Krispy Kreme: Reports Strong Second Quarter 2021 Results

Winston-Salem / NC. (kkd) Krispy Kreme Doughnuts Inc., since May 2016 indirect controlled member of Luxembourg’s JAB Holding Company, reported financial results for the second quarter ended July 04, 2021 and issued full-year and long-term guidance. The Company reported 43 percent net revenue growth and organic growth of 23 percent, following strong performance across all business segments. On a two-year stack basis, organic revenues grew 16 percent since 2019.

«These results show the ongoing success from the implementation of our growth strategy,» said Mike Tattersfield, CEO of Krispy Kreme. «Our continued delivery of organic revenue growth and Adjusted Ebitda ahead of our expectations demonstrates that our omni-channel approach is working. The second quarter saw great continued momentum in the U.S. and Canada, enhanced by strong ongoing recovery in International. As a result, we are confident in our short and long-term growth targets as we continue to execute on our strategy, providing awesome fresh doughnuts as we become the most loved sweet treat brand in the world.»

(USD in millions, except per share) Q2 2021 % versus 2020 % versus 2019 H1-2021 % versus 2020
Net Revenue USD 349.2 42.6% 49.8% USD 671.0 32.6%
Organic Revenue Growth(1) (2) (4) USD 55.0 22.5% 15.7% USD 76.8 15.2%
GAAP Net Income/(Loss) USD (15.0) (28.3)% (69.6)% USD (15.4) 32.1%
Adjusted Net Income(2) USD 20.5 254.1% 199.1% USD 38.1 125.5%
Adjusted Ebitda(2) USD 52.4 77.8% 64.5% USD 98.8 49.9%
Adjusted Ebitda Margin(2) 15.0% +300bps +130bps 14.7% +170bps
GAAP Diluted EPS USD (0.13) (30.0)% USD (0.16) 15.8%
Adjusted Diluted EPS(2) $0.13 225.0% USD 0.25 108.3%
Global Points of Access(3) 9,575 69.9% 58.5%

  1. Organic revenue growth negatively impacted by USD 27.1 million in Q2 2021 and USD 57.9 million in the first half of 2021 due to exit of the legacy wholesale business.
  2. Non-GAAP figures – please refer to Reconciliation of Non-GAAP Financial Measures.
  3. Does not include legacy DSD doors as it only includes «fresh» points of access.
  4. Organic Revenue Growth «% versus 2019» figures are calculated as a two-year stack.

Second Quarter Consolidated Results

Krispy Kreme’s second quarter results showcased strong, accelerating growth compared to both before and throughout Covid-19. Organic revenue grew 22.5 percent in the quarter, up from a 6.7 percent decline in the second quarter of 2020 and from 3.1 percent growth in the second quarter of 2019. Organic revenue growth was driven by our International segment, which performed stronger than prior to the Covid-19 pandemic, as well as by the ongoing transformation of our U.S. and Canada business into a fully-implemented Hub and Spoke model (each as defined below).

Adjusted Net Income grew 254.1 percent to USD 20.5 million in the quarter. We saw a GAAP net loss of USD 15.0 million, largely driven by initial public offering («IPO») costs, related-party interest expense, and incremental tax expenses associated with the United Kingdom corporate tax rate change and limitation of executive compensation expense deduction as a result of the IPO. Adjusted Ebitda grew 77.8 percent to USD 52.4 million, and Adjusted Ebitda margin of 15.0 percent also increased from 12.0 percent the previous year. GAAP diluted loss per share was USD 0.13 for the second quarter of 2021, with Adjusted Diluted EPS increasing to USD 0.13 from USD 0.04 in the second quarter of 2020.

Key Growth Drivers: Our second quarter in 2021 illustrates the continued and successful execution of our growth algorithm, centered on three key elements that combine to drive growth on both the top and bottom lines:

Increasing frequency through marketing, innovation, and e-commerce. Year to date, our marketing and innovation generated over 16.3 billion media impressions in the U.S. alone, largely driven by the success of our vaccine program and innovative product rollouts. In addition, e-commerce comprised 19 percent of total company shop sales, representing strong progress as we continue to expand our e-commerce platforms.

Increasing availability of our fresh doughnuts through new points of access as we execute on our omni-channel strategy. In the first half of the year alone, we have added 1,300 global points of access, driven by the transition from our legacy wholesale business to Delivered Fresh Daily («DFD»). We continue to focus on adding approximately 800 to 1,000 points of access per year as we execute our omni-channel strategy.

Increasing profitability, largely driven by ongoing recovery in the mature International business and the continued application of the Hub and Spoke model in the U.S. and Canada. In the second quarter, we grew our Adjusted Ebitda margin by 300bps to 15.0 percent, and we are investing in additional labour and delivery routes in order to expand our points of access through DFD and other channels.

Second Quarter Business Update

Executing on our Transformation: Our transformation is driven by the implementation of an omni-channel strategy to reach more consumers where they are and drive revenue growth, and this strategy is supported by a capital-efficient Hub and Spoke distribution model that provides a route to market and powers profitability. Our Hot Light Theatre Shops and Doughnut Factories serve as centralized production facilities («Hubs»). From these Hubs, we deliver doughnuts to our fresh shops and DFD doors («spokes») through an integrated network of company-operated delivery routes, ensuring quality and freshness. Since the end of 2020, we have increased our Spokes per Hub in the U.S. and Canada to 45 from 37, and in International to 71 from 65.

In order to measure the effectiveness of our Hub and Spoke model, we use «Sales per Hub» on a trailing twelve month basis, which includes all revenue generated from a Hub and its associated spokes. In the U.S. and Canada, we reached average Sales per Hub of USD 3.6 million, up from USD 3.5 million in the full year 2020 and up from USD 3.2 million at the beginning of our transformation in 2019. In our International markets, where the Hub and Spoke model is most developed, Sales per Hub at the end of the second quarter was USD 8.0 million, up from USD 6.4 million in the full year 2020 and USD 8.3 million at the end of the second quarter of 2019. As we further extend the Hub and Spoke model into existing and new markets around the world, we expect to see this measure continue to grow.

Growing our Points of Access: We continue to add quality points of access across our network as we convert markets into fully implemented Hub and Spoke models. As of July 4, 2021, we had 9,575 global points of access, with approximately 1,726 Krispy Kreme and Insomnia Cookies branded shops and 7,849 DFD doors. 73 percent of our global system is currently controlled and operated by the Company. We plan to continue adding new locations and expanding our e-commerce and delivery platform in order to extend the availability of our products. For the first time, as of today, 100 percent of our doughnuts in U.S. and Canada are delivered fresh.

Growing the Branded Sweet Treat Line: Our Branded Sweet Treat Line continues to gain momentum as production ramps up, in-store merchandising improves, and store count grows. As a result, Branded Sweet Treats in the second quarter demonstrated strong sequential growth, which we expect to continue in the quarters ahead. Branded Sweet Treat item velocities are strong, leading to the addition of new grocery customers and expansion of shelf-spaces, number of items carried, and increased merchandising opportunities with current customers. In addition, higher volumes create production efficiencies that further our ability to sell into new channels and customers, and this virtuous cycle makes us confident in the line’s continued growth in the quarters ahead.

Continued Strength of Insomnia Cookies: Insomnia Cookies’ digital-first approach continues to drive strong performance, supporting meaningful organic growth. In the quarter, Insomnia Cookies opened its CookieLab flagship shop in Philadelphia, which is an extension of Insomnia Cookies’ R+D lab, designed for sweet treat lovers of all ages to enjoy cookie innovation and customization. As of today, Insomnia Cookies has opened 200 cookie shops, demonstrating the brand’s continued growth across the country.

Second Quarter Market Segment Results

U.S. and Canada: In U.S. and Canada, GAAP net revenue grew to USD 230.9 million from USD 184.3 million the previous year, driven by a combination of franchise acquisitions and organic growth of 3.9 percent. Growth was driven by the expansion of our DFD network, higher DFD sales per door, continued distribution growth of our Branded Sweet Treat Line, including recent expansion to new customers, and the strong performance of Insomnia Cookies. As we continue our transformation and implementation of the Hub and Spoke model, the transition to DFD from our legacy wholesale business continues to drive strong results. Excluding the impact of exiting the legacy wholesale business, U.S. and Canada organic growth was 18.6 percent.

U.S. and Canada Adjusted Ebitda grew to USD 28.3 million from USD 27.6 million the previous year, with the efficiency benefits of the DFD expansion, improving traffic in New York City, and Insomnia Cookies all contributing positively. When compared to the second quarter of 2020, at the height of the pandemic when our lobbies were sometimes closed, labor costs have increased, impacting overall Ebitda growth. As we continue to expand our Hub and Spoke model in more cities, we are also hiring more employees or «Krispy Kremers» than ever before, as we take on newly-acquired shops, add routes and transition to DFD.

International: In International, GAAP net revenue grew to USD 89.2 million from USD 34.4 million the previous year, with organic growth of 125.9 percent. Organic growth in the quarter was driven by restrictions being lifted in the United Kingdom, where Covid-19 had led to a nearly complete closure of the business in the prior year, as well as a strong DFD and e-commerce performance. Australia, New Zealand, Ireland, and Mexico also contributed to organic growth while lapping the second quarter of 2020, which was heavily impacted by Covid-19 disruptions.

International Adjusted Ebitda grew to USD 23.7 million from USD 1.6 million the previous year, driven primarily by strong revenue growth relative to the prior year, when our network was impacted by Covid-19 related closures. Revenue growth significantly outpaced expense growth, leading to higher margins consistent with these more established Hub and Spoke markets. We expect the International segment to continue contributing to strong Ebitda performance as the markets have rebounded well to match or exceed their performance prior to the pandemic.

Market Development: In Market Development, GAAP net revenue grew to USD 29.0 million from USD 26.3 million the previous year, with organic growth of 17.0 percent. GAAP net revenue growth was driven mainly by the acquisition of Krispy Kreme Japan in the fourth quarter of 2020, while organic growth was primarily driven by improved market conditions for international franchise locations as Covid-19 restrictions in certain key markets continued to ease.

Market Development Adjusted Ebitda grew to USD 9.9 million from USD 7.9 million the previous year, driven by improved market conditions around the world.

IPO and Capital Structure

As of August 8, 2021, we have USD 118.7 million of cash, USD 738.7 million of bank debt, and USD 26.0 million of other debt-like items, for a total net debt of USD 646.0 million. The current share count is 167,112,953. With the proceeds of the IPO, our total net leverage ratio (defined below) is 3.6x, in line with our expectations, largely due to the payoff of a USD 500 million term loan facility.

On July 1, 2021, we successfully completed our IPO, in which we issued 29.4 million shares of common stock. Net proceeds of USD 460 million were received after the end of the second quarter and used primarily to pay down debt and reduce leverage. Subsequently, on August 2, 2021, our underwriters exercised their over-allotment option in part and purchased an additional 3.5 million shares, generating additional net proceeds of approximately USD 56 million, bringing total net IPO proceeds to USD 516 million. Because the IPO proceeds were paid after the end of the second quarter of 2021, there was a higher temporary net debt balance at the end of the quarter. However, the USD 345 million of related party notes were eliminated prior to the IPO and the majority of IPO proceeds received were utilized to pay down debt, which puts us in a favourable leverage position to continue our growth journey.

Financial Outlook

Krispy Kreme introduced the following guidance for the full year 2021:

  • Net Revenue of USD 1.34 billion to USD 1.38 billion (growth of 19.4 percent to 23.0 percent)
  • Organic Revenue growth of 10 percent to 12 percent
  • Adjusted Ebitda of USD 178 million to USD 185 million (growth of 22.4 percent to 27.2 percent)
  • Adjusted Net Income of USD 62 million to USD 68 million (growth of 46.4 percent to 60.6 percent)

The Company also introduced the following long-term outlook:

  • Organic Revenue growth of 9 percent to 11 percent
  • Adjusted Ebitda growth of 12 percent to 14 percent
  • Adjusted Net Income growth of 18 percent to 22 percent

We anticipate exceeding these long-term targets in the full year 2022. We expect total net leverage to be under 3.0x in the next 12 months. In accordance with our dividend policy, we expect to pay an initial cash dividend of USD 0.035 per share for the quarter ending October 3, 2021. Thereafter, we expect to maintain a stable quarterly dividend until we reach our long-term net leverage policy of 2.0x.


The following definitions apply to terms used throughout this press release:

  • Global Points of Access: Reflect all locations at which fresh doughnuts or cookies can be purchased. We define global points of access to include all Hot Light Theater Shops, Fresh Shops, DFD doors and Cookie Shops, at both Company-owned and franchise locations as of the end of the respective reporting period. We monitor global points of access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments.
  • Hubs: Reflect locations where fresh doughnuts are produced and processed for sale at any point of access. We define Hubs to include self-sustaining Hot Light Theatre Shops and Doughnut Factories, at both Company-owned and franchise locations as of the end of the respective reporting period.
  • Sales Per Hub: Sales per Hub, also known as Fresh Revenues per Average Hub with Spokes, is calculated as the simple average of the number of Hubs with Spokes at the end of the current period and the number of Hubs with Spokes at the end of the prior year period, adjusted for the pro rata period of acquired Hubs with Spokes outstanding following the acquisition date. Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes during the period.
  • Fresh Revenues from Hubs with Spokes: Fresh revenues include product sales generated from our Doughnut Shop business (including e-commerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded Sweet Treat Line. It also excludes all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business. Fresh Revenues from Hubs with Spokes equals the fresh revenues derived from those Hubs currently producing product for other shops and/or DFD doors, but excluding fresh revenues derived from those Hubs not currently producing product for other shops and/or DFD doors.
  • Total Net Leverage Ratio: Calculated using Net Debt (including both bank debt and financing leases as part of debt) divided by Adjusted Ebitda.