Good day and thank you for standing by. Welcome to Krispy Kreme’s Q3 2021 Earnings Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your speaker today Rob Ballew, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon and welcome to Krispy Kreme’s Third Quarter 2021 earnings call. Thank you for joining us today. Our third quarter earnings release and the company’s earnings presentation deck are available on our investor relations website at investors.krispykreme.com. Joining me on this call this afternoon is Mike Tattersfield, Chief Executive Officer; Josh Charlesworth, Chief Operating and Financial Officer and Joey Pruitt, Chief Accounting Officer. After prepared remarks by Mike and Josh there will be a question and answer session. Before we begin, I would like to remind you that this call contains forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act of 1995 including statements of expectations, future events, or future financial performance. Forward-looking statements involve inherent risks and uncertainties and we caution investors that a number of factors could cause actual results to differ materially from those contained in the forward-looking statements. The factors and other risks and uncertainties are described in detail in the company’s registration statement on our Form S-1. Forward-looking statements made today speak only as of today. The company assumes no obligation to publicly update or revise any forward-looking statements accept as may be required by law. Additionally, today’s call will include certain non-GAAP financial measures. A reconciliation between non-GAAP financial measures and the closest GAAP measures can be found in the company’s third quarter 2021 earnings release and our Form 10-Q which will be filed shortly with the SEC and available at investors.krispykreme.com. For your convenience today’s conference call is being webcast and recorded for replay on our Investor Relations’ website. With that I will now turn the call over to Mike.

Good afternoon and thank you everyone for joining us today. We’re pleased to review our third quarter results and share more today about the continued advancements we’re making here at Krispy Kreme on our journey to becoming the most love sweet treat brand in the world. That is a bold statement. But the reality is that key countries including the U.S., UK and Australia have already achieved this milestone. I truly believe it’s about our focus on fresh donuts via our omni-channel strategy that effectively and efficiently serves customers with premium and innovative brand initiatives across the globe. We compete in the $650 billion global sweet treat broad category against some of the best known brands across channels. Our focus on fresh doughnuts and shared dozen occasions is clearly resonated with our customers. I want to emphasize that we are able to produce these results because we have an amazing group of crispy creamers which is what we call our team members. And I want to thank them for their dedication to our business and our customers each and every day. I would also like to welcome our new head of Investor Relations, Rob Ballew, as we continue to build out our team in this new phase of public life. In the quarter, we continue to clearly demonstrate that our fundamental business is strong. Our hubs and spokes supported by a world class omni-channel strategy and e-commerce capabilities are the core of our fresh doughnuts business. And everyday these assets help us to deliver millions of doughnuts to people around the world. As we continue to build our momentum globally, we also see opportunities to bring Krispy Kreme to more households through the expansion of our global footprint, which is where we will continue to invest while we maintain focus…

Thanks, Mike and hello everyone. As Mike said, we are pleased to report a robust third quarter with net revenue of $343 million, which represents 18% total company growth and 6% organic growth year-over-year. We are lapping 8% organic growth in the same quarter last year, showing the long term strength of our powerful brand and the enduring effectiveness of our omni-channel strategy, no matter the macroeconomic environment. Excluding legacy wholesale sales from last year, a business we have now fully exited. Our year-over-year organic growth was 14% in the quarter. This growth was driven by the performance and expansion of our capital efficient hub and spoke model. As Mike mentioned we have grown global points of access which are locations where our fresh doughnuts can be convenient purchased by 46% year-over-year to 10,041 significantly increasing the accessibility and availability of Krispy Kreme and surpassing our own expectations for 2021 already. The focus of our growth strategy is capitalized delivered fresh daily cabinets and merchandising units placed in grocery and convenience stores, which typically require an investment of less than $5,000. We added nearly 400 of these delivered fresh daily doors globally in the third quarter. And as a reminder, our annual goal is to go at least 800 to 1000 points of access a year. This network point of access is supported by our 410 doughnut production hubs around the world, mostly experiential through Hot Light Theater shops. During the third quarter, we added 31 net additional shops globally, including three Hot Light fitter shops in Florida, Mexico, and Egypt. We measure the maturity of the hub and spoke model through our sales per hub KPI. The higher the sales per hub, the more we are leveraging the fixed costs and capital already invested in our production hubs. In…

Our first question comes from the line of John Glass from Morgan Stanley. Your line is now open.

Thanks very much, Josh. If you just go back to the performance of the U.S. business in the quarter, I think maybe initially you thought organic sales growth might be closer to flatter a little better. Do you think the difference is simply the sweet treats business or maybe can you talk about the fresh business, the core fresh business and particularly you commented internationally on the on premise business for the shops. How is the on-premise business, is that still the majority of U.S. business?

Hi John. Great to hear from you. Yes. So we saw good sales growth in the fresh doughnut business across all the channels. Obviously I’ve already referenced the deliver fresh daily was exceptional, but the doughnut shop e-commerce were all growing. We’re out there. I hear about labor market challenges and challenges impacting growth for us is negligible. You reference it going negative as I mentioned in the call, we had these sort of one time lapping effects versus last year. But indeed I also mentioned we had a fulfillment issue on the branded sweet treats, very strong demand there. We weren’t able with the third party co-manufacturer on one of our lines to keep up with the ramp up in demand with the labor market the way it was there for them. So that was the slight shortfall, but overall happy with where we finished.

And can you talk to what the pricing actions you took in September? What you think those do? Does that cover the inflation you’re currently experiencing or do you still lag that based on maybe what was inflation in the commodities and labor just so we understand that dynamic in the third quarter?

Yes, sure. So we’ve taken pricing earlier in the year low single digit pricing is what we’ve planned and implemented. But you’re right, the commodity inflation has been more than we expect to come into the double digit commodity inflation across a number of our input costs. So we took another low single digit price increase in the U.S. in September. We seeing good acceptance of that with customers in October and that is intended to cover all commodity and indeed wage inflation that we see out there in the market. Mike talked about investing in our crispy creamers. But we will keep a close eye on the inflation trends. We will and are prepared to take further pricing action, if needed to make sure we carry that momentum into next year as well.

Thank you. Our next question comes from the line of John Ivankoe from JPMorgan. Your line is now open.

Hi, the question was your intelligence around managing DFD per account and even per day per account. I can imagine if a store is getting delivered doughnuts to seven days a week, I mean, one, you would probably be difficult to measure demand and if the donuts are getting removed after 24 hours just getting the shrink. And overall having too much having too little must be a challenge, especially when you’re managing profitability in a high labor cost environment with drivers and also with obviously fuel costs as well. So what were I guess, are you in terms of not just talking about the revenue of DFD, but actually looking at the profitability of DFD even getting down to the per door basis or even day per door basis?

Hey, John, it’s Mike. One thing I want you to think through the legacy business that we had built before, which was a DFD business, now we’re delivering fresh daily. That delivered fresh daily and having those fresh access points has allowed us to take pricing power which is significant, sometimes up to 50%, over what the other DFD business was. So we’re able to leverage that. In terms of this is done on a daily basis. So we are able to see the waste. And we’re getting into demand planning to actually look at what is the appropriate level of drop size as well as managed through that. So it’ll be incrementally get better as we continue to look at the business of DFD. This isn’t just learning in the United States. This has been going on in the UK and our Tesco business, as well as an Australian, our 7-Eleven business where there is exceptional knowledge and discipline about how to manage this per drop per doughnut, sometimes even the DFD have more than one drop per day, and unique places. So there is that skill set we will continue to manage how do you manage the flow through of the DFD business, just given its importance about how we move to the fresh business, and really evolving beyond our just our singular Hot Light doughnut shops.

So just to add, it’s not just a theoretical transformation. We are moving from being a franchisor to an operator. We spent a lot of time on operation operating capabilities in terms of people, processes and systems to manage those returns you describe about to manage demand planning and forecasting. And we’re starting to see the benefits. It’s very important with those higher price points. You can get the efficiency reference. I mentioned on the call that in the cities where we have made the change to legacy wholesale we’re seeing 300 to 400 basis points improvement so we’re seeing those benefits come through. I referenced Tampa, but Denver is one where we’ve converted and we’ve gone from 18% margin last year to 24% margin. Dallas, I see 10 basis points of margin increase where we’ve introduced DFD for the first time. So we’re seeing multiple occasions. And he can’t set an overall Q3 numbers yet with a number of puts and takes in the commodity inflation and pricing timing that I referenced. But this is a great underlying margin improvement that gives us a lot of confidence so that we can leverage those skills that Mike references from the UK, in Australia and elsewhere.

And secondly, I want to go a different direction, the comments on New York and basically New York City basically being a country in its owner interesting. There is actually I remember, Josh, I don’t know, 20 plus years ago, there’s actually a very funny Seinfeld episode where Krispy Kreme was featured. I mean, this is a brand that actually got a lot of attention when it first opened in the market. I mean, there were a number of different factory stores that for a while, actually did extremely well. And obviously for any number of reasons the brand went away in that market. Can you I guess summarize just kind of a history lesson just using New York City as a specific example I mean, I guess what you think what was wrong with the brand and maybe some history lessons that were learned that will basically maximize your return and minimize your risk as you penetrate that market going forward?

John I think you asked a very, very succinct question which is, how will we continue to develop New York. We look at New York, very similar to what we’ve done in London. London today has five hubs, and 600 points of access. It really is about doing that omni-channel approach. So you leverage your Hot Light shops and then you get to the points of access. That drives the margin and the profitability as well as that scarcity of Hot Light shops and how that channel works as well as freshness as you get to the 600 points of access. And we think about New York, that is one hub today with 150 points of access. So again, we see this as the investment is starting to be there, it’s about developing the additional points of access which is getting the freshness to where the customers are, and then building that up. And it’s capital efficient first. So instead of opening up a lot of Hot Light shops all over New York City, the discipline is actually building the hub, getting the route. And it’s just not just New York City because I talked about this as a different country. And that’s the approach that we take on a country by country basis across the world. But this will unlock how we do Toronto. This will unlock how we do Mexico City, where you leverage the existing base of the Hot Light capacity, and then build the route system. So you get fresh doughnuts. Then as you start to figure out how we can do additional merchandising or other products that we can bring to those access points, you continue to evolve the business much different than it was in the past.

Thank you. Our next question comes from the line of Jared Garber from Goldman Sachs. Your line is now open.

Hi, thanks for taking the question. Wanted to circle back on the on the cost side of the business particularly as it relates to I mean, I know you’re seeing some rising commodity costs, particularly on the sugar and edible oils. But the labor side and I think you made a comment earlier that you’re finding it somewhat challenging to find delivery drivers. And I think that’s a kind of a crucial point here as we think about the DFD strategy and that hub and spoke strategy. So can you comment on maybe where you are in terms of those drivers and maybe how understaffed you are? And is there a scenario in which you’re not able to sort of effectively deliver doughnuts on a daily basis, which is obviously a key part of the strategy?

We don’t have an issue in the fresh doughnut business with growth when it comes to labor availability. On drivers, we are expanding and adding new routes in parts of the U.S. and of course, expanding of business in this labor market is challenging, but thus far, with the level of recruitment and the attraction of coming and working at Krispy Kreme hire 2100 people in the third quarter, it’s the highest in our history in the U.S. We’re able to match the growth needs that we have.

I guess if I think about it, you said I think expanding routes, which would presumably mean higher hiring more drivers to effect some of those deliveries, is that correct? And I guess further, just want to get a sense of maybe how we should be thinking about that other operating expense line if there is pressure from incremental drivers and higher wages paid to those drivers?

Yes. I mean, its big number 2100. That’s the whole system, including the shops and making sure that we’ve always got the right number of Krispy Kreme in front of our customers. But when it comes to adding those drivers for new routes, we added just over 150, delivered fresh daily doors last quarter, a driver can cover 15, 14, 15, stops, so you can quickly do the math and realize that that’s not that many drivers that were challenged by to find. And so in terms of our ability to expand relatively speaking, it’s just not a challenge for us even in this marketplace.

I mean, I want to add one thing that Josh said, remember, this is a global business so the learning from how we do the drops in the UK, that hasn’t appeared to be a challenge as they’ve continued to manage through this as you have that same approach am I in Australia, where we do now drops where we’ve opened up a new grocery system, we don’t have that either they they’re built in. These are a lot of crispy creamers that sometimes they might be a driver, but they can also be a processor. So you’re starting to figure out how to use cross training and then figure out that’s a career path that folks like to see. And they see the opportunity for growth as they want to one day be a manager or something else in the shop. So you got to give a broader lens not just say specifically just hiring a driver.

Our next question comes from the line of Brian Mullen from Deutsche Bank. Your line is now open.

Thank you, just question on the DFD business in the international segment had nice sequential DFD door growth in the quarter again. Could you speak to the ultimate DFD expansion opportunity over the next several years, specifically, across this current group of company on markets? Do you expect additional growth across all the markets? Just any color on the ultimate DFD opportunity in that segment relative to the approximately 2400 doors that you have today? Thank you.

So again, we reiterated our long term growth in some of those links to the points of access. We see point of access growth of 800 to 1,000 on a yearly basis, half of that being outside of the United States, even within the existing countries that we’re in today. This does not even include, as we open up with and leverage our existing base and new partnership countries start to open up. They will start to think about the points of access approach as well. So there is significant growth inside of international both of growing points of access and we continue to see.

Yes that 2,800 we have in the company owned markets within the international segment, that the UK is the biggest part of that. It’s really interesting to see the UK continuously adding doors every quarter. It shows how even in a mature market you can work with different grocers, work with different convenience stores to grow. But most obviously, Mexico seems to be the biggest absolute DFD and points of access opportunity when it’s over 100 million of your countrymen Mike, Krispy Kreme and we know and we see the opportunity to expand access there. So if you say we’ve got 2,800 today, you can look at what the UK, Mexico and Australia have. We’d see about another 33,000 opportunity just in those markets and it’s great to see the momentum sustained. So it could well be more than that. But we’re going after that right now.

I mean, the real interesting thing about the DFD will be about even how our franchise partnerships continue to build it out. And I gave you that example of South Africa, you start to add up to 200 doors that they build out within the last year.

Thanks. Just to follow up to keep me to the theme of the white space you have there’s many markets here, you’re not in over the long term. Just want to ask about China. Is that a market where you’re devoting any resources to exploring today? Or is that perhaps something that you see more feasible several years from now? And any high level thoughts on what that might look like one day, whether company owned or do you think a local partner would eventually make sense down the line?

So one of the things that we did when we acquired our six businesses that are the countries that we currently operate from an equity business was to make sure that we could leverage them. So they really build a partnership. You specifically mentioned China, there could be other countries like Brazil, among countries in Western Europe that will look to develop a model whether we choose to do that both on a partnership side or franchise side of those are things where we see the growth significant. But I see a lot of growth on the franchise side is particularly an international that will continue to grow. And we’ll look in pace and development China or other countries as we see fit. We have a lot of growth to do in the core business that we’re in today, not just an international but as well as the transformation that continues in the United States and we see continued growth in further countries with a franchise partners as well.

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Mike Tattersfield for closing remarks.

So thanks, operator, and thank you again everyone for joining us today. I trust you can hear how excited Josh and I are about the business and our runway for growth. We have a premium fresh product with exceptional quality, majority control of our operations and are taking a disciplined approach to increasing points of access in order to maximize profitability. We have momentum and conviction in our story as we continue to advance this iconic Krispy Kreme brand that continues to prove to have long term potential for growth and expansion over the long term. I once again want to thank all the crispy creamers for the incredible work and appreciate you taking time to listen and engage with us.

This concludes today’s conference call. Thanks for participating. You may now disconnect.