Krispy Kreme (DNUT) Q2 2026 earnings call transcript

Hello, everyone, and thank you for standing by. My name is Paige and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Second Quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the company's prepared remarks, they will host a question and answer session. If you would like to ask a question, press star one to raise your hand.

I would now like to turn the call over to Steve West, Krispy Kreme Vice President of Investor Relations. Steve, please go ahead. Good morning, everyone, and welcome to Krispy Kreme's Second Quarter 2026 earnings call. Joining me are President and Chief Executive Officer Josh Charlesworth and Chief Financial Officer Rafael Dubivier. Second quarter earnings release and accompanying presentation are available on our Investor Relations website at investors. krispykreme. com.

This call will also be available on our website and contains forward-looking statements. Forward-looking statements, including those of expectations, future events, or financial performance, are based on current expectations and are subject to risks and uncertainties. Actual events or results could differ materially from those forward-looking statements due to factors described in the cautionary statements in our earnings release and your report on Form 10K, 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 as may be required by law. Additionally, we will reference certain non-gap financial measures, information about these non-gap measures and reconciliations to the closest comparable gap measures is available in our earnings release. Any reference to percentage growth when discussing second quarter results is a comparison to the second quarter of 2025 unless otherwise indicated.

I will now turn a call over to Josh. Thank you, Steve, and good morning, everyone. Second quarter highlighted continued significant progress on our turnaround to strengthen the balance sheet, reduce leverage, and drive sustainable, profitable growth.

Our year-to-date results demonstrate the success of the actions we are taking to grow the business and improve profitability. We remain confident in our ability to deliver our 2026 financial targets and are maintaining our previously issued guidance. Crispy cream remains a compelling global growth story, supported by increasing consumer demand for our iconic fresh donuts, even in a dynamic macro environment.

Unlooking that demand remains our priority, and we are doing so throughout two largest opportunities, profitable US expansion and capital-like international franchise growth. In the second quarter, demand for our fresh iconic donuts across the US and international markets drove system-wide sales growth of 2.6%, excluding the impact of the now-ended McDonald's USA partnership from last year. Overall, our goal remains to deliver system-wide sales of more than $2 billion in 2026.

Adjusted EBITDA margin significantly increased by 340 basis points, as our focus on optimising operations and logistics, along with driving more profitable sales per door in fresh delivery, is translating into stronger financial performance.

Now let's move to the four pillars of our turnaround plan and the progress we are making on each. One, re-franchising, two, improving returns on capital, three, expanding margins, and four, driving sustainable, profitable US 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. So far this year, we have completed two transactions that have advanced this strategy in Japan and the Western US, both of which contributed to a reduction in net debt. Last year, approximately 25% of system-wide sales were generated by franchisees. Today, franchisees account for 42% of system-wide sales.

Through additional re-franchising efforts, our goal remains to reach approximately 50% of system-wide sales generated by franchisees beginning next year. As we evaluate additional re-franchising opportunities, we remain focused on identifying the right partners, both in international markets and the US, to maximize value and position our brand for long-term growth. The second pillar of our turnaround is improving returns on capital.

Across the business, we are significantly reducing capital intensity and improving our utilization of existing assets, while our franchisees invest to support brand growth. As a result, we reduced our capex in the first half of the year by 70% compared to last year, which will contribute to achieving positive free cash flow in 2026.

We are pleased to have entered into agreements for three new international franchise markets this year, including the Netherlands, Estonia and Mauritius, achieving our goal of three to four new markets in 2026. The continued strength of the Krispy Kreme brand is reflected in the interests we see from prospective franchise partners around the world. And we remain focused on pursuing additional opportunities to expand our global footprint through our capital-like franchise model.

Year to date, we have opened 59 new shops driven by growth in Japan, Brazil, South Korea and the Middle East. All the two of these shops were opened by franchisees and we remain on track to achieve our goal of opening at least 100 shops in 2026.

While our international development pipeline remains an important driver of capital-like growth, we are also focused on US growth by leveraging existing manufacturing capacity to expand fresh delivery. Our current network utilization is only about 25%, demonstrating the opportunity to expand to more locations without incremental capacity investment.

Walmart and Target, along with other strategic partners, are still significantly underpenetrated and we can support additional growth through the same facilities that currently deliver to more than 7,600 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 significant margin improvement versus last year. Driven by the US segment, in the US, we are making doughnuts more efficiently to enhance production planning, labor optimization and streamline hub operations, all leading to a meaningful reduction in labor spend.

We continue to increase delivery efficiency through improved route management, demand planning and the optimization of production and delivery schedules. Now that we have successfully outsourced our US logistics, we have greater cost predictability and reduced operational risk, enabling our teams to focus on what they do best, making fresh doughnuts.

After completing a successful test of a new AI enabled platform for fresh delivery demand planning, we are now rolling it out across our company network. Based on the preliminary results, we expect this advanced technology solution will reduce out of stocks on the shelf while also minimizing returns.

The fourth pillar of our turnaround is sustainable profitable growth in the US, across our doughnut shops, digital channels and fresh delivery partners.

Our doughnut shops are the largest driver of sustainable profitable growth in the US. The strength of our doughnut shops has been driven by our recently expanded core menu, led by our iconic original glazed doughnut, supported by five seasonal doughnut collections each year and a steady cadence of innovative limited time offerings.

Each plays a key role, but it's the combination that makes them so successful. Our core menu provides consistency and value. Our seasonal collections deliver new flavours and variety and our LTOs create excitement and cultural relevance. Together, they keep the brand fresh and engaging for consumers, stimulate curiosity and drive sustained demand.

We further support demand through targeted marketing and promotional programs that reinforce value and encourage larger purchases. Promotions such as our discounted second doesn't offer provide value for consumers while driving doughnut sales and growth in average ticket size.

Sales through our growing digital channel have grown 8% year over year and now represent approximately 22% of total US retail sales. This is driven by improvements in our proprietary, digital platforms, including easier payment options and the growth of our loyalty program. This now includes nearly 18 million members in the US who visit typically 30% more frequently than non-loyalty members.

In fresh delivery, we know that when our doughnuts are available in the right places and in the right quantities with strategic partners, we can generate higher average weekly sales and profitability.

During the second quarter, we added more than 200 doors with strategic partners, such as Walmart, Target, Kroger and Sounds Club.

A key component of our continued success in increasing average weekly sales per door is strengthening our relationships with these key strategic partners. Target is a great example of how deeper collaboration can unlock additional growth opportunities and create value for both organizations.

We're expanding our relationship with Target to enhance merchandising and check out placement. And beginning in September, Krispy Kreme products will be available for purchase on Target. com. We believe this expanded relationship reflects the confidence leading retailers have in the strength of our brand and creates additional opportunities to increase sales and expand our fresh delivery network.

Much of our progress in fresh delivery has been led by Sook Nicholas, who we recently announced as our Chief Commercial Officer. Her primary focus is to accelerate growth, expand key partnerships, strengthen customer relationships and build world-class commercial capabilities across markets.

Additionally, we continue to stay closely attuned to evolving consumer trends, including the use of GLP1 and other weight loss medications.

Last quarter, I discussed the conclusion from our research, which found Krispy Kreme consumers who use these medications are just as likely as non-users to purchase sweet treats for holidays and special occasions.

With our differentiated fresh donuts, typically purchased two to three times per year, primarily for sharing occasions, we believe 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 way consumers experience and share Krispy Kreme, including through our high-performing minis category, featuring donut minis, donut dots and mini-cruelers, this category offers consumers compelling value and greater variety.

Overall, we are pleased with the continued progress on our turnaround, extending the momentum that began late last year. We believe the actions we have taken are positioning Krispy Kreme for sustainable, profitable growth for the long term, and delivering the results our turnaround plan was designed to achieve improved financial flexibility, reduced capital intensity, expanded margin through greater operational efficiency, and improved sustainable, profitable U. S. growth.

With that, Raphael will now review our second quarter of financials.

Thank you, Josh. I'm pleased with another quarter of improvements in our financial performance, driven by the execution of our turnaround plan. We remain focused on sustainable, profitable growth through quality sales and effective cost management across the piano. We continue to deliver the balance sheet to increase adjusted EBITDA and increase our profitability by expanding our adjusted EBITDA margin.

Nat revenue was $331 million in the second quarter. Down 30% reflecting our plan, re-franchising of the Western U. S. and Japan. Excluding re-franchising, we were essentially flat on our organic revenue basis. In fact, system-wide sales were $497 million, up to 2.6% in constant currency when excluding the impact from McDonald's USA in their prior year period. This reflects the strength of Krispy Kreme brand around the world.

Adjusted EBITDA of $28.8 million increased 43% driven by productivity initiatives across our network and cost controls at the corporate level. This represents the fourth consecutive quarter of adjusted EBITDA growth and an acceleration versus our first quarter of adjusted EBITDA growth of 38%.

During the quarter, our consolidated adjusted EBITDA margin improved 340 basis points to 8.7% through our intense focus on driving sustainable, profitable growth. In our U. S. segment, organic revenue increased 0.1% driven by the strategic closure of underperforming fresh delivery doors. Excluding the McDonald's impact from last year, U. S. organic revenue was up 4.4%, driven mostly by growth in digital and our retail shops.

In fresh delivery, we have taken disciplined actions to improve the productivity of our doors. Our average weekly sales per door in the U. S. now inclusive of both company and franchise operated doors were approximately $697, an increase of 33% year over year.

Adjusted EBITDA for the U. S. segment increased 38% to $13.8 million, reflecting continued traction from our turnaround plan. More than offsetting the impact of our re-franchising efforts. We've benefited from cost control initiatives and increased efficiencies, including outsourcing our U. S. to agistic network, savings in SG&A, and eliminating costs related to the now-ended McDonald's USA partnership. Those initiatives drove an adjusted EBITDA margin increase of about 370 basis points to 8%.

In our international segment, organic revenue decreased 5.1%. Due mostly to declines in UK and Australia, partially offset by growth in Canada. Adjusted EBITDA of $14.2 million declined 22% year over year, driven by the re-franchising of Japan. Additionally, our adjusted EBITDA margin for an international business was 12.1%, which was 160 basis point lower year over year. Due mostly to a change in mix from the Japan re-franchising.

In our market development segment, organic revenue increased 14.4%, driven by growth in royalty revenues from Middle East, Japan, and Brazil.

Adjusted EBITDA increased 117% to $19.4 million due to re-franchising of the West and U. S. and Japan, and increased royalty revenue.

Adjusted EBITDA margin decreased to 47.3%, driven by a higher domestic versus international revenue mix associated with re-franchising. Our adjusted earnings per share improved 12 cents year over year, about two cents of each was due to our re-franchising deals.

Moving to our balance sheet, we continue to leverage and end of the quarter with a net leverage ratio of 5.4 times, our trading four quarters of adjusted EBITDA. Our leverage ratio has improved by 1.3 turns versus our reported ratio of 6.7 times at the end of 2025, and more than two turns since last year's second quarter. We are pleased with the progress, but continue to focus on reducing our leverage ratio to additional net debt reduction and adjusted EBITDA growth.

Additionally, our free cash flow, we grew by more than $100 million in the first half of 2026, as compared to the first half of last year, driven by focus on reducing our capital intensity.

Graphics year to date of $16.1 million decreased 70% versus the first half of 2025. We continue to focus our invested capital on repairs and maintenance of existing infrastructure, which is in line with our asset-light business model, and we believe we contribute meaningfully to free cash flow generation during that year.

Before providing our guidance update, I wanted to discuss our long-term re-franchising philosophy. We believe our attractive franchise margins advance our capital-light growth strategy. As Josh mentioned, we added three international franchise markets this year, and we are working to add more. We also continue discussions to re-franchise additional markets to trusted partners, to grow our brand around the world.

We believe this will lead to higher margins, reduce capex, and generate more free cash flow than owning the markets ourselves.

While some re-franchising deals can be diluted to the income state, we believe it's important to build them from a discounted cash flow perspective. Our re-franchising deals intend to be accreated to free cash flow over time, by increasing high margin royalty stream and reducing capex, which we believe will increase long-term shareholder value.

Moving to our financial targets, I'm pleased to say we're maintaining our previously stated four-year guidance metrics that laid out in our earnings release. Some key metrics include net revenue of $1.25 to $1.35 billion, system-wide sales growth of two to 4% in constant currency, adjusted the data of $140 to $150 million, get to expenditures of $50 to $60 million, given the dynamic changes over the last four quarters, I want to provide some additional color on the rest of the year.

The fourth quarter is typically stronger due to seasonality, and thus we expect to see higher growth and margins in the fourth quarter than in the third quarter. Additionally, as a reminder, in the third quarter of 2025, we reported a $9.3 million cyber-related insurance gain. Adjusted by the third quarter of 2025, would have been $31.3 million excluding this gain.

With that, I will now turn it over to Josh for his closing remarks. We are pleased to have delivered another consecutive quarter of significant progress on our turnaround to strengthen the balance sheet, reduce leverage and drive sustainable profitable growth. We are confident in the foundation we are building for Krispy Kreme's next era of growth, and believe our results continue to demonstrate that we are well on our way.

Operator, you may now open the line up for Q&A.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

If you are muted locally, please remember to unmute your device. Please stand by while we compile with Q&A roster.

Your first question comes from the line of Brian Harbor with Morgan Stanley. Your line is open. Please go ahead.

How are you? This is Rafael. Look, we're happy with the turnaround plan. I think, as you said, look, there's the fourth quarter. We're seeing the results. It's more important to the first quarter where we've seen the two deals that we already did, Japan and the West and the US fall to the P&L, right? So you're seeing that impact and you see the margin coming up, right? So as we complete more deals and we continue to move our agenda to become kept alive, we believe margin will continue to increase and as well drive more free cash flow by doing so.

And I'll just add, as you mentioned, the outsourcing of logistics in the US. Yes, we've completed that transition, but most of the benefits of our logistics optimization have not really yet come through to the P&L. We're seeing greater cost certainty, improved service levels and efficiencies. These are, at the moment, more than offsetting any inflation on gas prices, for example. So we'd expect to see over time the benefits to margin all of that logistics outsourcing as well.

Now, we're working closely with our strategic partners. You mentioned Walmart, Target, there are others, Kroger, Publix, just to mention a couple more Costco, Sam's Club as well in the club channel. Very promising. Now, we work closely with those, both to expand distribution where the conditions are right, where we can make sure we have sustainable, profitable sales. That's why we made the interventions that we made last year. But also where we already are, that we're improving in store, merchandising, placement of the product.

And that's why we've not only increased the number of doors where we've distributed so far this year in the US by about $450, but we've also increased the average weekly sales in our whole network by over 30% compared to a year ago. So, it's your overall question. Yes, we're very pleased with the Fresh Delivery channel. It was important to make interventions on it last year, and we continue to work with those partners to improve the whole network.

Most recently, even adding . com availability with the likes of Kroger. com, or mark. com, and soon target. com.

Your next question comes from the line of David Palmer with Evercore ISI. Your line is open. Please go ahead.

Sure, I'll start with the growth, and I'll hand over to Raphael to talk about the margins. Two, both important, they go hand in hand. You know, we actually, you're right, we saw strong underlying growth in the second quarter in the US. If you exclude the McDonald's business that we exited from last year, the organic growth was up 4.4% in the second quarter.

You know, we're seeing popularity, both with our popular and affordable original gays donuts, especially these second dozen promotions that are driving additional volume and ticket. But also our donor innovations, as I described earlier, these cadence of limited time offerings backed up by a seasonal program is generating a lot of engagement with the brand. So, yeah, it's good to see the underlying growth coming through, but also the profit.

Raphael? Yeah, hey, David. Look, on the US margin, we are pleased with the results in the quarter, right? If I look at the margin, we almost double the US margin compared to less water. You have to remember, as well, that the Q3 and Q4 in the second half is stronger for us. So, you should see higher margins as we get to the balance of the year.

Yeah. So, look, with international, we continue to see strong growth in Canada, even in places like Japan, we also just going back because we recently were franchised, but they are growing, right? So, it's not hitting that segment anymore, but they opened five shops already this quarter. We did see some decline in our company own, UK market is mostly from the door or some reorganization that we did last year, plus the extreme hot weather, which backed the gold sales and profits. But, look, we feel confident on the needs to our own plan as we head to the second half of the year.

Your next question comes from the line of Sarah Sanator with Bank of America. Your line is open. Please go ahead.

And when you have markets that are underperforming, does that make re-franchising, you know, more attractive because a local partner may be kind of better positioned to fix them or more challenging because it weighs on valuation?

Hey, Ashling, it's Rafael. He was just saying, we did see some decline in the UK on the brand new side. There's also portfolio mix just as we look at the margin that you have to think about it. But yeah, in the UK, we have door personalization plus extreme hot weather. So, confident about the second half, I think your question on the EU is a good one.

And look, we're committed to finding the right partners, right? We believe there's a lot of opportunities for us in both Australia and UK. We also said we want to re-franchise all the markets outside of the US. We're also working, as we said, less water on Canada and make sure that we're finding the right partners that can bring cats still for us to grow and continue to develop all the markets.

Your next question comes from the line of Rahul Kratapali with JP Morgan. Your line is open, please. Go ahead.

Yeah, one of the great things about the strategic partners that we are growing with is that we are. You're right, relatively under-penetrated. Typically, around about 30% of their network is where we're currently present. And because we're working so closely with them and people are looking for our donuts in places where they want them more conveniently, our customers want us to expand more.

What we've learned is growth is great, but it needs to be sustainable, profitable growth as well. And so we've been very focused on making sure that the deliveries are locally made, that way we ensure great quality. We also make sure that the delivery routes are efficient and profitable. So we're growing thoughtfully with those customers, where those conditions arrive, where the traffic is high in the store, where we can secure really good in-store displays, or indeed be on their online platforms.

And that's an ongoing journey. We added 450 already this year, on top of about seven and a half thousand that we had at the beginning of the year. So we're pleased with the momentum that we've seen with that expansion. A momentum which always also ensures profitable growth is key. And that's how we see it going forward.

That's a great question. We make high quality fresh doughnuts made from scratch with our Krispy Kreme's preparing the dough, making and decorating the doughnuts in front of the eyes of the customer. And those same doughnuts we sell in our doughnuts shops, we sell online and we sell through the fresh delivery channel. So I'd say that we're pretty unique in the competitive set. The other thing to remember is it's a relatively infrequent purchase for people. Most people are buying our doughnuts just two to three times a year for special occasions and sharing. So we think about all the ways we can bring those doughnuts to people in ways that are a lot more convenient for them, like the fresh delivery expansion we just discussed or indeed digital, where we see us growing 8% right now, with our loyalty membership already having reached 18 million for a 400 doughnut shop chain.

It's a pretty unique player in the industry. So we worry mostly about making sure our great doughnuts are high quality and available and conveniently to people rather than the competition.

Your next question comes from the line of John Tower with Citibank. Your line is open, please go ahead.

Hey, how are you? This is Rafael again. Look, we said before and we haven't changed and we expect low single digit commodity. Josh also mentioned that we are outsourcing, we outsource fully logistic, I'm sorry. And we expect the benefit of it more than offset any potential few prices increase over the year. So we feel good about where we are from a commodity point of view.

And just for a follow-up, could you provide any color on maybe how your retailers are performing across maybe higher versus lower income suit codes?

Yeah, sure. You know, our overall focus here at Krispy Kreme is making sure we offer great value to our customers. And we're really fortunate with the popular original glazed donuts. They are also our most affordable donuts, whether bought in singles, but actually usually bought in dozens and increasingly in double dozens where we're providing additional discounts almost every day to our customers, to enable them to buy those at an even better value. And we're seeing that drive volumes, drive ticket and drive results. And so that's our main focus, is making sure that our donuts are available to as many people as possible.

Your next question comes from the line of Daniel Gulliamo. With Capital One Securities, your line is open, please go ahead.

Hey, Dan. Hi, this is Rafael. Well, good question. You may remember as well that we go to the impact of the Japan WKS on a four-year basis. So when you look at, when you adjust for that, you're going to get it up with a lower base last year. So I think that's already one point. On the question of the leverage, look, we knew the leverage that we had at seven and a half times, call it a year ago, was something we had to work. And we've been working on that, because the objective is to continue to do the right deals, that not only will help us with leverage, but we feel our capitalite growth going forward, right?

As we move to a lower capex, higher AB down margin, and leverage global partners across the globe to grow the brand. And that's what we're already doing, by the way, in a lot of places like we mentioned, that's quarter ends to the same, this one, we've already seen growth in Brazil, in Spain, Middle East, and as we're seeing before as well on on Japan, where we're just franchising with our new partner, Unison, and then they forget the business with growth.

And then longer term with the focus on system wide sales in the US and internationally, does the existing factory and production footprint across the world support significant growth there over the next few years? Will there be any need for additional capital from franchisees or you all at some point to build that out?

In the US, we currently operated around about 25% production utilisation. So there's plenty of room for growth, and that's why we have focused on partnering with those fresh delivery partners. We've already discussed today, or indeed, why we're able to capture the digital e-commerce opportunity.

Internationally, utilisation isn't as low, but there's also a lot of opportunity for our franchisees to expand. And we've seen already this year in India, Brazil, and Middle East, Japan, our franchisees supporting expansion of new shops, 59 already this year. We're on track to get over 100 for the full year. And we also have already announced three new international markets on top of the 42 we already operate in. And we are, when we're bringing those partners on, we're sitting down with them and talking about how we're going to build the brand, support them, to build the brand in their markets with development.

And so they're pretty excited about the capital returns that they can see themselves from bringing the brand or expanding the brand around the world. So it's definitely a lot of opportunity when you remember there's a number of reasons why people say they may not yet purchase Krispy Kreme. They just don't have his easy access to it. And that applies to the US and around the world.

There are no further questions at this time.

I will now turn the call back to Josh for any closing remarks. Well, thank you everyone for joining the call. I just point to understand that we're making significant progress on our turnaround. You can hear that as we strengthen the balance sheet and position ourselves for sustainable, profitable growth. I want to thank all our Krispy Kremeers around the world for your passion, dedication, and commitment.

And we look forward to continuing the momentum throughout 2026 and beyond. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.