Krispy Kreme, Inc.

Hello, everyone, and thanks for standing by. My name is Ian and I will be your conference operator today. At this time, I'd like to welcome everyone to the Krispy Kreme first quarter 2025 earnings call. I would now like to turn the call over to Alexander Eldridge, Krispy Kreme Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Welcome to Krispy Kreme's first quarter 2025 earnings call. Thank you for joining us today. We will be referencing our earnings press release and presentation during the call. These are available on our investor relations website at investors.crispycream.com. Joining me on the call this morning are President and Chief Executive Officer Josh Charlesworth and Chief Financial Officer Jeremiah Ashokian. After prepared reports, there will be a question and answer session. Before we begin, I would like to remind you that during this call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events, or future financial performance. Forward-looking statements involve a number of risks, assumptions, and uncertainties, and we caution investors that many factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors and other risks and uncertainties are described in detail in the company's Form 10-K filed with the SEC and in other filings we make from time to time with the SEC. Forward-looking statements made today are only as of today. The company assumes no obligation to publicly update or revise any forward-looking statements except as may be required by law. Additionally, we will be referring to non-GAAP financial measures. Please refer to our earnings press release and presentation on our website for additional information regarding these non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Jeremiah will take us through our financial performance in a moment, but first, here's Josh.

Thanks, Dre. Good morning, everyone, and thank you for joining us. We remain dedicated to our strategy of transforming into a bigger and better Krispy Kreme. With global brand awareness far exceeding household penetration, we're focused on Krispy Kreme's biggest growth opportunities to reach our long-term goal of 100,000 points of access, namely profitable U.S. expansion and capital-like international franchise growth. However, in this challenging macro environment, we are prioritizing paying down debt and deleveraging our balance sheet, generating positive cash flow and pursuing only profitable growth based on sustainable revenue streams. With our newly restructured leadership team in place, we are well positioned to take swift and decisive action. I will now review the key actions and progress we are making to drive consumer relevance, expand availability, increase hub and spoke efficiency, improve capital efficiency, and inspire engagement. We are taking action to drive consumer relevance and better leverage the power of our iconic brand to deliver profitable growth. We are spotlighting our most beloved and most affordable original-based donut, our strongest point of differentiation. Our original-based donut appeals to value-conscious consumers due to its lower price point and delivers a higher margin. We are already seeing the benefits from this focus, especially as we innovate with our flavored glazes. At the beginning of April, we sold out of our Fruity Pebbles glaze every day, and more flavored glazes are coming through the year. After testing new original-based marketing campaigns, which drove both higher sales and a positive mix shift, we'll now be launching a new multimedia original-based marketing campaign on June 6th, National Donut Day, reminding consumers of that feeling they get when a fresh donut pops off the line. I said last quarter we would offer fewer days on discount as we improve our discount strategy, which we began in Q1, supporting our cash flow and average transaction value, making us better. Our new approach limits discounts to times we can drive demand and create buzzworthy events. In the first quarter, we did this successfully with our Hershey's Chocomania collection, and just yesterday we offered a free original glazed donut for real ID day, relieving the stress from those long DMV lines. As we expand availability, we're taking important actions to become better. This means profitable growth based upon sustainable revenue streams with strategic scale D of D partners where we can deliver higher sales per door, utilize more efficient routes, and present better displays. In the US, we are now present and growing in multiple D of D channels, each with different characteristics and average sales volumes. At one end of the range are club stores, where we now sell unique larger packs at these high-volume shopping destinations, averaging more than $1,000 in fresh doughnut sales per week. We've already started with Costco and have also just begun a new multi-city pilot with Sam's Club. With our mass and grocery customers, we are adding secondary displays to improve display and visibility, These secondary cabinets offer an additional opportunity to showcase our unique, fresh-donor offering and drive incremental sales. During the quarter, we added nearly 100 cabinets, bringing our total to more than 600 in this DFD channel. We're also aiming to increase sales at Walmart, Target, and Kroger with Krispy Kreme recently made available through their e-commerce channels. At the other end of the range are convenience stores QSR doors, where we deliver mostly unpackaged donuts, and they average about $400 sales per week. Assuming only profitable growth with sustainable revenue streams means that we're also choosing to close inefficient doors. These generally consist of lower volume doors with smaller scale regional grocery and convenience store partners. Turning to McDonald's, six months after the national rollout began, we're now more than 2,400 restaurants, Our two companies have partnered closely together during this time to support execution, marketing, and training, delivering a great consumer experience. We are pleased with many aspects of the program. However, we are seeing that after the initial marketing launch, demand drops below our expectations, requiring intervention. To deliver sustainable, profitable growth, we are partnering with McDonald's to increase sales by stimulating higher demand and cutting costs by simplifying operations. At the same time, we are reassessing our deployment schedule together with McDonald's while we work to achieve a profitable business model for all parties. Given this, we do not expect to launch any additional restaurants in Q2. That said, we continue to believe in the long-term opportunity of profitable growth through our U.S. nationwide expansion, including McDonald's. I'd now like to share that we are increasing hub and spoke efficiency by better managing costs to drive profitable growth. We have already begun outsourcing our fresh donut delivery, and we expect that 15% of the network will have been outsourced by the end of May. Service rates are excellent, costs are now predictable, and we're seeing savings over our in-house delivery model. We expect to launch with a second carrier shortly and sign two additional contracts soon. Our goal is to fully outsource U.S. logistics by the middle of next year. This frees up time for our Krispy Kremers to focus on what they do best, serve our consumers and make fresh donuts, simplifying both our DFD and in-shop business. And our new Chief Operating Officer, Nicola Steele, is off to a great start, prioritizing lower costs and reducing waste by focusing on simplifying operations, reducing complexities, and improving drive-through service. She has already improved labor efficiency in the short time she's been in the role. When it comes to better capital efficiency, we are focused on deploying capital to pay down debt and fund profitable growth. As we grow bigger through our U.S. nationwide expansion, we will add production hubs to serve both in-shop guests with our iconic hot light, signaling fresh donuts, as well as profitable DFD customers. We are actively value engineering our footprint to lower costs as we grow. A great example is our new Minneapolis hub, which is under construction. Rather than building from the ground up, we're retrofitting an existing building in a high traffic trade area, which is delivering a 20% savings in capital and real estate costs. The site already includes critical infrastructure like highway access, loading bays, and a drive-through, making it a smart, efficient choice for us. Internationally, we're advancing our capital-like franchise strategy, which we believe is the best way to drive global growth by partnering with strong local operators who bring scale and regional expertise. Just last week, we opened in Brazil, and in the first two days alone, Krispy Kreme's global appeal was on full display with $100,000 in sales, surpassing even our France launch in 2023. We are evaluating opportunities to re-franchise Australia, New Zealand, Japan, Mexico, and the UK and Ireland. Proceeds from these efforts will be used to deliver and strengthen our balance sheet. Our international franchise partners, whether in emerging markets like Brazil and France, or more established ones like Korea and the Middle East, continue to deliver strong results, underscoring the value of local scale master franchise partners. The better execution required to grow bigger demands passion, dedication, and hard work from all Krispy Kremers, and therefore we must inspire engagement across our organization. First, we have upgraded teams at all levels, including internal promotions of our strongest district managers and hired outside talent with deep QSR expertise. Second, we have invested in new technology to measure shop execution. Our shops can now better assess performance and make data-driven decisions to improve quality, service, and efficiency. Third, as we discussed a moment ago, we are simplifying our operations. This frees up time for our Krispy Kremers to focus on the guest's experience. And to better support them, we launched role-based training, new onboarding programs, and a goal-setting and manager review process to support Krispy Kremers' growth within the company. This work has already helped us to improve turnover by over 30% year over year. To accelerate the benefits of all these improvements, we've also launched a new incentive program to support the team to deliver on a bigger and better Krispy Kreme. With that, I'll pass it over to Jeremiah.