Krispy Kreme, Inc.

Hello everyone and thanks for standing by. My name is Carly and I will be your conference operator today. At this time I would like to welcome everyone to the Krispy Kreme second quarter 2025 earnings call. 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead.

Thank you. Good morning everyone. Welcome to Krispy Kreme second quarter 2025 earnings call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release for the second quarter of fiscal 2025. The press release and an accompanying presentation are available on our investor relations website at .krispykreme.com. Joining me on the call this morning are president and chief executive officer, Josh Charlesworth and chief financial officer, Raphael Duvivier. After prepared remarks, there will be a question and answer session. Before we begin, please note 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 statements. These factors and other risks and uncertainties are described in detail in the cautionary statements in the company's earnings press release, in the company's annual report on form 10-K filed with the SEC and in other filings the company makes with the SEC from time to time. Forward-looking statements represent the company's expectations only as of today and the company assumes no obligation to publicly update or revise any forward-looking statements except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding those non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Raphael will take us through the company's financial performance in a moment, but first, here's Josh.

Thank you, Christine, and good morning, everyone. We are sharply focused on our two biggest opportunities, profitable US expansion and capital-like international franchise growth. To achieve these goals, we have implemented a comprehensive turnaround plan to de-leverage the balance sheet and deliver sustainable, profitable growth through one, refranchising, two, improving returns on capital, three, expanding margins, and four, driving sustainable, profitable US growth. To de-leverage the balance sheet, we have halted the quarterly cash dividend and completed the sale of our remaining interest in insomnia cookies, and now we are in active discussions to restructure our well-established joint venture with WKAS Restaurant Group in the Western US, reducing our ownership stake and deploying the proceeds to further pay down debt. As you may recall, we have already initiated the process of refranchising select international markets, including Australia, New Zealand, Japan, Mexico, and UK Ireland. To improve returns on capital, we are focused on our capital-like international franchise model, whilst reducing capital intensity in company-owned markets. We have seen exceptional returns growing Christie Kring's presence across the world with franchise partners in both well-established markets like South Korea and the Middle East, as well as newer markets like France and Brazil, with minimal capital investment from the company. We expect future international growth to come from franchisees through both new shop openings and fresh delivery door expansion. Door expansion will be through existing sales channels like grocery and convenience, as well as in new channels like club wholesalers and quick service restaurant partners. For example, our franchisee in the UAE has started selling Krispy Kreme at about 50 KFC restaurants with plans for further expansion. In addition, our pipeline of new market entries with franchise partners is strong, with the first Hotlight Theatre Shop in Spain opening later this year. In the US, we still plan to open a new production hub in Minneapolis later this year, which will be the first Hotlight Theatre Shop in Minnesota. Aside from this strategic location, we have reduced investment in new capacity in the US, preferring to leverage existing excess capacity for growth. To expand margins, we are simplifying our business model and strengthening operations in the US to reduce costs across the P&L. In support of this, we've already taken the following actions. First, as announced in June, we have ended our McDonald's USA partnership, effective July 2nd. Our efforts to bring our costs related to the partnership in line with unit demand were unsuccessful, making it unsustainable for us. Second, excluding the exit of McDonald's stores, we also completed a thorough assessment of our US fresh delivery footprint and identified approximately 1,500 underperforming doors. We've already exited more than half of these in the first half of the year, with plans to complete the remaining closures by year end. More importantly, we expect to replace these with 1,100 more profitable high-volume doors this year, of which more than half are already in place. This shift improves overall route profitability and operational efficiency, and we expect it to be immediately accretive to even our margin. Third, we continue to outsource logistics. So far, we have transitioned 40% of US fresh donut deliveries to third-party logistics partners. This provides more predictable logistics costs and allows our Krispy Kremers to focus more on what they do best, make fresh donuts and bring joy to our consumers. Finally, we made a 15% reduction in DNA roles in our support center. We are also strengthening our US operations under the leadership of our new Chief Operating Officer, Nicola Steele. Her focus includes boosting our demand planning capabilities to improve forecasts and loadouts while optimizing labor and reducing cost and waste, driving sales while minimizing product returns. She's also raising the caliber of our operations leadership, empowering Krispy Kremers with better training and technology resources, and streamlining the donut manufacturing process. To drive sustainable, profitable growth in the US, our marketing focus has shifted to our original glazed donut, our most affordable, most profitable, and most iconic product, typically sold by the dozen. We launched an all new multimedia marketing campaign centered on the joy of experiencing a hot, fresh original glaze, which kicked off on National Donut Day in June. Early results are encouraging, with the campaign driving incremental sales and renewed excitement around our signature core offering. Expansion in the US is focused on growing fresh delivery through profitable high volume doors with major customers like Costco, Walmart, Target, and Kroger. We added over 400 doors with these customers in the second quarter alone, including the promising new multi-city pilot with Sam's Club. All of this expansion was complemented by strong digital growth, which increased by double digits and accounted for more than 20% of US retail sales during the quarter. We've also recently been awarded additional shelf space at Walmart on top of our existing merchandising towers and cabinets. We expect this to both increase sales at existing Walmart stores and help us add distribution in new stores. Today, we are only represented at about 30% of their total domestic footprint. I have full confidence in our turnaround plan, not only because of the bold strategic actions we are taking, but also because of the strength of our leadership team and the talent across the organization. To drive alignment and execution, we have revised our bonus opportunity for the second half of 2025 to focus on driving adjusted EBITDA and free cashflow. Two KPIs clearly linked to profitable growth and deleveraging our business. On a topic of talent, we recently promoted Alison Holder to Chief Brand and Product Officer and Raphael de Vivier to Chief Financial Officer. Alison has over 25 years of experience at Krispy Kreme, holding leadership roles across brand marketing, innovation, research and development and manufacturing services. We have the utmost confidence in her as she assumes responsibility for our global marketing efforts, focusing on championing the iconic original glaze and driving sustainable high quality growth. Raphael has been with Krispy Kreme for over six years and has held multiple leadership roles spanning international development, strategy, finance and operations. He has a deep understanding of our business, strong financial acumen and is a trusted partner with a proven track record. Before I hand the call over to Raphael, while we are pleased to have generated quarterly net revenue above the midpoint of our guidance, adjusted EBITDA was below our expectations, primarily due to the following factors. First, losses related to our now ended McDonald's USA partnership were more than originally projected. We're quickly removing our costs related to the McDonald's partnership and expect to begin recouping profitability in the third quarter. Second, during the quarter, we incurred higher insurance costs related to our own delivery efforts. The transition to outsourced US logistics is expected to provide greater cost certainty. We are already seeing more predictable logistics costs for the routes outsourced to date. In summary, whilst the past several quarters have certainly been challenging, we have pivoted and are executing our comprehensive turnaround plan with the actions we believe necessary to position the business for long-term success. With that, Raphael will now review our second quarter financials.