Krispy Kreme, Inc.

Hello, everyone, and thank you for standing by. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. 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 first quarter 2026 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.krispykreme.com. Joining me on the call are President and Chief Executive Officer Josh Charlesworth and Chief Financial Officer Raphael Duvivierre. 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, including statements of expectations, future events, or future financial performance. Forward-looking statements are based on current expectations and are subject to risks and uncertainties. Actual results could differ materially from those contained in any forward-looking statements. because of factors described in the cautionary statements in today's 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. We assume no obligation to update any forward-looking statement, except it 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 these non-GAAP measures, including a reconciliation to the closest comparable GAAP measure. Rafael will take us through our financial performance in a moment, but first, here's Josh.

Thank you, Christine, and good morning, everyone. We are pleased with our significant progress in the first quarter as we continue to advance our turnaround to deleverage our balance sheet and drive sustainable, profitable growth. Krispy Kreme remains a compelling growth story, supported by strong consumer demand for our iconic fresh donuts. Unlocking that demand remains our priority, and we are doing so through our two largest opportunities, profitable U.S. expansion and capital-like international franchise growth. This year, we expect system-wide sales to grow 2% to 4% compared to last year, to over $2 billion. driven primarily by international expansion. In the back half of the year, we anticipate growth in the U.S. as we lap the now-ended partnership with McDonald's, which we exited last July. While we recognize that the broader macroeconomic environment remains dynamic, this outlook is driven by anticipated higher volumes, points of access expansion, and franchise development. Last year, approximately 25% of system-wide sales were generated by franchisees. After the re-franchising transactions in the first quarter, the expected percent of franchise sales going forward has increased to 42%, reflecting strong progress toward our goal of reaching 50% of system-wide sales generated by franchisees entering 2027. Now, let's move to the four pillars of our turnaround plan and the progress we are making on each. Number one, re-franchising. Number two, improving returns on capital. Number three, expanding margins. And number four, driving sustainable, profitable U.S. growth. Our first pillar, re-franchising, enables us to drive more profitable system-wide sales growth while accelerating new shop development through a capital-like model. In March, we completed two transactions advancing this strategy. contributing to a reduction in net debt. In Japan, we entered a re-franchising agreement with Unison Capital, an experienced operator in the retail restaurant sector. Krispy Kreme has a 20-year presence in Japan with approximately 90 shops and 300 fresh delivery points of access, and we are pleased to partner with Unison to support continued growth in this important market. Japan marks the first of the two to three international re-franchising deals we are targeting in 2026. As we pursue re-franchising across our other international markets, we remain focused on identifying the right partners to maximize value and position our brand for long-term growth. We also reduced our ownership in our western U.S. joint venture to a 20% minority stake with our longstanding partner, WKS Restaurant Group. The WKS franchisee now operates more than 70 shops across the western US and has agreed to develop new shops and further expand Krispy Kreme's fresh delivery footprint over the coming years. The second pillar of our turnaround is improving returns on capital. Across the business, we are reducing capital intensity and improving utilization of existing assets. while our franchisees continue investing to support brand growth. The combination of these factors has resulted in a significant decrease in capex in the first quarter compared to last year, which we expect to contribute to positive free cash flow in 2026. Our international development pipeline is an important driver for our capital-like growth. We are projecting more than 100 shop openings this year, nearly all through franchisees, as we continue expanding fresh delivery doors across grocery, convenience, club wholesalers, and quick service restaurants outside of the U.S. In the first quarter, we opened 26 shops around the world. In April, we celebrated our first anniversary in Brazil, and just yesterday we opened our second hotline theater shop in Sao Paulo, supporting our growing hub-and-spoke network in this important market. Today, the Christy Cream system consists of more than 2,100 locations, both company-owned and franchised, across 42 countries, including the US. This year, we expect to add three to four new markets, including the Netherlands, which we recently announced. The first hotline data shop in the Netherlands is expected to open in late 2026 and will serve as both a retail shop and a production hub, anchoring a broader phased expansion to approximately 30 shops across the country over the next five years. The Netherlands represents our sixth Western European market, along with the UK, Ireland, France, Spain and Switzerland. In the US, we are prioritising leveraging existing capacity to drive growth more efficiently. Our current network utilisation is only about 25%, demonstrating that we can reach significantly more locations without incremental capacity investment. Walmart and Target, along with other strategic partners, remain meaningfully underpenetrated, and we have the capacity to support their growth through the same facilities that currently deliver to more than 7,400 fresh doors nationwide. The third pillar of our turnaround is expanding margins. we are simplifying the business and reducing costs across the P&L, resulting in a significant margin improvement in the first quarter, led by a strong increase in the U.S. segment. In the U.S., we are making doughnuts more efficiently through improved production planning, labor optimization, and streamlined hub operations. Doughnuts are also being delivered more efficiently by improving route management and demand planning and by optimizing production and delivery schedules to support cost-effective expansion. In April, we completed the transition of our U.S. fresh delivery network to third-party logistics partners ahead of schedule. Now that we have successfully outsourced our U.S. logistics, we have greater cost predictability and reduced operational risk, enabling our teams to focus on what they do best, making fresh doughnuts. We expect the benefits of our logistics optimization to offset the impact of recent increases in fuel prices. As a result of the cost reduction initiatives implemented last year, we improved profitability in the first quarter, with shop and delivery labor and SG&A expenses declining more than 10% versus the year-ago period. The fourth pillar of our turnaround is sustainable, profitable growth in the U.S. We know that when our donuts are available in the right places, and in the right quantities with strategic partners, we can generate higher average weekly sales and improve profitability, as we have done for three consecutive quarters. After completing our door optimization in the third quarter last year, we have returned to growth in the last two quarters, adding over 250 higher-volume, higher-margin doors in quarter one with strategic partners such as Publix, Sam's Club, and Target. We also launched in Jeweloscoe, which is part of the Albertsons family of brands. With our US logistics now fully outsourced and our optimized fresh delivery footprint in place, we believe we now have the right formula for profitable growth, stronger average weekly sales per door, supported by more predictable logistics. In my recent meetings with our strategic fresh delivery partners, it was encouraging to hear their enthusiasm for growing Krispy Kreme. not only through new locations, but by strengthening the brand and existing doors. In support of this, we are working closely with them to enhance merchandising and in-store donut displays, while also improving our presence on their digital platforms. Other drivers of sustainable, profitable growth in the U.S. are the original glazed, especially in dozens, our LTOs, and the digital channel. We're seeing strong results across each. Both original glazed and dozen sales are up, driven in part by second dozen promotional offers. Our innovative, limited-time offerings, which are often tied to seasonal and cultural events, continue to drive incremental traffic. For example, we had record sales for both Valentine's Day and St. Patrick's Day, reinforcing Krispy Kreme as a top choice for gifting, sharing and celebrating, while highlighting strong consumer demand for our fresh doughnuts. We also saw an enthusiastic response to our Artemis II donut, celebrating NASA's historic deep space crew mission. While we had originally planned to feature the donut for three days, we extended the promotion for the duration of the mission due to high demand. Our LTOs performed particularly well in our rapidly growing digital channel, which represented 23% of U.S. retail sales in the first quarter. Our digital presence, including our loyalty program, which has over 17 million members, continues to drive engagement across all age groups, while also encouraging repeat transactions through customized rewards. Beyond tapping into cultural moments to create relevant, buzz-worthy offerings, we also stay closely attuned to evolving consumer trends, including the increased use of GLP-1 and other weight loss medications. As part of our ongoing commitment to better understand our consumers, we conducted research which found that Krispy Kreme consumers who identify as users of these medications are just as likely as non-users to purchase sweet treats for holidays and special occasions with the focus on quality and taste. With our differentiated fresh doughnuts, typically purchased two to three times per year primarily for sharing occasions, Krispy Kreme is well positioned in this context. While we continue to monitor this trend, among other macro factors, we remain focused on expanding the ways consumers experience and share Krispy Kreme, including through our high-performing Minis category, which currently features Donut Minis and Donut Dots, and our new Mini Crullers, which is a mini cake donut sold through select fresh delivery partners. This new product further strengthens our assortment of smaller, shareable treats and provides consumers with more variety. Overall, we are pleased to have carried last year's momentum into the first quarter, delivering the results our turnaround plan was designed to achieve, including improving financial flexibility through re-franchising our operations in Japan and the Western U.S., reducing capital intensity by opening new shops with franchisees and reducing our capex, expanding margins through greater operational efficiency, including the full outsourcing of U.S. logistics, and by driving sustainable, profitable U.S. growth through OG dozens, digital sales, and by adding new high-volume doors with our strategic fresh delivery partners. With that, Rafael will now review our first quarter financials and provide an update on our 2026 full year outlook. Thank you, Josh.