Krispy Kreme, Inc.

Hello everyone and thank you for standing by. My name is Ellie and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme quarter and full year 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel.

Please go ahead. Hello, everyone, and welcome to Krispy Kreme's fourth quarter and full year 2025 earnings call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release. The press release and an accompanying presentation are available on our investor relations website at investors.crispycream.com. Joining me on the call are President and Chief Executive Officer Josh Charlesworth and Chief Financial Officer Raphael Duvivier. After their prepared remarks, we will host a question and answer session. But 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 our earnings press release, our annual report on Form 10-K filed with the SEC, and in other SEC filings we make from time to time. Forward-looking statements represent our expectations only as of today, and we assume no obligation to publicly update or revise any forward-looking statements except as may be required by law. 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 these non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Rafael will take us through our financial performance in a moment, but first, here's Josh.

Thank you, Christine, and good morning, everyone. Our fourth quarter results show that we are making meaningful progress on our turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth. Krispy Kreme continues to be a compelling growth story anchored by our globally recognized brand and strong consumer demand for our iconic fresh donuts. Our turnaround plan is centered on unlocking that demand through our two biggest opportunities, profitable U.S. expansion and capital-like international franchise growth. In 2025, we generated $2 billion in system-wide sales, and we expect to grow this by 2% to 4% in 2026 through higher sales volumes, points of access expansion, and franchise development. Last year, approximately 75% of our system-wide sales came from company-operated locations. As a result of our re-franchising efforts, we expect nearly 50% of system-wide sales to come from franchisees as we begin 2027. We believe this shift will improve capital efficiency while supporting sustainable long-term growth. Although our decision to exit underperforming US doors earlier in 2025 resulted in a modest decline in net revenue in the fourth quarter, we significantly increased adjusted EBITDA, expanded adjusted EBITDA margin, reduced our financial leverage, and delivered positive free cash flow. These results demonstrate the meaningful progress we are making on our turnaround plan focused on one, re-franchising, two, improving returns on capital, three, expanding margins, and four, driving sustainable, profitable U.S. growth. Our first pillar, re-franchising, enables us to more profitably drive system-wide sales growth and accelerate unit development through our Capital Light franchise model. In December, we announced a strategic re-franchising agreement with Unison Capital for our operations in Japan, which we expect to close in March. Unison is a proven operator with extensive expertise in the retail restaurant sector, and we believe they are an ideal partner to continue to grow our iconic brand in Japan. Cash proceeds from the transaction are expected to be approximately $65 million. Beyond Japan, our intent is to re-franchise certain other international markets, prioritizing the right partners to maximize value and position the company for long-term growth. We are targeting two to three international re-franchising deals in 2026. Additionally, we plan to reduce our ownership to a minority stake in our existing joint venture in the Western U.S. with the WKS Restaurant Group, which today represents about 15% of our U.S. revenues. As a franchisee, WKS Krispy Kreme will continue operating its existing shops, and our plan is to add company-operated shops on the West Coast to the joint venture. We also expect WKS to develop new shops and meaningfully expand our fresh delivery footprint over the next several years. The second pillar is improving returns on capital. Across the business, we are reducing capital intensity and improving utilization of existing assets, while our franchisees continue to invest to support brand growth. This is reflected in our full year 2025 CapEx which decreased 19% from 2024, and our expectation that 2026 CapEx will be nearly half of last year. This substantial reduction in CapEx should position us to generate stronger free cash flow in 2026. Our international development pipeline remains a key driver of capital-like growth. We now operate more than 1,700 international shops, both company-owned and franchised, across more than 40 countries. In 2026, we expect more than 100 shops opening globally, while continuing to expand fresh delivery doors across grocery, convenience, club wholesalers, and quick service restaurants. I recently visited our first hotline theater shop in Madrid, Spain, an important and emerging European market for us, where I saw firsthand the enthusiasm for further expansion with our strong local franchise partner. In November, we opened a hotline theater shop and production hub in the under-penetrated Minneapolis market. This strategic opening generated immediate results, and we expect sales in the first 12 months to be approximately $10 million. This includes fresh delivery, which has already grown to 70 doors. Minneapolis exemplifies our disciplined, thoughtful approach to capital deployment. we strategically transformed a former drugstore into a donut shop and production hub, designed to efficiently support off-premises distribution. While Minneapolis demonstrates the strong returns we can generate from strategic new locations, our broader US strategy is to moderate company hub development and prioritize leveraging existing capacity to drive growth more efficiently. More broadly, we deliver to over 7,000 fresh delivery doors in the US, With our network utilization at only approximately 25%, we have the ability to reach thousands more locations without incremental capacity investment. Many of our strategic partners, such as Walmart and Target, remain underpenetrated. The third pillar is expanding margins. We are simplifying the business and reducing costs across the P&L. In the US, we are making donuts more efficiently through improved production planning, labor optimization, and streamlined hub operations. Donuts are being delivered more efficiently by improving route management and demand planning and by optimizing production and delivery schedules to support cost-effective expansion. By the end of 2025, 57% of our U.S. fresh delivery network was outsourced to third-party logistics partners. and we expect to complete the transition in 2026. Outsourcing logistics gives us more predictable costs, reduces risk, and allows our teams to focus on what they do best. As a result of the cost reduction initiatives implemented last year, total shop and delivery labor and SG&A expenses declined more than 10% in the second half of the year versus the first half. The fourth pillar is sustainable, profitable growth in the US, which we can achieve by offering our consumers the right product in the right quantities, in the right place, and at the right time. By the end of the third quarter of 2025, we fully exited McDonald's and completed the rationalization of another approximately 1,400 underperforming fresh delivery doors. By the end of the fourth quarter of 2025, We'd also added more than 1,100 new higher volume, higher margin doors with strategic partners. We also saw growth return with a 200-door increase in the fourth quarter. The results of upgrading the quality of our fresh delivery doors are encouraging. Average weekly sales per door have increased meaningfully, and these newer doors are performing well above the system average. We've also started 2026 by adding new distribution with Grocery Customers, Publix, and Dualosco. Another key driver of sustainable, profitable growth in the US is our marketing strategy, focused on one, driving everyday sales through our refreshed retail donut menu, two, creating excitement with buzz-worthy, limited-time offerings, and three, accelerating growth in digital. In the fourth quarter, our Trick or Treat Halloween collection delivered our most successful Halloween campaign to date. while our Krispy Kreme and peanuts offering generated strong consumer demand over the holiday season. That momentum carried into 2026, with our Valentine's Day collection delivering record results, reinforcing Krispy Kreme as a top choice for gifting, sharing, and celebrating special occasions with others. To give our consumers even more ways to enjoy and share Krispy Kreme, we continue to innovate and evolve our successful minis category, which today includes our donut minis and donut dots. Later this year, we'll expand our lineup of smaller shareable treats with mini crullers, a mini cake donut available through strategic fresh delivery partners. Limited time offerings perform particularly well in our digital channel during 2025, with US digital sales growing 15% year over year. Digital represented 22.5% of US retail sales in the fourth quarter, reflecting strength across the Krispy Kreme app and website, as well as through third-party delivery partnerships. Our loyalty platform, now surpassing 17 million members in the US alone, helps us to stay connected with consumers by reminding them of the joy of Krispy Kreme and rewarding them with offers that increase purchase frequency. Our digital presence continues to prove effective at building engagement across all age groups and driving incremental transactions. Heading into 2026, we believe we are well positioned amid a dynamic consumer environment. Our affordable offerings are designed to be gifted and shared, bringing people together for celebrations and meaningful occasions. With a full calendar of innovative collections for seasonal and cultural moments ahead, such as our upcoming St. Patrick's Day offering, we expect to sustain engagement and drive demand throughout the year. We're building a stronger, more resilient Krispy Kreme and positioning ourselves for long-term profitable growth. With that, Raphael will now review our fourth quarter financials and discuss our outlook for 2026.