Krispy Kreme, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the 13-week quarter and 39 weeks ended October 2, 2022, compared with the periods ended October 3, 2021. Krispy Kreme operates through Company shops, Delivered Fresh Daily (DFD), ecommerce and delivery, branded sweet treats, and franchise operations. Its three segments are U.S. and Canada, International, and Market Development.
Financial performance
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Revenue | $377.5m | $342.8m | $1,125.3m | $1,013.8m |
| Operating income/(loss) | $(1.0)m | $1.8m | $23.8m | $24.6m |
| Net loss | $(11.8)m | $(3.8)m | $(7.8)m | $(19.1)m |
| Net loss attributable to Krispy Kreme, Inc. | $(13.1)m | $(5.7)m | $(12.9)m | $(25.9)m |
| Adjusted EBITDA | $38.5m | $41.4m | $134.8m | $140.2m |
| Adjusted net income | $5.9m | $12.6m | $36.6m | $50.7m |
| Diluted loss per share | $(0.08) | $(0.04) | $(0.08) | $(0.20) |
Revenue and margins. Revenue rose 10.1% in Q3 and 11.0% year to date; organic revenue growth was 12.0% and 11.9%, respectively. Q3 product and distribution costs increased to 27.2% of revenue from 26.9%, while operating expenses rose to 47.0% from 45.9%. Operating margin was (0.3)% versus 0.5% in Q3 and 2.1% versus 2.4% year to date. Adjusted EBITDA declined 6.9% in Q3 and 3.9% year to date.
Cash flow and liquidity. Operating cash flow was $70.7m for the first 39 weeks, down from $98.8m; investing cash outflow was $87.7m, and financing cash inflow was $14.2m. Cash and cash equivalents were $28.1m at October 2, down from $38.6m at January 2. Current assets were $174.5m and current liabilities $509.0m. Management believes cash and debt facilities will fund operating and capital needs for at least 12 months, while noting that actual requirements may vary.
Debt. Principal outstanding under the 2019 Facility was $750.5m: $595.0m term loan and $155.5m revolving borrowings. The reported total long-term debt balance, including financing obligations and net of debt issuance costs, was $778.7m. The facility’s net leverage ratio was 3.67:1, up from 2.99:1 at fiscal year-end; the company reported compliance with covenants and expected to remain compliant over the next 12 months. Interest-rate swaps covered $505.0m of facility debt.
Changes versus prior comparable periods
- Revenue growth was supported by new access points, DFD expansion, ecommerce, pricing, and acquisitions; a stronger U.S. dollar reduced reported product sales by $11.5m in Q3 and $24.6m year to date.
- Q3 net loss widened to $11.8m from $3.8m, and adjusted EBITDA fell to $38.5m from $41.4m, despite higher revenue. Management cited labor, commodity and logistics inflation, promotional activity, and weaker U.K. consumer traffic.
- Year-to-date net loss narrowed to $7.8m from $19.1m, partly reflecting lower related-party interest expense and other period-specific differences; adjusted EBITDA nevertheless declined.
- Cash from operations fell by $28.1m year to date, with working-capital changes—particularly inventory and other asset increases—contributing to the decline.
Outlook, commentary, risks and unusual items
- Management expects DFD expansion, higher sales per Hub, ecommerce, innovation, and selective pricing to support growth. It described 50,000 Global Points of Access as a strategic goal, not a quantified near-term forecast. No specific financial guidance was provided in the supplied filing text.
- Global Points of Access reached 11,703, including 9,794 DFD Doors. Q3 added a net 294 access points; U.S. and Canada DFD average revenue per door per week increased 3.1% year over year.
- Management cited inflation, supply-chain disruption, labor costs, and consumer-demand pressure, particularly in the U.K. It expects further impairment and lease-termination costs from U.S. shop exits; the quarter included $5.7m of shop-closure expenses in the segment reconciliation.
- Other notable items included $4.3m year-to-date gains on sale-leaseback transactions, a Q3 U.S. franchisee acquisition of seven shops for approximately $19.4m total consideration, and a $0.2m payment resolving a shareholder derivative matter after quarter-end.
- A new exclusive distribution agreement with BakeMark is expected to expand across U.S. regions by March 2023. The filing warns that disruption at this increasingly important supplier could impair supply, production, and financial results.
- Foreign-currency translation reduced year-to-date revenue; the filing estimates that a 10% exchange-rate movement across specified currencies would change year-to-date revenue by approximately $32.3m. Commodity and unhedged interest-rate exposure also remain relevant.
Key facts investors should verify
- Whether pricing and DFD/ecommerce growth can offset inflation and consumer traffic weakness without further margin erosion.
- Cash generation, working-capital trends, structured-payable usage, and debt growth relative to covenant headroom.
- Execution and returns from Hub-and-Spoke expansion and U.S. shop portfolio optimization, including expected 2023–2024 margin benefits.
- Exposure to U.K. trading conditions, foreign exchange, commodity costs, and reliance on BakeMark distribution.
- The timing and magnitude of additional shop-closure charges and other adjustments underlying non-GAAP results.