Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Krispy Kreme Inc (DNUT, Financial) reported a strong organic revenue growth of 7.8% in the second quarter, driven by innovative specialty donut collections.
- The company is expanding its global presence, with plans to open in Morocco, and has already expanded into Spain, aiming for 33,000 points of access by 2026.
- The US segment saw an 8.4% organic revenue growth, with a significant increase in points of access and average revenue per door.
- Digital sales grew by 22%, supported by the relaunch of the US loyalty program, which now has 15 million members.
- The partnership with McDonald's is progressing well, with plans to expand to over 1,000 restaurants by the end of 2024, enhancing distribution and brand presence.
Negative Points
- The UK market underperformed, with a decline in adjusted EBITDA by 12.3%, impacting overall international performance.
- The sale of Insomnia Cookies resulted in a reduction of expected net revenue and adjusted EBITDA for the full year.
- Increased promotional activity and start-up costs for the McDonald's launch affected US margins, despite overall growth.
- The regulatory environment in the UK has posed challenges, impacting display placements and overall market performance.
- The company faces ongoing challenges in managing costs and ensuring smooth rollouts in new partnerships and expansions.
Q & A Highlights
Q: Can you provide an update on the McDonald's rollout and the associated costs?
A: (Joshua Charlesworth, CEO) The McDonald's partnership is progressing well, with the rollout on track. We will begin listing beyond the Kentucky pilot in Chicago this fall, expanding through the Midwest by year-end. We expect to be in over 1,000 McDonald's restaurants by the end of 2024. (Jeremiah Ashukian, CFO) We are investing ahead of the rollout with dedicated teams and upgrading production lines. These costs are included in our guidance, and we expect margin expansion as we ramp up the network.
Q: How does the nationwide rollout with Walmart and Target impact your Hub and Spoke infrastructure?
A: (Joshua Charlesworth, CEO) The McDonald's expansion acts as a catalyst for our DFD business, allowing us to expand faster. We are in discussions with Walmart and Target to increase our presence as our hubs become available in more markets. While convenience stores remain important, our focus is on large national partners that the McDonald's program unlocks.
Q: Can you discuss the challenges in the UK market and your strategy to address them?
A: (Joshua Charlesworth, CEO) The UK market has been challenging, but we are seeing growth, albeit slower than other markets. We are focusing on creating local buzz with specialty donuts and expanding into convenience stores. We are also upgrading our core donut range and managing costs to improve profitability.
Q: Will the US expansion require additional hiring, and how is the labor environment?
A: (Joshua Charlesworth, CEO) We will need to hire additional drivers, but most of the expansion will be serviced by existing production hubs. The labor environment has eased, and we have been successful in recruiting talent. Our focus is on training and optimizing delivery routes to support the expansion.
Q: Why was Chicago chosen as the next city for the McDonald's rollout?
A: (Joshua Charlesworth, CEO) Chicago was chosen due to existing capacity with three hubs and excess production capability. It aligns with McDonald's preferences and allows us to start with strong momentum. We are investing in key markets to support future expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
