Krispy Kreme, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended January 1, 2023 (52 weeks), compared with the 52 weeks ended January 2, 2022. This is an annual filing; it does not provide a standalone fourth-quarter income statement. Krispy Kreme operates doughnut and cookie shops, Delivered Fresh Daily (DFD) retail outlets, ecommerce and delivery, packaged sweet treats, and franchise businesses.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue | $1,529.9 million | $1,384.4 million | +10.5%; organic growth +12.1% |
| Operating income | $29.0 million | $41.1 million | −29.5% |
| Operating margin | 1.9% | 3.0% | −1.1 percentage points |
| Net loss | $8.8 million | $14.8 million | Loss narrowed |
| Net loss attributable to Krispy Kreme, Inc. | $15.6 million | $24.5 million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $190.7 million | $187.9 million | +1.5% |
| Adjusted net income (non-GAAP) | $57.0 million | $66.7 million | −14.6% |
| Net cash provided by operating activities | $139.8 million | $141.2 million | −$1.4 million |
| Capital expenditures | $111.7 million | $119.5 million | −$7.8 million |
Product and distribution costs rose to 26.6% of revenue from 25.6%, reflecting commodity and logistics inflation and promotional activity. Operating expenses rose to 46.0% of revenue from 45.5%, including labor inflation and weaker performance at U.S. hubs without spokes. SG&A declined to 14.6% of revenue from 16.1%, partly because IPO-related advisory costs decreased.
Revenue by segment was $1,033.1 million for U.S. and Canada (+11.3%), $365.9 million for International (+9.9%), and $130.9 million for Market Development (+6.4%). Organic revenue growth was 9.1%, 17.7%, and 19.3%, respectively. Currency translation reduced reported growth, particularly in International.
Liquidity, debt and capital
- Cash and cash equivalents were $35.4 million at year-end, versus $38.6 million a year earlier. Current liabilities were $516.5 million and current assets were $178.3 million.
- Outstanding principal under the 2019 credit facility was $748.8 million: $586.3 million term loan and $162.5 million revolver borrowings. Available revolving capacity was $137.5 million. The facility matures June 13, 2024; management said it expected to refinance before maturity.
- Reported long-term debt, including financing obligations and net of debt issuance costs, was $779.1 million, of which $40.0 million was current. Net leverage under the credit agreement was 3.41x, up from 2.99x; the company reported covenant compliance.
- Future minimum operating and finance lease payments totaled $680.8 million and $47.1 million, respectively. Ingredient and other forward purchase commitments were $118.5 million.
- Operating cash flow was broadly stable. Investing outflow was $121.5 million; financing outflow was $16.8 million. The company paid quarterly dividends of $0.035 per share and said it expected to continue dividends, subject to Board discretion and restrictions.
Material changes, outlook and commentary
- The company added a net 1,410 Global Points of Access to reach 11,837, including 1,273 additional DFD doors. U.S. and Canada average revenue per DFD door per week increased 9.9%; trailing four-quarter Sales per Hub rose 15.0% to $4.6 million domestically and 7.7% to $9.8 million internationally.
- Despite revenue growth, adjusted EBITDA increased only 1.5%. U.S. and Canada segment Adjusted EBITDA rose 10.1% to $118.5 million, while International fell 7.3% to $75.5 million, with margin down about 390 basis points to 20.6%. Management cited labor and commodity inflation, foreign exchange, and challenging U.K. consumer conditions.
- Management cited pricing increases and reduced discounting late in the year as margin-supportive actions. It also exited additional lower-margin U.S. shops and continued portfolio optimization, including efforts to add spokes to hubs and improve operating efficiency.
- Management expects fiscal 2023 capital expenditures of $105 million to $115 million, with investment focused on Hub-and-Spoke growth, DFD, shops, and new markets. It also intends to reduce leverage and continue shareholder dividends. The filing provides no specific fiscal 2023 revenue or earnings guidance.
- Ecommerce represented 18.0% of doughnut and cookie shop sales, excluding DFD, versus 17.2% in FY2021. A McDonald’s test launched in Louisville in October 2022; in February 2023, McDonald’s announced an expanded test covering about 160 locations.
Risks, contingencies and unusual items
- Key exposures include discretionary consumer demand, inflation and commodity prices, labor availability and costs, foreign exchange, supply-chain concentration, food safety, cybersecurity, and reliance on retail partners and franchisees. The Branded Sweet Treat Line has been dilutive to Adjusted EBITDA margins, and management gave no assurance it will become accretive.
- The credit facility relies on variable-rate debt, partly hedged: $505.0 million of $748.8 million was hedged at year-end. The filing estimates a 100-basis-point change in one-month LIBOR would change annual interest expense by about $2.4 million on the unhedged balance.
- FY2022 included $19.5 million of shop closure expenses in the Adjusted EBITDA reconciliation, $7.1 million of restructuring and severance costs, and a $3.3 million settlement with TSW. The company also recorded impairment and lease termination costs; sale-leaseback gains partially offset other expenses.
- A shareholder derivative matter was resolved with a $0.2 million company payment. The filing states the company was not party to any material legal proceedings at year-end; it describes other ordinary-course matters whose outcomes are uncertain.
- The independent auditor issued unqualified opinions on the financial statements and internal controls and reported no critical audit matters.
Important facts for investors to verify
- Whether DFD expansion and rising Sales per Hub translate into durable operating-margin and cash-flow improvement.
- Whether pricing can offset inflation without further weakening transactions or consumer traffic, especially in the U.K.
- Progress on the 2024 debt refinancing, leverage reduction, and compliance with credit covenants.
- Actual fiscal 2023 capital spending versus the $105 million–$115 million outlook, and the returns on that investment.
- Performance and margin trajectory of the Branded Sweet Treat Line, and the results of the McDonald’s and other retail-channel tests.
- Cash conversion and working-capital effects, including the company’s use of extended supplier payment terms and its Supply Chain Financing Program.