Krispy Kreme business surges with sweet treats
A strong fourth quarter — its first profitable quarter since going public again in July 2021 — sent Krispy Kreme, Inc.’s share price soaring more than 11% on the Nasdaq Global Select Market on Feb. 22, the day earnings were announced.
The donut maker’s share price closed at $14.89 on Feb. 22, up 8.3% from $13.74 on Feb. 18, but down 12.5% from its initial public offering price of $17 per share.
Net income at Krispy Kreme in the fourth quarter ended Jan. 2, 2022, totaled $1.36 million, equal to 1¢ per share on the common stock, which compared with a loss of $25.3 million in the same period a year ago.
Michael J. Tattersfield, chief executive officer, said the quarterly profit reflected the benefits of the company’s omni-channel model and global expansion strategy, as well as timely seasonal offerings.
The strong fourth quarter helped Krispy Kreme narrow its full-year loss from a year ago. Overall, Krispy Kreme sustained a loss of $24.51 million in the year ended Jan. 2, 2022, which compared with a loss of $64.3 million in fiscal 2020 and $37.41 million in fiscal 2019. Adjusted net income, meanwhile, was $55.59 million, up 44% from $38.51 million in fiscal 2020. Adjusted EBITDA was $187.95 million in fiscal 2021, up 29% from $145.43 million in fiscal 2020.
Net revenues increased 24%, climbing to $1.38 billion in fiscal 2021 from $1.12 billion in fiscal 2020.
While the growth of the company’s hub-and-spoke model, international expansion and two pricing increases were credited with helping drive financials, company executives also lauded the performance of the company’s branded sweet treats business.
Although still not profitable on its branded sweet treats business, Krispy Kreme expects to get there by the middle of 2022, approximately two years after launching the products.
Krispy Kreme reached into retail in June 2020 with the rollout of Doughnut Bites and Mini Crullers.
The Krispy Kreme Doughnut Bites are bite-size donut holes in original glazed, chocolate and apple cinnamon flavors, while the Krispy Kreme Mini Crullers feature an enhanced recipe of the company’s cruller donuts available in original glazed and blueberry varieties.
Additionally, Krispy Kreme over the past two years has offered seasonal flavors of the new offerings, including strawberry Doughnut Bites and lemon Mini Crullers.
The products initially were available only at Walmart locations, but distribution has expanded to other grocery and convenience stores. Challenges brought on by the pandemic slowed the product’s growth, but company executives said signs now point to the product turning the corner.
“A launch we made in the pandemic, we definitely had fulfillment challenges,” Joshua Charlesworth, chief financial officer and chief operating officer, said during a Feb. 22 conference call with analysts. “As it expanded, it grew even faster than our supply chain was able to manage in the third quarter, which impacted profitability.
“In the fourth quarter, thanks to great efforts from the team and we put in additional lines, production lines, we're able to significantly improve that. … And that reduced the profit impact that we had suffered in Q3.
“Q4, we're still not profitable on branded sweet treats as it continues to grow. We'll move into profit by the middle of 2022. And we're keeping up with demand now, which is great. Demand … continues to build at record levels with over 15,000 distribution points across the US. So we're pleased with that progress and pleased that we are moving towards what will be a margin — maybe potentially even accretive — business in the long run.”
Another shining star has been Insomnia Cookies, which Krispy Kreme acquired in 2018.
“Revenue for Insomnia for 2021 increased by more than 30% and by nearly 20% excluding new store revenue,” Mr. Tattersfield said during the Feb. 22 conference call. “We continue to see incredible opportunities for the brand as we are well on our way to over 600 locations domestically with plans to grow internationally over time.”
Mr. Charlesworth added that Insomnia Cookies, for the first time, posted adjusted EBITDA margins on par with Krispy Kreme’s US donut business in the fourth quarter.
“We continue to see tremendous potential for this rapidly growing brand,” he said.
Krispy said it expects adjusted EBITDA of $210 million to $218 million in fiscal 2022, with adjusted net income growth of 18% to 22%. Net revenues are forecast between $1.53 billion to $1.56 billion for the full year.