Krispy Kreme, Inc.

Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme fourth quarter and full year 2022 earnings call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 once again. Thank you, and I will now turn the conference over to Rob Ballou, Vice President of Investor Relations. You may begin.

Thank you. Good morning, everyone, and welcome to Krispy Kreme's fourth quarter and full year 2022 earnings call. Thank you for joining us today. Our earnings release and accompanying earnings presentation deck are available on the Investor Relations portion of our website at investors.krispykreme.com. Joining me on the call this morning is Mike Tattersfield, President and Chief Executive Officer, Josh Charlesworth, Global President and Chief Operating Officer, and Jeremiah Ashuki, Chief Financial Officer. After prepared remarks, there will be a question and answer session. Before we begin, I'd like to remind you that this call contains four looking statements made pursuant to the Safe Harbor Provision for the Private Securities and Litigation Reform Act of 1995, including statements of expectations, future events, and future financial performance. Forward-looking statements involve a number of inherent risks and uncertainties, and we caution investors that these risks could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's Form 10-K filed at the SEC on March 11, 2022. Forward-looking statements made today speak only as of today. The company assumes no obligation to update or revise any forward-looking statements, except as may be required by law. Additionally, Today's call will include certain non-GAAP financial measures. Reconciliation between non-GAAP financial measures and their closest comparable GAAP measures can be found in the company's fourth quarter 2022 earnings release in Form 8K filed today. And our Form 10K, which will be filed with the SEC later this month, will also be made available on our website, investors.crispycream.com. With that, I'll now turn the call over to Mike.

Good morning, and thank you, everyone, for joining us today. We are pleased to share our fourth quarter and full year 2022 results as organic growth accelerated from the third quarter driven by our continued successful execution of our omni-channel strategy and strong performance of our premium offerings for celebration events and holidays. I want to start today's call by thanking our Crispy Creamers, our team members, for driving another strong quarter and year of revenue growth. In 2022, we had positive organic growth in every country around the world, despite a turbulent macro environment and double-digit organic growth in all three segments in the fourth quarter. Thank you. Without your efforts and dedication, this would not be possible. Since 1937, we've been serving our iconic Original Blade Donut to customers, and it's always been about sharing moments among friends, family, and community. As an affordable indulgence today, we love the fact that more than 80% of our donuts are bought to be shared with others, including as gifts. In 2022, 36% of our customers bought our donuts for a party or special event in their life, up from just 10% a few years ago. The purpose of our company is to touch and enhance the lives of others through the joy that is Krispy Kreme. We are committed to positively impacting the world by loving our people, our communities, and our planet. In the fourth quarter, we wrapped up another great year for fundraising and in total raised more than $40 million globally in 2022 for local communities, a roughly 25% increase from 2021. Fundraising has long been an integral part of Krispy Kreme's purpose as part of our efforts to give back and support local communities and issues while generating brand love. We also focus on reducing waste and increasing landfill diversion efforts and continue to engage and give back to local communities across the world through volunteering, philanthropy, and creating moments of joy through innovative donuts. We are constantly looking to engage people across the globe in fun, enjoyable ways that really connect people to Krispy Kreme in a powerful way. Turning to 2022, we had a great year on the top line as organic revenue grew over 12%, led by a 14% increase in fresh points of access globally to nearly 12,000 in total at the end of the year. Growth was strong across the world, especially to end the year as we saw double-digit organic revenue growth in all three segments in the fourth quarter with performance accelerated in the U.S. Krispy Kreme business, market development, and retail in the U.K. We sold a record 1.63 billion donuts in 2022. 1.63 billion. That's a lot of donuts. All delivered fresh daily to more than 30 countries around the world. The fourth quarter accentuated a great year for our brand as we had highly successful seasonal global campaigns that drove an increase in volume, especially at Halloween and winter holidays, where we saw very strong performance across the world. These global campaigns show the path forward for significant events and holidays, as we'll be able to leverage marketing costs, media coverage, and brand partners across many or all of the countries Krispy Kreme and our franchise partners operate. driving increased efficiency on both the top and bottom line. For the full year, we earned more than 35 billion media impressions, highlighting the true power of our incredible brain. Also strengthening our omni-channel capabilities in the fourth quarter was our e-commerce efforts. In the U.S., that included expanding availability of specialty donuts and more targeted marketing efforts. Additionally, Insomnium, benefited from the expanded radius of warm cookie delivery of up to 10 miles. These efforts led to more than a 20% increase in e-commerce revenue in the fourth quarter compared to a year ago and led to a 260 basis point increase in sales mix of e-commerce to 18.3% for the company as a whole during the quarter. The fourth quarter was our strongest in e-commerce since the pandemic, and we continue to see significant opportunity grow in this channel. Our performance in the fourth quarter in the U.S. and Canada segment was strong, led by successful premium offerings, effective pricing actions, and higher e-commerce revenue. This quarter in the U.S., for the first time ever, we sold all three seasonal specialty donuts in our DSE doors. This led to record weekly sales in the U.S. of $620 per DSE door. highlighting the benefits of a complete omni-channel model approach. Organic revenue growth for the segment was 12%, and margins expanded 50 basis points to our highest margins during 2022. Insomnia Cookies had another great quarter with 24% revenue growth driven by strong same-shop sales and very high productivity from the 2022 class of new shops. Insomnia's AUVs increased to $850,000, up 8% from the previous year, and we opened more than 20 cookie shops last year. The capital efficiency of an Insomnia cookie shop is fantastic. As Seth, Insomnia's founder and 20-year CEO, highlighted our recent investor day, the payback for these new stores is roughly one year, or around 100% ROIC, thanks to full wall margins approaching 30%. The recent class of new stores has been one of our best return classes ever. We are focused on accelerating Insomnia's growth as we grow from our current 231 shops today to a total addressable market, we believe, of more than 4,000 locations, with the goal to eventually ramp up to nearly 100 new cookie shops per year. We truly believe Insomnia Cookies will be the next Krispy Kreme, and we plan to expand globally this year into the UK and Canada. In our international setting, where our hub and spoke model is more developed, we continue to grow fresh points of access and see significant upside from where we are today. In 2022, we added nearly 600 points of access internationally, with growth across all countries. This led to 18% organic revenue growth in 2022, and sales per hub increased 8% to nearly 10 million, despite significant FX wins from the stronger dollars. We saw strong progress in Mexico, in particular in 2022, where points of access increased by nearly 40% to more than 550. This led to a 24% increase in revenue and more than 100 basis points of adjusted EBITDA margin expansion for Mexico for the year, despite significant inflation. We also signed a record number of international development agreements in 2022, with eight new agreements from both existing and new partners. Interest from high-quality franchise partners remains robust, and we are confident in our ability to sign three to five new countries a year moving forward. We expect to open five to seven new countries in 2023, including in France, bringing our total to more than 35 countries by the end of this year. As we look ahead, our relentless focus on capital-light expansion of our omnichannel model will continue. We continue to gain confidence in our existing DFD channels and are now excited in growing our fresh business to new channels such as QSR, Club, and Drug. That's why we have high conviction in our ability to grow to more than 75,000 points of access globally, an increase from our prior target of 50,000. In addition to expanding DFD, we will also continue our work to align our specialty donors across all channels and expanding our e-commerce capabilities in 2023. And we'll continue to accelerate the growth of Insomnia Cookies. Krispy Kreme has great momentum right now as we enter 2023, and we remain confident in our long-term 2026 expectations we highlighted just a couple months ago at our Investor Day in December. Before turning the call over to Joss, I'd like to welcome Jeremiah Shukian as our new global CFO. who started last month. Jeremiah not only brings with him more than 20 years of financial leadership, including 12 years as CFO, but also global and significant brand and CPG experience, all skills critical to our successful going forward. His appointment allows Josh to fully embrace his role as global president and COO, driving performance in our larger equity markets around the world and operating excellence throughout the company.

With that,

To close out his final quarter as CFO, I'll hand the call over to my friend, Mr. Charlesworth, to talk about the fourth quarter financials and expand more on what we're seeing in the U.S. operation. On a personal note, Josh has been a tremendous partner for me and the Krispy Kremers over the past six years, and we're clearly a much stronger business because of his leadership, not just as an individual, but also just to focus on how to drive the business forward with financial acumen. And it's because of that we're able to attract a great partner like Jeremiah, and I look both as Jeremiah continues and starts his new role, and Josh really takes on the president role and thinks about the operations execution on that, which will really strengthen Krispy Kreme as we go forward. Josh?

Thanks, Mike, and a warm welcome to Jeremiah as well. I'm just thrilled to have him on board and look forward to his leadership of our terrific finance teams around the Krispy Kreme world. I'm confident that Jeremiah will help us drive strong performance and create shareholder value for years to come. As Mike said, we saw strong growth across all of our reporting segments in the fourth quarter, with net revenue up 9% year-on-year to $405 million. Organic revenue, which excludes the impact of acquisitions and changes in foreign currency, grew 12.5%, an acceleration from the summer trends driven by pricing, our premium seasonal innovation, the growth of delivered fresh-dating donuts sold in grocery and convenience stores, and e-commerce. Adjusted EBITDA grew 17% in the fourth quarter to $56 million, or 25% in constant currency, once the $4 million impact of the stronger dollar is taken into account. Similarly, our 2022 adjusted EBITDA was up 7% in constant currency with the full year impact of the stronger dollar at $10 million. Pricing, hard and spoke efficiencies, and G&A explain the 90 basis points year-over-year increase in adjusted EBITDA margins to 13.8% in the fourth quarter. We saw low levels of elasticity from the pricing actions we took in the second half of 2022, with consumers domestically and globally remaining enthusiastic about premium specialty donuts for their sharing occasions and celebratory events. We saw a small gap net loss of $1 million in the fourth quarter. However, net income would have increased over the prior year if not for one-time, overwhelmingly non-cash expenses of $12.4 million related to our previously announced optimization of our poor-performing hubs without spokes in the US. We do not expect significant expense moving forward related to these efforts. Adjusted net income for the quarter increased 27% to $20.4 million, and adjusted diluted EPS in the fourth quarter was $0.11, an increase of 38% or 63% in constant currency. In the U.S. and Canada business segment, total revenue increased 11% in the fourth quarter to $277 million, and organic revenue growth was 12%. An increase on our third quarter performance with strong growth in fresh donut sales both on and off premises, explaining a 15% increase in trading 12-month sales per hop to $4.6 million. We also saw another great quarter from Insomnia Cookies, which continues to benefit from growth in its e-commerce delivery channel. Adjusted EBITDA for the U.S. and Canada in the fourth quarter increased 16% to $37 million, with margins increasing 50 basis points year-over-year to 13.3%. This reflects the successful pricing taken in the second half of the year, the efficiency benefits to our hubs with spokes from the growth in delivered fresh daily off-premises sales, and improved performance in hubs without spokes. These factors more than offset over 20% ingredient cost inflation and high single-digit salary and wage growth. 2022 has been a record year for our Deliver Fresh Daily channel. It now accounts for 21% of sales, up from 17% in 2021. This reflects both a 10% increase in doors served to 5,700 and a 10% increase in average weekly sales per door to $580 in the U.S. for 2022, reflecting both successful pricing and the addition of specialty donuts previously only seen in our donut shops. In the fourth quarter, we added another 21 doors, mostly in New York and L.A. As we see every year, this number is lower than the other quarters due to the preference of our trading partners to limit changes to their floor space during the busy holiday period. We have already seen a return to the prior growth rate so far this quarter, including the recent addition of target supercenters, and continue to see a huge opportunity to increase doors across the country, both from existing and new customers, as well as growing the average sales per door. DFD door sales continue to benefit from the addition of more specialty donuts, like the crowd-pleasing Biscoff range and Valentine's donuts we've sold recently in the U.S. We're also rolling out more fresh cabinet displays in grocery stores, which typically lead to a 30% to 70% increase in DFD sales per door, for less than a $10,000 investment. Also in the U.S., we've been making significant progress in the optimization of our shop network, During the fourth quarter, we closed an additional six low-performing shops, bringing our total number of closures in 2022 to 14. We expect to close seven more in 2023, largely in the first half of the year. As a reminder, these are mostly low-revenue hubs without spokes with flat or negative EBITDA margins. We're also converting some hubs without spokes, previously considered unsuitable for DFD, to serve DFD doors in new ways, such as closing the lobbies and using it to stage donuts ahead of the late-night shipments. Others were converting the other way, into fresh shops. As a result, we ended the year with 137 hubs with spokes, an increase of 8 from the prior quarter, and 99 hubs without spokes, down 20 from the prior quarter. Now moving to our international segment. Net revenue grew 3.3% in the fourth quarter to $93 million, with FX headwinds creating an 8% drag during the quarter, due to the stronger US dollar. Organic revenue increased 11%, led by the double-digit growth in Mexico and Australia, driven largely by DFD. International sales per hub increased 8%, to $9.8 million, despite the FX headwinds. International adjusted EBITDA for the fourth quarter declined slightly to $20.5 million, but would have increased by nearly $3 million in constant currencies. Driving that improvement from the last two quarters were successful pricing actions and seasonal specialty donuts in the UK, as well as hub-and-spoke efficiencies associated with the strong growth performance in Mexico. The UK saw adjusted EBITDA margin back over 20% in the fourth quarter, a best performance since the first quarter in 2022. And Mexico saw its best ever margin performance approaching 30% in the fourth quarter. Now to our third business segment, market development. which is made up of our franchisee businesses around the world and the equity-owned Japan market. Total revenues in the fourth quarter increased 11% to $35 million, even with a 13% impact from FX headwinds and franchise acquisitions. In fact, organic growth in the quarter was a very strong 23%, with great performances in our international franchise markets and in equity-owned Japan, which saw constant currency revenue growth of 40% as we accelerate our DFD expansion there. Adjusted EBITDA on the fourth quarter for market development increased 11% to $12.3 million, despite a roughly $1 million negative impact from FX headwinds. Adjusted EBITDA margins increased 20 basis points to 35.4% in the fourth quarter compared to the prior year and would have been higher if not for a mixed shift due to a very strong organic revenue growth in equity-owned Japan. As a reminder, moving forward, Canada is moving out of the U.S. segment and into the market development segment for 2023. better reflect the significant opportunity ahead of it and to match with changes in our reporting structure. Our fourth quarter earnings presentation on our IR website has 2022 historical performance for Canada by quarter and for the full year to assist with modelling. I'll now turn the call over to Jeremiah to share his priorities as our new CFO, give more detail on the balance sheet and discuss our 2023 outlook.

Jeremiah. Thanks, Josh, and good morning, everyone. I'm very excited to be here at Krispy Kreme with such a beloved friend and a great team across the globe. I look forward to getting to know the team and developing a deeper understanding of the business over the next few months. As I take the reins as CFO, my focus will be on ensuring we are increasing shareholder value by delivering consistent top and bottom line results, improving performance throughout the business, and driving higher return on invested capital. Our balance sheet is strong, and the business generated $32 million of free cash flow in Q4, leading to 15% cash conversion in 2022. Our existing debt obligations go current this June. As such, we expect to refinance our existing term loan A and revolver debt at similar terms to our current facilities this year. It's worth noting our interest rate hedge that fixed approximately 70% of our outstanding debt will remain in place through June 2024, even after refinancing. We expect to continue to decrease our net debt leverage ratio over time, as well as reduce our dependency on supply chain financing. This is a priority this year, as those rates have increased more than our term loan A and revolver. As such, we plan to reduce our supply chain financing a bit faster, while paying down our term loan a bit slower than previously planned in 2023. We expect to reduce our supply chain financing by $50 million to $75 million this year. and be around 3.5 times net leverage by year-end 2023, remaining on track to be between 2.0 and 2.5 times net leverage in 2026. This morning, we introduced more detailed 2023 guidance in line with our December Investor Day outlook. This includes growth of 9% to 11% in organic revenue and 8% to 10% in net revenue. Net revenue growth is modestly lower than our organic growth due to foreign exchange and the closure of approximately 20 lower-performing shops in the U.S. that Josh discussed. In 2023, we expect $205 million to $215 million in adjusted EBITDA, which equates to 8% to 13% growth. We expect to deliver between $0.31 to $0.34 adjusted EPS, which represents 7% to 17% growth or an increase of 10% to 21% in constant currencies. Our adjusted EPS guidance includes expected net interest expense for the year between $39 million and $43 million, which is an increase of $5 million to $9 million. We expect capital expenditures of $105 million to $115 million, or roughly 6.6% of revenue, down from just over 7% in 2022. We expect to open 30 to 40 new Insomnia cookie shops and approximately 10 company-built hubs in 2023. Our 2023 guidance includes modest headwinds from foreign exchange for the year based on current exchange rates, a roughly negative 1% impact on revenue growth, and approximately $3 million hit to adjusted EBITDA. Each 1% move in the U.S. dollar index is a little over a million-dollar impact on adjusted EBITDA on an annualized basis, as roughly half of our pre-corporate expense adjusted EBITDA is outside the U.S. From a cost of goods sold perspective, we are more than 90% covered on our major commodities such as sugar, wheat, and edible oils for 2023 at an average increase in the high single digits. These commodities make up roughly half of our spend. On our remaining spend, we have contracted pricing in place and expect low double-digit inflation. Both of these are lower than we experienced in 2022. Inflation on our largest expense, labor, is expected to remain elevated in the mid to high single digits as we continue to invest in our Krispy Kremers across the globe. We expect pricing will generally offset inflation for the full year. While we don't provide quarterly guidance, I did want to provide some color to assist with our cadence for modeling bottom line performance in 2023, given we expect somewhat similar quarterly organic revenue growth throughout the year. First, we expect FX ed wins to continue in the first and second quarter as the dollar laps tough comps. However, we expect modest FX tailwinds in the back half of 2023. Second, we expect lower discounting in the U.S. segment during the summer months compared to last year as we cycle the beat-the-pump promotion and focus on premium specialty donuts. Third, commodity costs will be the highest of the year in the current quarter, increasing roughly 15% higher compared to Q1 2022. However, we expect money inflation to soften as the year progresses. To close, I'm very excited about the long-term growth potential of Krispy Kreme. We have good momentum in the business, as you heard from Josh in our Q4 results, and have high degree of confidence that we can meet or even exceed our long-term outlook in 2026 that we provided at our investor day. Operator, we can open the call up to Q&A now, please.

Thank you. And at this time, I would like to remind everyone, in order to ask a question, press star and then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. We will take our first question from David Palmer with Evercore ISI. Your line is open.

Thank you. I wanted just to ask you if you wouldn't mind going through some of the gives and takes with regard to the EBITDA margin this year, which I guess would be roughly flat as per your guidance. And what are some of the offsets to what would seem to be good guys in the SPOKE expansion as well as some of the optimization of the store base domestically? What are some of the headwinds that are maybe offsetting that? And then the other thing I wanted to ask you about is that test with McDonald's. When will you know that? Like, what's the timeline for that testing, and what stage are you at with that? Thank you.

Hi, David. This is Josh.

So, yeah, I'll start with the guidance question and answer that for McDonald's. The first thing to say is, is our guidance for 2023 is consistent with the long-term outlook that we shared at our investor day in December. And you're right, it does reflect the discipline rollout of hub and spoke around the world, maximizing the utilization of our hubs in the US in particular and driving sales per hub. You asked specifically around the margin puts and takes. Well, the biggest driver is indeed US and Canada margins reflecting the flow-through benefits of that hub-and-spoke model, these off-premise sales, which create efficiency down at the bottom line in our hubs in the US. That is the biggest driver. There's a partial offset from FX, about 20 or so basis points from FX. And then the rest of the world, we're assuming, is largely flat. during 2023 from a margin point of view. But all the segments around the world will be expected to be growing pretty balanced at a sort of double-digit organic growth rate. So, you know, it's a balanced guidance that we think reflects the long-term trends that we see and indeed some of the recent success of actions like pricing and premium celebratory specialty donut promotions.

Hey, David. How are you doing?

It's Mike. In terms of McDonald's, we'll let you know when we're ready to discuss that. I think what we're really able to talk about right now is we disclosed in December 75,000 points of access, which is being driven by the QSR, the drug, and the club business. What we learned in the test is that we can actually manage the operations rigor, the logistics rigor of how do you manage a QSI, our customer, from the time demand, the quality demand, and the execution, and how it works seamlessly with our DFT route system. That's what's pretty critical for us to get that understanding and how our brand also works with another brand as well. So those are the pieces of why we continue to come back and say, looks like we very clearly have a growth story about where we can go from a channel perspective and then how to manage that along the way. I'll keep you up to date when we're ready.

Thank you.

And we will take our next question from Sarah Senatore with Bank of America. Your line is open.

Great. Thank you. A couple of questions, if I may, please. The first is just about, you know, you talk about beat the pump, you're lapping that. My understanding was that it, you know, initially actually was a pretty good driver, a top line driver, and then maybe, you know, the impact was diminished over time. So maybe it was too long. But I'm wondering if there's still room for these kinds of like price point promotions to drive trial or, you know, is your observation that you can do that as effectively as with higher margins, with premium donuts and those kinds of initiatives, just as you think about getting more people trying the product. So that's my first question, and then I'll have a quick follow-up.

Sure thing. Good morning. Yes, I mean, we see the Krispy Kreme Original Glazed in particular as an affordable sweet treat, both for personal consumption but more usually shared and even given to others. Absolutely, though, we also have used it as a way of promoting and introducing and encouraging people to try the brand or come in more often. And last year, you're right, Beat the Pump resonated really well with consumers. They were really excited about it and came again and again in some cases. What we learned from that is that we still believe in selective promotion, price promotion. We recently did, for example, $20.23 for January the 1st for two dozen donuts. We did a Friday the 13th offer as well just in January. Both had great positive impact, well received. So we'll continue to do that selectively, whilst at the same time also driving innovation, marketing activation, and excitement around our premium products. specialty donuts. We just did that in January with the Biscoff range and Valentine's premium donuts and specialty Hershey range just over the last few days were really popular as well. So we will apply a dual strategy going forward and I'm sure you'll be able to look out for good deals at times during 2023 as well.

Oh, great. Thank you very much. And then just a quick Quick other question was on, you talked about capacity and the opportunity to both leverage existing hubs because I think in the US at least the volumes are a lot lower than what you've done in Europe. So there's potential there and then adding hubs. But I think in at least one case you have a partner where you kind of do a single drop and then they distribute. And I was wondering if you, as you're thinking about finding some very big partners in the US and QSR with a lot of sort of local doors, Is that something that you would contemplate here, or you're still committed to controlling all the distribution in this market?

Thank you. Our philosophy is to control the quality and make sure that the donuts are fresh, always well-managed through the pipeline to the consumer, and indeed, any unsold are replaced with fresh ones the next day. So that's our priority. That has meant that you can also partner with the customer as long as they maintain that freshness quality mindset and do things like you mentioned. I think you're referring to we have an arrangement in Australia with our customer there where they all come and pick them up and distribute them through there. And that's certainly something that we will continue to explore as an option where it makes sense. As long as they have the distribution capabilities themselves, then that's something we'll consider. However, we love the DeliverFresh daily model we have. It breeds efficiency when you can add more drops and get density of routes. to the optimum, and that's how you maximize the profitability. And so, you know, we can work with both ways as long as the great Krispy Kreme is always forefront.

Yeah, I mean, Sarah, I'd only add one thing on it. Just as you think about the logistics and that expertise and understanding how to drop at each customer is one of those kind of core, really interesting pieces. And Josh did talk about something, which is the capacity to think about what the customer wants. and then ensure that that logistics approach to that, because we're still doing the logistics to that, right? Regardless of what you need to do, so you have to have that expertise across it. And that's something that we've evolved to over the past six plus years, right? How do we continue to do that, you know, in our model?

Thank you. Very helpful.

And as a reminder, it is star one if you would like to ask a question. And we will take our next question from John Ivanco with JP Morgan. Your line is open.

Hi, great. I was hoping to get a sense of some of the legacy DFT accounts. I mean, some of the ones that have been in place, you know, one in two years. How are they growing from a volume perspective? Are they growing? growing from a margin perspective, and on a given level of sales, are you finding them to be much more profitable as you understand things like drop sizes on different days of the week or sendbacks or whatever the case may be, even what the particular store might bear in terms of the ASP? Just to get kind of a sense if we can talk about it like this, kind of a same-store revenue and same-store profitability of your DFD accounts that have been around the longest.

Hi, John. I'll take that. And I assume you're referring to the U.S., so I'll take the answer there. Yeah, we're very pleased with the transformation, you're right, over the last couple of years to a fresh daily model out to both grocery and convenience customers across the country. And you're right, as we initially implemented those 5,700 or so doors, that we now have, we definitely saw significant rises in the sales as they got bedded in, as consumers noticed them, and we perfected the merchandising. And that's actually continuing as we go forward right now. We have new customers, which I mentioned earlier, but the existing customers which you're asking about, we continue to be able to add more distribution with them. Customers like Walmart or Kroger obviously have Kroger has different banners and different opportunities to distribute across the country. A lot of the door ads that we expect to have are with existing customers in that way. And then in terms of the doors themselves, by adding more and more of our specialty donuts into the portfolio, and as we've mentioned, upgrading to cabinets and other improved merchandising units, we do indeed expect to see higher sales per door going forward, just as we did in 2022. I think on the call, I mentioned that we saw the sales per door average increase about 10%. And we think that the sales per door growth will be a contributor to our overall growth in the US of the DFD channel, which again, we expect to be the biggest driver of growth in 2023 going forward. So yeah, a healthy store base, minimal optimization or rationalization of the doors and continuous growth. Double digit, low double digit growth we expect in 2023 in the U.S. of new DFT doors.

And of the DFT doors that do particularly well versus the ones that might be significantly lagging, what are the real differences that you're kind of seeing? Are there any patterns that you're now seeing in terms of what determines a good door versus... a slower door as we really think about this footprint going forward?

Well, from a door point of view, it's naturally the traffic of customers that are coming to that real estate. And we have worked with the customers to make sure that we go into ones that command the number of footfall that would make all this make sense. And they've got used to that. We're not in every one of our customers' stores. and have periodically moved around the units, both between stores, but even more significantly within stores. There are certain parts of the store that are better. Obviously, the higher traffic elements of the store, you want to be as near as either to the entrance or the checkout as you can. But that doesn't mean that it can't work in the bakery aisle or the milk section either. And we really work with our customers to optimize this. We've seen it work in big layout stores, like a Walmart, or I mentioned at the call, a Super Target. We see it working not just in the big box stores, but different grocery stores, convenience stores, now increasingly drug stores. We've been rolling out with Duane Reade Walgreens. So we're seeing different execution have a place. And C-stores and even gas stations, we've been able to add. One of the things that really makes it work for us is to make sure the route profitability is right. So we focus on the number of stops per route, the location of the stores on a route, make sure we're optimizing that. And these are all the areas that we're getting better at over time to make sure we don't just get the top line, but we get the bottom line flow through and efficiencies that the model commands.

Thank you.

And we will take our next question from Brian Harbor with Morgan Stanley. Your line is open.

Yeah, thanks. Good morning, guys. Maybe just first, is there anything more you could say about kind of your pricing plans, especially given that you're kind of seeing more inflation in the first half? Do you intend to take any more pricing in the current quarter, for example, or how are you thinking about that?

Hi, Brian.

Yeah, and I'm assuming your question's around the U.S., but a lot of this holds for around the world in that pricing, we have learned, is successful as long, of course, as we offer a great product, and we've been very focused on that. In the U.S., we took pricing actions a little late last year. We mentioned that before in July and October on retail, and then November on DFD, and we caught that up. It was lagging a little bit. And we've learned from that for 2023. We've definitely been very disciplined about identifying inflation, as Jeremiah mentioned. We've got a good line of sight to inflation for 2023, even better than we had in 2022. And as a result, we already took another small pricing increase in January on retail, low single digit. And we actually entered the year and low double digits effective pricing. And we will adapt to the inflation numbers and have a price strategy going forward that adapts to them in both retail and EFT. And as Jeremiah said, we've got a reasonable, pretty good view that the inflation will be higher at the beginning of the year than at the end of the year. And so it will be natural that our pricing strategy

Okay, thanks. And then just in the international segment, could you help us think maybe a little bit about kind of the pace of growth there? Is it fairly even through the year? When will we see kind of some of the new market openings take effect? And then also, I know that in 23, the points of access growth was more weighted to the first half relative to the second half. Is that what you expect in 23 as well?

So from a country perspective, Brian, this is Mike. You know, we anticipate opening up anywhere between five of the seven countries, right? Those will be paced throughout the year fairly evenly. What I'm pretty pleased about that is that you'll see, you know, last year we were getting into the Middle East and even the African continent. This year we'll be opening up in South America, Central America, the Caribbean as well. right, and then including Europe, you know, as well as probably on the back end of the year. So we see that type of pacing. From a point of access, it ends up being fairly consistent where you see the points of access being driven quarter by quarter. With the back end of the year, fairly similar, right, as grocers or the doors tend to kind of look at their rationalization around holiday times. I don't see any of that being anything different.

Thank you.

And as a reminder, it is star one if you would like to ask a question. And we will take our next question from Bill Chappell with Truist Securities. Your line is open.

Hey, good morning. This is Steven Langell for Bill Chappell. Thank you for taking our question. Can you provide us with a call?

Hey guys, how's it going? Can you provide us more color on how much of the solid growth in 4Q was driven by the seasonal demand and kind of how we started to see some normalization in January and February to date as consumers kind of cut back on indulgences post-holiday or has momentum kind of carried over into these months? Thank you.

So again, yeah, so I'll answer the first one, just the consumer as we think about it, right? So our Business model, again, is dozens, gifting, sharing. It's not a high-frequency model. And we even talked about people continue to buy our brand and a dozen to give to someone else. The affordable indulgent piece is a clear driver, which really helps out of our consumer space about being resilient. And then Josh even talked a little bit about the premiumization that happens as we start to get into the Halloween or the holiday. And even, for example, when people say January or this, well, we actually introduced a very high premium, very indulgent product in the first part of the year. And it was extremely successful. And we just finished with our, probably one of our highest days of the year from a concept of what we do across the world on Valentine's Day. So again, from that gifting model, a very successful Valentine's Day. So again, this is a gifting kind of business that follows along, and that's where the models really change to be different. So that's points of access allows the biggest opportunity that we have from the customers to get it to where they are. That is their number one challenge that they have for us is they can't get the donuts, right? So here's what it is from, I believe, your second part of the question just related to is anything volume-based?

Well, I think that just as you think about 2023, I mean, we're not assuming any sort of backdrop of economic growth or changes like that. What we're focused on is the point of access expansion that reflects the number one reason again and again why a consumer may not choose to buy or purchase Krispy Kreme is they just can't get it. So that's the number one driver of growth, getting those points of access out to people, making them more convenient, through this Deliver Fresh daily channel. From an activation point of view, we're also, as you mentioned, leveraging not just seasonal but other specially-done opportunities to take that further, to increase frequency, to make sure that we're driving the premium growth. So it's definitely not just about the seasonal celebration events. And in fact, as Mike said, we can find a season in January, February, March, April, every month of the year when somebody's looking for an indulgent sweet treat. And so, you know, I think when you think about Q1, we expect top-line momentum to continue. And certainly the evidence so far would say that there's no sort of change in our consumers' behavior.

Great.

Thank you so much.

There are no further questions at this time. I will now turn the call back to Mr. Mike Tattersfield for additional and closing remarks.

Thank you, everybody, for being on the call. Again, I'd like to thank all the Krispy Kremers who really showed up every day in 2022 and made our brand really live its purpose every single day.

And I look forward to catching you up as we move along the year. Thank you very much. Thank you.

And ladies and gentlemen, this concludes today's conference call and we thank you for your participation. You may now disconnect.