Krispy Kreme, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023 (52 weeks), compared with the 52 weeks ended January 1, 2023. This is an annual filing, not a standalone fourth-quarter report.
Business context
Krispy Kreme operates an omnichannel doughnut and sweet-treat business in 39 countries, combining shops, Delivered Fresh Daily (DFD) retail doors, ecommerce and delivery. Insomnia Cookies is included in the business. The company’s strategy centers on expanding its Hub-and-Spoke network and increasing access to fresh products.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $1,686.1 million | $1,529.9 million | +10.2%; organic growth +12.2% |
| Operating income | $13.1 million | $29.0 million | Down 54.6% |
| Net loss attributable to Krispy Kreme, Inc. | $37.9 million | $15.6 million | Loss widened |
| GAAP diluted loss per share | $0.23 | $0.10 | Loss widened |
| Adjusted EBITDA | $211.6 million | $190.7 million | +11.0% |
| Adjusted net income, diluted | $46.2 million | $49.6 million | Down 6.9% |
| Cash from operations | $45.5 million | $139.8 million | Down $94.3 million |
| Cash and cash equivalents at year-end | $38.2 million | $35.4 million | Up $2.8 million |
- Operating margin fell to 0.8% from 1.9%. Net loss was driven in part by higher interest expense, which rose 47.6% to $50.3 million, and increased depreciation and amortization.
- Product and distribution costs declined to 26.3% of revenue from 26.6%, helped by exiting the lower-margin packaged Branded Sweet Treats business. Operating expenses were 46.1% of revenue versus 46.0%; SG&A rose to 15.8% from 14.6%.
- U.S. segment Adjusted EBITDA rose 16.7% to $131.0 million, with margin expanding 80 basis points to 11.9%. International Adjusted EBITDA increased 1.3% to $76.5 million, while margin declined about 160 basis points to 19.0%. Market Development Adjusted EBITDA rose 24.4% to $63.0 million, with margin expanding 220 basis points to 35.1%.
- Investing cash outflow was $112.6 million, including $121.4 million of property and equipment purchases. Financing cash inflow was $71.9 million, reflecting debt draws used in part to reduce vendor-finance obligations.
- Current assets were $173.6 million and current liabilities were $525.6 million. The filing cites cash, operating cash flow and debt facilities as liquidity sources and says they are expected to cover operating and capital needs for at least 12 months.
Material changes and significant items
- Global Points of Access increased by 2,310 to 14,147, including 11,924 DFD doors. The company added 2,068 DFD doors; U.S. average revenue per DFD door per week rose 10.2%.
- U.S. Sales per Hub increased to $4.9 million from $4.5 million. International Sales per Hub was $10.0 million, compared with $10.1 million.
- The company exited its pre-packaged Branded Sweet Treats business, which had generated about $36 million of FY2022 revenue. It recorded approximately $17.9 million of related non-recurring costs in FY2023.
- Operating cash flow fell substantially as the company reduced outstanding supply-chain-financing balances by approximately $108.2 million to normalize payment terms.
- In March 2023, the company refinanced its former credit facility with a $700 million term loan and a $300 million revolver, extending stated maturity to March 2028.
- The company added shops in seven new countries during FY2023. Ecommerce accounted for 19.3% of Doughnut and Cookie Bakery sales, excluding DFD, versus 18.0% in FY2022.
Debt, liquidity and capital returns
- At year-end, principal outstanding was $837.5 million under the 2023 credit facility and $11.0 million under short-term lines of credit. The balance sheet reported $836.6 million of long-term debt, net of issuance costs and excluding the current portion; total debt and financing obligations were $891.2 million.
- The company had $145.0 million of available revolving-credit capacity. Its reported credit-agreement leverage ratio was 3.48x, against a maximum covenant of less than 5.00x; it reported compliance at year-end.
- Non-cancellable future minimum operating lease payments were $759.2 million and finance lease payments were $63.3 million. Ingredient and other forward-purchase commitments totaled $130.5 million.
- Interest-rate swaps covering $505.0 million of debt were scheduled to mature in June 2024. The filing estimates that a 100-basis-point change in one-month SOFR would change annual interest expense by about $3.4 million on the $343.5 million unhedged balance at year-end.
- The company paid quarterly dividends of $0.035 per share and declared another $0.035 per-share dividend payable in May 2024. Future dividends remain at the Board’s discretion.
Outlook, management commentary and risks
- For FY2024, management expects capital expenditures of 7%–8% of revenue, continued investment in Hub-and-Spoke expansion and new markets, further debt reduction, and continued cash dividends. The filing does not provide specific FY2024 revenue, earnings or margin guidance.
- Management identifies DFD growth, higher sales per Hub, product innovation and international expansion as growth drivers. It aims to exceed 75,000 Global Points of Access over time and states a goal of entering at least three new countries annually.
- The company is exploring strategic alternatives for Insomnia Cookies, including a possible sale; no outcome is assured.
- Key risks include commodity and labor inflation, interest-rate and foreign-currency exposure, consumer demand and transaction softness, dependence on major DFD retail relationships, supply-chain concentration, food safety, cybersecurity and privacy, and execution risks from expansion and franchise operations.
- The filing describes reliance on a single principal U.S. distribution partner for certain regions, a single supplier for Krispy Kreme glaze flavoring and a sole supplier for Insomnia cookie dough. Disruption could affect product availability and costs.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions and reported no critical audit matters. The company disclosed pending Illinois biometric-privacy litigation, accrued an immaterial amount, and does not expect a material adverse financial-statement effect.
Important facts for investors to verify
- Whether DFD expansion and higher sales per Hub translate into sustained GAAP operating-profit and cash-flow improvement, rather than primarily Adjusted EBITDA growth.
- How the company will manage the June 2024 expiration of interest-rate swaps, refinancing costs and leverage while funding planned capital expenditures.
- Whether the sharp decline in operating cash flow is primarily a one-time vendor-finance normalization or signals ongoing working-capital pressure; also monitor structured payables and supplier-finance balances.
- Progress and costs from exiting Branded Sweet Treats, shop optimization and other items excluded from non-GAAP results.
- The status and potential financial and strategic implications of the Insomnia Cookies strategic-alternatives review.
- Execution of FY2024 capital-spending plans, the dividend, debt reduction and new-market growth, alongside the company’s stated liquidity and covenant headroom.