, So, just the sort of broader view on the McDonald's partnership implications for your P&L.
Sara Harkavy Senatore: We didn't hear care 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 bit a few questions.
Sara Harkavy Senatore: One is if you could just clarify what what impact if any you are including them from that partnership either top line or as I think about G&A I think you've invested ahead of that.
Sara Harkavy Senatore: How does that partnership rolling out.
Sara Harkavy Senatore: How to think about that growth going forward or sort of the big upfront costs behind you.
Sara Harkavy Senatore: Or for how long.
Sara Harkavy Senatore: How many quarters, perhaps should we expect to see sort of outsized G&A growth ahead.
Sara Harkavy Senatore: Ahead of ahead of revenue growth, so just the sort of broader.
Sara Harkavy Senatore: Broader view on the Mcdonald's partnership implications for your P&L.
Jeremiah Ashukian: Yeah, I'll take that, Sara. 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 costs is that we are, as you mentioned, in the investment phase now and are incurring startup costs in 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.
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: I understand. OK, thank you.
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.
Speaker Change: Understood. Okay. Thank you and then just a follow up question on that is I know some of the concerns or are some of the questions around mcdonalds have to do with startup overlap with your existing distribution.
Sara Harkavy Senatore: 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 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? I know in the past, I think you said that didn'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 here.
Sara Harkavy Senatore: Points of access and can you maybe afraid something areas and talk about what if anything you saw during your cast with respect to cannibalization I know in the past I think you said that that doesn't seem to be really an issue because you're sort of underpenetrated, but anything that that you saw him Macau.
Sara Harkavy Senatore: And your existing <unk>.
Sara Harkavy Senatore: In Kentucky, and what happened when you.
Sara Harkavy Senatore: 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 percent, and so what you see in the kind of charts we presented this morning reflects that, which will be a mix of higher incrementality in brand-new markets but obviously a little bit lower incrementality in existing markets.
Sara Harkavy Senatore: Yeah, I mean, we've done a bit of work around the incrementally of this and we believe we expect to see strong incrementals <unk> of around 85% and so what you're seeing in kind of the chart. 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.
Speaker Change: We'll go next to John <unk> co at J P. Morgan.
John William Ivankoe: We'll go next to Jon Ivankoe at J.P. Morgan.
John William Ivankoe: Hi, thank you. I have a few questions, if I may. You know, first of all, as you begin, you know, to kind of have, you know, plans for overall, you know, relatively national penetration, are you beginning to have conversations with taking, you know, various major, you know, grocery and other types of national accounts on a national basis? In other words, as you begin to, you know, have the capacity to go into McDonald's, do you expect it to have a number of, you know, Other national types, you know, both larger and smaller format retailers?
John William Ivankoe: Hi, Thank you two questions if I may 1st.
John William Ivankoe: You know as you begin to kind of have plans for overall relatively national penetration.
John William Ivankoe: Are you beginning to have conversation with taking various major.
John William Ivankoe: 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.
John William Ivankoe: To have a number of different simultaneous agreements with other national type.
John William Ivankoe: You know, both larger and smaller format retailers.
Speaker Change: Good morning, John Yeah, Brian 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 both existing customers that we are underpenetrated in and indeed.
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. And I think that, you know, the conversations that we've had with them since the announcement 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 nationwide.
Joshua Charlesworth: The 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: 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, you know, 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.
Joshua Charlesworth: Christy cream to Minneapolis for example, that I would 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 so yeah. The data that we shared today and our goal of 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, you know, as you guys, you know, 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 at your current employer and also previous employers, you know, but how big of a prize do you think the U.S. Krispy Kreme market really is? 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 materially bigger than donut sales? How are you defining the overall TAM at this point?
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 treat treat treat market I mean, you obviously have a lot of interesting insights. Both at your you know your current employer and also previous employers you have talked.
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 kind of in the out years, but is surprise something materially bigger than donut sales how are you defining deals.
John William Ivankoe: For all Tam at this point.
John William Ivankoe: Well I think today, we brought.
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 by 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 say we believe we can get about 30,000 points of access in the long run.
Joshua Charlesworth: Really good insight on the incremental revenue, we expect out 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: Inside on the Kyocera 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 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 is 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 low teams in grocery stores today. And so, you know, there's plenty of upside for us because, you know, we are the best donut 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 aren't able to bring such an exciting brand and product to the consumer.
John William Ivankoe: understood. And I apologize if I missed that. It was slightly delayed getting on. Did you address, you know, kind of the current test and experience with Rider, you know, handling your last mile distribution? I think it's in D.C. and L.A., you know, kind of positives and negatives, you know, and, you know, and I guess at this point, you know, what would keep you from perhaps making that an overall, you know, systemwide decision?
Speaker Change: Understood and I apologize if I missed that it was 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, what would keep you 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 doughnuts were being maintained, which is the primary focus of the test right now to make sure that those Krispy Kreme doughnuts 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.
Joshua Charlesworth: <unk> just start with the crispy cream has the right team in D. C myself, writing the routes from what I can see was the service level and the.
Joshua Charlesworth: The quality of the Donuts has been maintained which is the primary focus of the test right now I'll make sure that.
Joshua Charlesworth: Those krispy Kreme doughnuts show up in the way, we would expect and the partnership with Verizon has been great. So far.
Joshua Charlesworth: 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 doughnuts 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.
Joshua Charlesworth: Really we know therefore, we need to move into more analyst analysis and understanding of what this could look like in terms of our economics.
Joshua Charlesworth: And how it could support the rollout.
Joshua Charlesworth: Looking to add another city.
Joshua Charlesworth: To the test.
Joshua Charlesworth: And indeed, we're also talking to other providers.
Joshua Charlesworth: Providers, it's really important that the donuts.
Joshua Charlesworth: Livery show up as it was krispy kreme their dedicated trucks, the drivers were and crispy cream uniforms.
Aisling Ronan Grueninger: We'll move next to Aisling Grueninger at Piper Sandler. Hi, good morning guys.
Aisling Ronan Grueninger: We'll move next to Aisling Grueninger at Piper Sandler. Hi! Uh, good morning, guys.
Joshua Charlesworth: That's a great question. Good morning.
Joshua Charlesworth: You know, we continue to work on the opportunity to modernize the making and indeed the moving of donuts 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 donut 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 donuts off the line automatically.
Joshua Charlesworth: Of the business that we are applying this to largely our non consumer facing donut factories, we have a line fully automated line running our Bronx facility for example in New York.
Joshua Charlesworth: Where we are topping filling and even picking the donut software line automatically but at this stage. That's still that's ongoing we are actually also finding ways to modernize production lines by.
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: Proving yield and reducing waste by digitizing the lines.
Joshua Charlesworth: Deterring.
Joshua Charlesworth: Those variables in that way as well. So it is an opportunity. We definitely think that this is an area that can help us scale and help us be more efficient.
Joshua Charlesworth: With the acceleration of points of access growth.
Joshua Charlesworth: We also need to support capacity expansion, particularly across the U S. So we're being thoughtful how we bring in 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.
Joshua Charlesworth: Our next question comes from Bill Chappell at <unk> Securities.
Bill Chappell: Our next question comes from Bill Chappell at Truist Securities.
Bill Chappell: Thanks, Good morning.
Bill Chappell: Hey, good morning Beth.
Bill 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.
Joshua Charlesworth: I think we've seen kind of slowing volumes throughout all of packaged food over the past few months, and just anything more you can talk about that, and if you think there are any other things that are impacting that.
Bill Chappell: 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 with I think we've seen kind of slowing volumes throughout all of packaged food over the past few months and just anything more you can talk about that and if you think there are any other things that.
Joshua Charlesworth:
Joshua Charlesworth: Impacting that.
Joshua Charlesworth: Actually.
Joshua Charlesworth: 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 donut. And so, you know, although we're mindful of the consumer environment, particularly on the international side, the brand is really healthy. Lots of consumer engagement. I think it's because of the unique role that Krispy Kreme plays as an occasional sweet treat for special occasions and celebrations.
Bill Chappell: Although we're mindful of the consumer environment, we actually see the brand being really healthy with people looking at the crispy cream as an affordable suite tree for those special celebratory occasions, we mentioned earlier Valentine's and being the biggest sales day in history of the.
Joshua Charlesworth: Company earlier this month even.
Joshua Charlesworth: In April we saw tremendous engagement with our titles southern earthquake.
Joshua Charlesworth: And so.
Joshua Charlesworth: Although we are mindful of the consumer environment, particularly on the international side.
Joshua Charlesworth: Brand is really healthy plenty of consumer engagement.
Joshua Charlesworth: I think it's because of the unique role.
Joshua Charlesworth: That krispy Kreme place is an occasional sweet treat for special occasions and celebrations.
Bill Chappell: So, I'm sorry; if you're not seeing any softness, I may have missed that comment.
Speaker Change: So I'm, sorry, so you're not seeing any softness.
Bill Chappell: I may have missed that comment sorry.
Joshua Charlesworth: 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.
Speaker Change: No I think the fact that we would have talked about it would've been in January just due to weather.
Joshua Charlesworth: In the United States on an SLA broader kind of consumer.
Bill Chappell: Okay, and then just to the McDonald's, you know, 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?
Joshua Charlesworth: Okay, and then just to that Mcdonald's I guess.
Bill Chappell: 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, do you say youre going to I think 12000 out of 13000 doors.
Bill Chappell: Is there and you're obviously spending a lot of money behind it is there any way.
Bill Chappell: Wei 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.
Bill Chappell: That changes that or is it full ahead, everybody is fully committed to going to that 12000 through 2026.
Joshua Charlesworth: McDonald's has been a great partner so far, and we've really enjoyed the collaboration. The agreement lasts one year after the last rollout in 2026 and, of course, can be renewed after that. So we've already announced our shared partnership with McDonald's, and 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
Bill Chappell: Mcdonald's has been a great partner, so far and we've really enjoyed the collaboration.
Joshua Charlesworth: The agreement last one year after the last rollout in 2026 and of course can be renewed after that.
Joshua Charlesworth: So.
Joshua Charlesworth: We've already announced all shake.
Joshua Charlesworth: Our partnership with Mcdonald's.
Joshua Charlesworth: It is about rolling out through to the end of 2026 and the <unk>.
Joshua Charlesworth: <unk> is more than 12000 restaurants and that is the phased rollout plan that we're working on with with Mcdonald's. We don't expect it to start till the tail end of the year.
Joshua Charlesworth: We don't expect it to start until the tail end of the year, but it's really thoughtful. 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 it's really thoughtful.
Joshua Charlesworth: Well, obviously naturally prioritized places where are 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 them very thorough test demonstrated that consumer demand outstripped, both theirs and our.
Joshua Charlesworth: Patients.
Bill Chappell: Got it. And then I'll squeeze one more in on the, and this is kind of a follow-up from the earlier one on the incrementality. Just trying to 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 I'll squeeze one more in on the this is kind of a follow up from an earlier one on the Incrementals.
Bill Chappell: Trying to understand I understand how it interacts with your stores, but.
Bill Chappell: Now it does when there is a dunkin' store next pie or convenience store that sells doughnuts or stuff like that just trying to understand.
Bill Chappell: How it expands the overall donut market in the same way and kind of what's 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.
Bill Chappell: Well, we know that we create buzz in demand when we come to a new market you've seen that again and again when it comes to existing market. So obviously you had a prolonged period of time with the Kentucky tests to see the impact of the Incrementals, but also bear in mind, we have many.
Joshua Charlesworth: When it comes to existing markets, obviously, we had a prolonged period of time with the Kentucky test to see the impact of that incrementality. But also bear in mind, 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.
Joshua Charlesworth: Parts of the country, where we already have good availability taken Atlanta take areas that the Carolinas places, where they may even be in a town more of the others.
Joshua Charlesworth: more of the other donut shots you're referencing, but they're not really donut shots. They're generally beverage focused, sandwich focused. We are the ones who offer a unique, awesome, fresh donut experience. Mini's for Mum this week.
Joshua Charlesworth: Donut shop for your reference, but they don't really done much of the Germany beverage focused sandwich focused we are the ones who offer a unique awesome fresh donuts experience. Many among this week.
Joshua Charlesworth: 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 that there are, the incrementality that Jeremiah shared today were based on very thoughtful analysis. Great. Thanks for the color.
Joshua Charlesworth: Constantly bringing excitement and headlines to the category so.
Joshua Charlesworth: That doesn't surprise us, but yes, we've done the analysis and the numbers.
Joshua Charlesworth: And the incremental 80 that Jeremy modest yet today.
Joshua Charlesworth: It was based off a very thoughtful analysis.
Joshua Charlesworth: Thanks for the color.
Joshua Charlesworth: Okay.
Joshua Charlesworth: We will take our next question from Andrew Wolf at C. L. King.
Andrew Paul Wolf: We'll take our next question from Andrew Wolf at CL King.
Andrew Paul Wolf: Thank you I just had a couple of follow ups first on mcdonalds.
Andrew Paul Wolf: Thank you. I just had a couple follow-ups. First, on McDonald's.
Andrew Paul Wolf: Do you expect the rollout just in terms of stores, where it's rolled into.
Joshua Charlesworth: [inaudible] Expect the rollout, you know, just in terms of stores, you know, where it's rolled into over time to be kind of linear. 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 2020.
Joshua Charlesworth: Over time kind of linear.
Joshua Charlesworth: Or is there an exponential build.
Joshua Charlesworth: It's already been a front end loaded build I would think more exponential, but just sort of the timing.
Joshua Charlesworth: Between now and 2026.
Joshua Charlesworth: I 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, you know, our development pipeline means it's going to take a little while to launch. And, you know, 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: I would describe it is balanced it's balanced around where we have.
Joshua Charlesworth: Availability today.
Joshua Charlesworth: Just around where we can bring on new capacity quickly and then of course, there are parts of the country.
Joshua Charlesworth: Sure.
Joshua Charlesworth: Our development pipeline means it's going to take a little while to launch and.
Joshua Charlesworth: Donald's conversation has been fantastic as we share with them our development plans and they've taken through with us how they want to run it and so it'll be a balanced and thoughtful over the period from the tail end of this year up to the end of 2026.
Andrew Paul Wolf: Thank you. And, you know, in the McDonald's-franchisee relationship, um... You know, I mean, what is your role? Is it more training, or is it kind of getting them excited about it?
Speaker Change: Thank you Anne.
Andrew Paul Wolf: To the Mcdonalds franchisee relationship.
Andrew Paul Wolf: I mean, what is your role is it more training or is it.
Andrew Paul Wolf: And getting them excited about it.
Joshua Charlesworth: And I'm sure McDonald's is kind of collaborating with them and how you can 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.
Andrew Paul Wolf: And I'm sure at Mcdonald's is kind of you're collaborating with them and how you can interact with the franchisees, but what is gonna be crispy creams.
Joshua Charlesworth: [noise] interaction with the franchisees to help them to help make them 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. So really, we're really focused on strengthening operations right now, and we have talked a lot about modernizing and improving how we make and move donuts, and 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 employees excel.
Joshua Charlesworth: Our focus is awesome Donuts every time every day deliver top.
Joshua Charlesworth: Tom.
Joshua Charlesworth: As agreed with the customer.
Joshua Charlesworth: Perfect service level, so really what we're really focused on strengthening operations right now talked a lot about modernizing and improving how we make them move donuts.
Joshua Charlesworth: I think all our customers expect that whether it's a Mcdonald's franchisee.
Joshua Charlesworth: Walmart Kroger.
Joshua Charlesworth: Indeed, our international partners with that's our primary focus.
Joshua Charlesworth: Well, Christy Creamers Excel I mean, 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 will take that guide and provide any insights.
Joshua Charlesworth: I mean, obviously, it's up to McDonald's themselves to manage their own relationships. But we trust them. We've got a great relationship with them, and we'll take their guide and provide any insights to them. Do remember, it's a very simple operation activity; we bring in fresh doughnuts 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 doughnuts.
Joshua Charlesworth: To them, but do you remember, it's a very simple operating operations.
Joshua Charlesworth: Uh huh.
Joshua Charlesworth: Activity, which is.
Joshua Charlesworth: We are bringing fresh donuts or would you may be.
Joshua Charlesworth: <unk> taken from the try put in the bag or even a six count box hand, it over to the customer so it should be a relatively easy activity.
Joshua Charlesworth: Mcdonald's crew and the franchisees so the real focus is just great donuts.
Speaker Change: Fair enough and if I could just ask one follow up.
Andrew Paul Wolf: 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, you know, big increase in digital sales and penetration in the U.S. and the sustainability of that?
Andrew Paul Wolf: Distracted away from the call for a minute. So you might have talked about this but could you elaborate on that.
Andrew Paul Wolf: Big increase in the digital sales and penetration in the U S.
Andrew Paul Wolf: And the sustainability of that.
Joshua Charlesworth: Well, customers are 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 driver
Speaker Change: Well the customer is looking as we've said before for us to provide a more convenient way to access basically creating the number one reason why somebody still gives us.
Joshua Charlesworth: They may not purchase because the cream is just not convenient to them and so it's been great both through our own that I'm.
Joshua Charlesworth: And partnering with third parties to.
Joshua Charlesworth: To grow the digital channel and it is becoming a significant challenge.
Joshua Charlesworth: Big growth driver, Indeed, I mean until in terms of go forward, we actually just relaunched.
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: Our loyalty program and we're seeing tremendous response that tremendous engagement there.
Joshua Charlesworth: Energizing both existing loyalty members are nuanced so.
Joshua Charlesworth: Actually expect.
Joshua Charlesworth: To drive future sales growth with that loyalty programs and digital is here to stay and the modern well for sure and Krispy Kreme I really we really leveraging that.
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.
Speaker Change: We'll take our next question from Daniel Good Lemmo at capital one Securities.
Daniel Edward Guglielmo: We'll take our next question from Daniel Guglielmo at Capital One Security.
Daniel Edward Guglielmo: Hello, everyone. Thank you for taking my questions.
Daniel Edward Guglielmo: Hello, everyone. Thank you for taking my question. The international segment has continued to perform well, and now Japan and Canada are in there. I just want to dig into the point of access mix.
Daniel Edward Guglielmo: International segment has continued to confirm well and now on Japan, and Canada and there I just wanted to dig into the point of access mix.
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.
Daniel Edward Guglielmo: 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 dropped into 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.
Joshua Charlesworth: Out of breath shop.
Joshua Charlesworth: Yeah.
Daniel Edward Guglielmo: 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. So, you know, 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 higher rate of fresh shots international reflects a number of local conditions, including local labor costs the size of the big Metro cities.
Joshua Charlesworth: Great, thank you. I appreciate the detail.
Joshua Charlesworth: One of the great things about the Chris between model as you can adapt to the different environment, Yes, we have a number of fresh shops in the U S.
Joshua Charlesworth: In some of the big cities they make sense.
Joshua Charlesworth: But with the vast opportunity deliver fresh daily.
Joshua Charlesworth: These are great National partners.
Joshua Charlesworth: We're focusing our attention on the U S. On what is a very capital efficient model leveraging the excess capacity of the production hubs through these off premise DFT doors, which.
Joshua Charlesworth: Remember typically costing $193000 to set up its one of the.
Joshua Charlesworth: More premium cabinets.
Joshua Charlesworth: So.
Speaker Change: It's such a good job.
Joshua Charlesworth: Capital return, we built the excess capacity in the U S. That's our focus rather than the thresholds.
Speaker Change: Great. Thank you I appreciate the detail and then just one more on on Mcdonalds.
Daniel Edward Guglielmo: 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 Cream is
Daniel Edward Guglielmo: 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 up or if it's kind of a new playbook.
Daniel Edward Guglielmo: Putting together that's about that.
Joshua Charlesworth: One thing I've learned about Krispy Kreme 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 partnership with Sweet Treats. So I think, certainly from our point of view, it feels pioneering, but it's a great question. Good, thank you.
Daniel Edward Guglielmo: But one thing Ive learned about Krispy kreme as everyday as anything is so much opportunity here and I think Mcdonald's came to us thinking about doing something different things like different with that.
Joshua Charlesworth: Breakfast approaching something different in the partner with sweet treat so I think certainly from our point of view so it feels pioneering but it's a great question.
Speaker Change: Great. Thank you.
Joshua Charlesworth: And as a reminder, if you would like to ask a question. Please press star one well pause just a moment.
Joshua Charlesworth: And as a reminder, if you would like to ask a question, please press star one. 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 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: 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.
Joshua Charlesworth: The interesting Christy trained today and of course, thank you to all our crispy cream is your ongoing commitment to bring joy to our customers through Krispy Kreme and have a good day take care.
Audra: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Audra: Yeah.
Audra: Yeah.
Audra:
Audra:
Audra: Okay.
Audra: Yeah.
Audra:
Audra: