Krispy Kreme, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 2, 2022 (52 weeks), compared with the 53-week fiscal year ended January 3, 2021. The filing was signed March 11, 2022. Krispy Kreme operates doughnut shops, Insomnia Cookies, Delivered Fresh Daily (DFD), ecommerce and packaged sweet treats in more than 30 countries.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $1,384.4 million | $1,122.0 million |
| Organic revenue growth | 12.5% | 1.2% |
| Operating income | $41.1 million (3.0% margin) | $4.3 million (0.4% margin) |
| Net loss | $14.8 million | $60.9 million |
| Net loss attributable to Krispy Kreme, Inc. | $24.5 million; $0.18 per share | $64.3 million; $0.52 per share |
| Adjusted EBITDA | $187.9 million | $145.4 million |
| Operating cash flow | $141.2 million | $28.7 million |
- Revenue rose 23.4%; reported growth includes acquired shops and is affected by the prior year’s extra week. Organic growth was 12.5% after the company’s stated adjustments.
- Product and distribution costs fell to 25.6% of revenue from 27.7%, while operating expenses increased to 45.5% from 43.5%. Adjusted EBITDA margin was approximately 13.6%, versus 13.0%.
- Segment Adjusted EBITDA: U.S. and Canada $107.6 million, International $81.4 million, Market Development $40.8 million; corporate costs were $41.9 million. International margin was 24.5%, up 510 basis points year over year; U.S. and Canada margin was 11.6%, essentially flat.
- Cash and cash equivalents were $38.6 million. The company reported $696.3 million of principal outstanding under its 2019 Facility and $225.0 million of available revolving capacity; net leverage under the facility covenant was 2.99x, versus 3.98x a year earlier. It reported compliance with covenants.
- Future minimum lease payments were $722.6 million for operating leases and $39.9 million for finance leases. Current assets were $156.9 million and current liabilities $526.2 million at year-end.
- Operating cash flow improved by $112.5 million, including an approximately $40.5 million improvement in working-capital management. Vendor payment terms can extend to 360 days under the Supply Chain Financing Program.
Material changes and significant events
- The company added 2,111 net global points of access, reaching 10,427, including 8,583 DFD doors. DFD expansion and higher average revenue per door supported growth; U.S. and Canada DFD average revenue per door per week increased more than 55% in the fourth quarter year over year.
- International and U.S. and Canada Sales per Hub increased to $9.1 million and $4.0 million, respectively, from $6.4 million and $3.5 million. International revenue grew 44.7%; U.S. and Canada revenue grew 18.6%, including acquired shops.
- During the year, the company acquired 17 U.S. franchise shops and a 60% interest in ten Canadian franchise shops. Acquisitions contributed to reported revenue growth and increased company-operated costs.
- The July 2021 IPO raised $514.9 million in total net proceeds. Proceeds were used in part to repay the $500 million Term Loan Facility and related-party notes; the company also repurchased shares and paid shareholder distributions.
- Net loss improved, but the company remained loss-making. Reported operating income included an $8.7 million sale-leaseback gain; other income also included $3.5 million of COVID-related business-interruption insurance proceeds. IPO-related expenses were $14.5 million.
Outlook, risks and contingencies
- Management targeted at least 10% annual growth in global points of access, primarily through DFD, and plans to enter at least three new countries per year. Its longer-term stated goal is more than 50,000 points of access. It expected at least three new country openings in 2022.
- For fiscal 2022, management expected capital expenditures of $115 million to $120 million, continued investment in DFD, shops and market expansion, debt reduction, and quarterly cash dividends. The filing does not provide a clear quantified revenue or earnings forecast.
- Management said the Branded Sweet Treat Line had been unprofitable to date. The strategy depends on successfully expanding DFD and ecommerce, improving Hub utilization and managing execution costs.
- Key exposures include commodity and labor inflation, ongoing pandemic-related disruption, franchisee performance, competition, foreign exchange, and dependence on suppliers—including a sole supplier for glaze flavoring and glaze base and a single cookie-dough supplier. The company reported price increases in the second half of 2021 to address cost pressures.
- Legal matters include TSW Foods arbitration, for which the company could not estimate a potential loss, and a shareholder derivative action involving JAB and the board, with outcome and potential loss also not estimable. Insomnia Cookies separately reached an agreement in principle to settle a wage-related class action for $0.4 million, subject to final documentation and court approval.
- JAB beneficially owned approximately 45% of the common stock as of March 4, 2022. The company disclosed related governance and shareholder concentration risks. The auditor issued an unqualified opinion and reported no critical audit matters; an internal-control attestation was not included under the transition rules for newly public companies.
Most important facts for investors to verify
- Whether DFD door growth and higher sales per door translate into sustainable margins and cash generation, especially as the legacy wholesale business is exited.
- How much reported growth and profitability depend on acquisitions, the prior-year comparison period, and adjustments underlying non-GAAP measures.
- Cash conversion and the extent to which extended vendor payment terms and structured payables support reported liquidity.
- Debt repayment capacity, covenant headroom, interest-rate exposure, and the burden of lease commitments.
- Whether the Branded Sweet Treat Line can become profitable, and whether labor and commodity cost pressures can be offset without weakening demand.
- Developments in the TSW arbitration and shareholder litigation, and any changes in JAB ownership or related governance risks.