Krispy Kreme, Inc. (DNUT) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This section of the Annual Report on Form 10-K generally discusses fiscal 2023 and fiscal 2022 items and year-to-year comparisons of fiscal 2023 to fiscal 2022. Discussions of fiscal 2021 items and year-to-year comparisons of fiscal 2022 and fiscal 2021 are not included in this Annual Report on Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 1, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “strive” or similar words, or the negative of these words, identify forward-looking statements. Such forward-looking statements are based on certain assumptions and estimates that we consider reasonable but are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial conditions, business, prospects, growth strategy and liquidity. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements including, without limitation, those described under the heading “Risk Factors” in this Annual Report on Form 10-K. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results could differ materially from the forward-looking statements included herein. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statement to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

General

Krispy Kreme is one of the most beloved and well-known sweet treat brands in the world. Krispy Kreme operates in 39 countries with our transformational omni-channel strategy, which focuses on delivering fresh doughnuts such as our iconic Original Glazed doughnut, which is universally recognized for its hot-off-the-line, melt-in-your-mouth experience, to where our consumers are located and want to have access to them. Global Points of Access are a key metric and we define them as our unique network of fresh Doughnut Shops, partnerships with leading retailers (DFD Doors), and a rapidly growing Ecommerce and delivery business. Our purpose of touching and enhancing lives through the joy that is Krispy Kreme guides how we operate every day and is reflected in the love we have for our people, our communities, and the planet.

We operate and report financial information on a 52 or 53-week fiscal year ending on the Sunday closest to December 31. Fiscal year 2023 reflects our results of operations for the 52-week period ended December 31, 2023. Fiscal year 2022 reflects our results of operations for the 52-week period ended January 1, 2023.

We conduct our business through the following three reported segments:

•U.S.: Includes all our Company-owned operations in the U.S., including our Krispy Kreme-branded shops and Insomnia Cookies Bakeries, DFD, and the recently exited Branded Sweet Treats business;

•International: Includes all our Krispy Kreme Company-owned operations in the U.K., Ireland, Australia, New Zealand and Mexico; and

•Market Development: Includes franchise operations across the globe, as well as the Company-owned operations in Japan and Canada.

The following table presents a summary of our financial results for the periods presented:

(1)We generated 12.2% and 12.1% organic revenue growth in fiscal 2023 and fiscal 2022, respectively.

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(2)Refer to “Key Performance Indicators and Non-GAAP Measures” below for more information as to how we define and calculate Adjusted EBITDA and Adjusted Net Income, Diluted and for a reconciliation of Adjusted EBITDA and Adjusted Net Income, Diluted to net loss, the most comparable GAAP measure.

Significant Events and Transactions

Executing on our Omni-Channel Strategy

We made strong progress on the execution of our omni-channel strategy in fiscal 2023, as we continue to add quality Global Points of Access across our network and convert markets into fully implemented Hub and Spoke models (refer to “Key Performance Indicators and Non-GAAP Measures” below for more information as to how we define the Hub and Spoke model). We added a net total of 2,310 new Global Points of Access in fiscal 2023 to reach 14,147 Global Points of Access. The primary driver of the increased Points of Access during the year was the continued expansion of our DFD network in alignment with our transformation strategy, as we added 2,068 DFD Doors globally, including 1,079 DFD Doors to the U.S. segment, 661 to the International segment, and 328 to the Market Development segment. The increase in DFD Doors is the result of our focus on executing our omni-channel strategy to drive our transformation, and includes expansion with key customers during the year. We expect DFD growth to continue to be one of our most significant drivers of earnings growth, through both increased door count and growth in average revenue per door per week (“APD”), which rose by 10.2% in the U.S. in fiscal 2023 compared to fiscal 2022. The increase in Points of Access and the strong growth in APD in the U.S. led to our trailing four quarters Sales per Hub increasing by 8.9% from $4.5 million in fiscal 2022 to a record high $4.9 million in fiscal 2023. The increase in our Sales per Hub contributed to U.S. segment organic revenue growth of 12.6% and Adjusted EBITDA margin expansion of 80 basis points to 11.9% in fiscal 2023. Our goal is to continue to grow our Sales per Hub over time, which we believe will drive higher margins and higher return on invested capital.

In addition to grocery and convenience stores, we are also testing additional DFD channels such as QSR, club membership, and drug stores to further broaden availability of our doughnuts to consumers. As previously announced, we launched a partnership with McDonald’s on a small-scale test to offer doughnuts at McDonald’s restaurants in Louisville, Kentucky and the surrounding area, which began in October 2022. While nothing has been finalized, we are in advanced discussions about expanding the collaboration and are making investments in the U.S. that reflect our confidence in further scaling our DFD network. We have also recently begun small-scale tests with other customers such as Costco in international markets. We continue to look for new ways to increase access to fresh doughnuts through our DFD network – a key element of our omni-channel strategy to attain more than 75,000 Global Points of Access.

Growing Our Global Presence

Another key strategic initiative on our journey to become the Most Loved Sweet Treat Brand in the World is to increase our global presence, focusing on the percentage of our revenues and Adjusted EBITDA generated outside the U.S. We met our goal to establish the Krispy Kreme brand in at least five new countries in fiscal 2023, which included our first expansion to continental Europe and central Asia. In total, we opened shops in seven new countries: Chile, Costa Rica, Ecuador, France, Jamaica, Kazakhstan, and Switzerland. In addition, the Insomnia Cookies brand expanded outside of the U.S. for the first time, with Cookie Bakery openings in Canada and the U.K. during the year. We expect to have further announcements in fiscal 2024 as we grow our global business.

Ecommerce, Brand, and Innovation

Ecommerce represented 19.3% of our Doughnut and Cookie Bakery sales (excluding DFD) for fiscal 2023, up from 18.0% for fiscal 2022, and 17.2% for fiscal 2021. We continue to expand the delivery radius in several key markets around the world through partnerships with third-party aggregators.

Innovation is a significant driver of frequency as we create and introduce premium and buzz-worthy offerings to consumers across our Global Points of Access. During the fourth quarter of fiscal 2023 we delivered the joy that is Krispy Kreme through

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powerful specialty doughnuts and seasonal activations including Halloween, Thanksgiving, and Christmas among many others around the world.

Exiting the Branded Sweet Treats Business

During the first quarter of fiscal 2023, we decided to exit our pre-packaged Branded Sweet Treats business due in part to its dilutive impact on profit margins, as well as to allow us to focus on our fresh doughnuts business. In fiscal 2022, the Branded Sweet Treats business generated approximately $36 million revenues and had a dilutive impact on Adjusted EBITDA margins. As a result, we discontinued production at our Concord, North Carolina and Winston-Salem, North Carolina manufacturing facilities. As such, we recognized non-recurring expenses, including property, plant and equipment impairments, inventory write-offs, employee severance, and other related costs, totaling approximately $17.9 million (gross of income taxes) in fiscal 2023.

Key Performance Indicators and Non-GAAP Measures

We monitor the key business metrics and non-GAAP metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key business metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.

Throughout this Annual Report on Form 10-K, we utilize “Global Points of Access” as a key performance indicator. Global Points of Access reflect all locations at which fresh doughnuts or cookies can be purchased. We define Global Points of Access to include all Hot Light Theater Shops, Fresh Shops, Carts and Food Trucks, DFD Doors, Cookie Bakeries, and other defined points at both Company-owned and franchise locations as of the end of the respective reporting period. We monitor Global Points of Access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments and by asset type.

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The following table presents our Global Points of Access, by segment and type, as of the end of fiscal 2023, fiscal 2022, and fiscal 2021:

(1)Excludes the recently exited Branded Sweet Treats distribution points.

(2)Includes Points of Access that were acquired from franchisees in the U.S. These Points of Access were previously included in the Market Development segment prior to the respective acquisition dates. See Note 2, Acquisitions, to the audited Consolidated Financial Statements for further information.

(3)Carts and Food Trucks are non-producing, mobile (typically on wheels) facilities without walls or a door where product is received from a Hot Light Theater Shop or Doughnut Factory. Other includes a vending machine. Points of Access in this category are primarily found in international locations in airports, train stations, etc.

(4)Includes locations in Japan and Canada, which are Company-owned. All remaining Points of Access in the Market Development segment relate to our franchise business. As of December 31, 2023, there were five Hot Light Theater Shops, 61 Fresh Shops, and 241 DFD Doors operating in Japan and four Hot Light Theater Shops, nine Fresh Shops, and 43 DFD Doors operating in Canada. As of January 1, 2023, there were five Hot Light Theater Shops, 54 Fresh Shops, and 166 DFD Doors operating in Japan and four Hot Light Theater Shops, six Fresh Shops, and 12 DFD Doors operating in Canada.

(5)Includes over 160 McDonald’s test shops located in Louisville and Lexington, Kentucky and the surrounding area as of December 31, 2023.

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As of December 31, 2023, we had 14,147 Global Points of Access, with 2,177 Krispy Kreme and Insomnia Cookies branded shops, 46 Carts and Food Trucks, and 11,924 DFD Doors. During fiscal 2023, we added a net 2,310 Global Points of Access, with a net 237 additional shops globally, including three Hot Light Theater Shops, 198 Fresh Shops, and 36 Insomnia Cookie Bakeries. Hot Light Theater Shop openings during the year included expansion in Atlanta, Georgia, Mayfield Heights, Ohio, and Temecula, California for the U.S. segment, and Torreón, Mexico and Chihuahua, Mexico for the International segment. We also continued to grow our international presence as we expanded into seven new countries in the Market Development segment: Chile, Costa Rica, Ecuador, France, Jamaica, Kazakhstan, and Switzerland. In addition, the Insomnia Cookies brand expanded outside of the U.S. for the first time, with Cookie Bakery openings in Canada and the U.K. during the year. The growth for the U.S. segment was offset some by the strategic exit of certain Hot Light Theater Shops in connection with our shop optimization program centered on Hubs without Spokes.

We added a net 2,068 new DFD Doors during the fiscal year as we continue to focus on the expansion of our Hub and Spoke model and our expansion into QSR channels. We plan to continue adding new locations and expanding our Ecommerce and delivery platform in order to extend the availability of and access to our products. We are excited about our continued collaboration with McDonald’s, which we believe has validated the attractiveness of the QSR channel. While nothing has been finalized, we are in advanced discussions about expanding the collaboration and are making investments in the U.S. that reflect our confidence in further scaling our DFD network.

We also utilize “Hubs” as a key performance indicator. Our transformation is driven by the implementation of an omni-channel strategy to reach more consumers where they are and drive revenue growth, and this strategy is supported by a capital-efficient Hub and Spoke distribution model that provides a route to market and powers profitability. Our Hot Light Theater Shops and Doughnut Factories serve as centralized production facilities (“Hubs”). From these Hubs, we deliver doughnuts to our Fresh Shops, Carts and Food Trucks, and DFD Doors (“Spokes”) primarily through an integrated network of Company-operated delivery routes, ensuring quality and freshness. Specific to the U.S. segment, certain legacy Hubs have not historically had Spokes. Many Hubs in the U.S. segment are being converted to add Spokes while certain legacy Hubs will never have the ability or need to add Spokes.

The following table presents our Hubs, by segment and type, as of the end of fiscal 2023, fiscal 2022, and fiscal 2021, respectively:

(1)Includes only Hot Light Theater Shops and excludes Mini Theaters. A Mini Theater is a Spoke location that produces some doughnuts for itself and also receives doughnuts from another producing location.

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Non-GAAP Measures

We report our financial results in accordance with generally accepted accounting principles in the U.S. (“GAAP”); however, management evaluates our results of operations using, among other measures, organic revenue growth, adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), and Adjusted Net Income, Diluted as we believe these non-GAAP measures are useful in evaluating our operating performance.

These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than we do or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance under GAAP. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical audited Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K.

Organic Revenue Growth

Organic revenue growth measures our revenue growth trends excluding the impact of acquisitions and foreign currency, and we believe it is useful for investors to understand the expansion of our global footprint through internal efforts. We define “organic revenue growth” as the growth in revenues, excluding (i) acquired shops owned by us for less than 12 months following their acquisition, (ii) the impact of foreign currency exchange rate changes, (iii) the impact of shop closures related to restructuring programs such as the shop portfolio optimization program initiated for Krispy Kreme U.S. during fiscal 2022, (iv) the impact of the Branded Sweat Treats business exit, and (v) revenues generated during the 53rd week for those fiscal years that have a 53rd week based on our fiscal calendar defined in the “Overview” section. See “Results of Operations” for our organic growth calculations for the periods presented.

Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS

We define “Adjusted EBITDA” as earnings before interest expense, net, income tax expense, and depreciation and amortization, with further adjustments for share-based compensation, certain strategic initiatives, acquisition and integration expenses, and other certain non-recurring, infrequent or non-core income and expense items. Adjusted EBITDA is a principal metric that management uses to monitor and evaluate operating performance and provides a consistent benchmark for comparison across reporting periods.

We define “Adjusted Net Income, Diluted” as net loss attributable to common shareholders, adjusted for interest expense, share-based compensation, certain strategic initiatives, acquisition and integration expenses, amortization of acquisition-related intangibles, the tax impact of adjustments, and other certain non-recurring, infrequent or non-core income and expense items. “Adjusted EPS” is Adjusted Net Income, Diluted converted to a per share amount.

Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS have certain limitations, including adjustments for income and expense items that are required by GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as share-based compensation. Our presentation of Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted Net Income, Diluted, and Adjusted EPS supplementally.

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The following tables present a reconciliation of net loss to Adjusted EBITDA and net loss to Adjusted Net Income, Diluted and Adjusted EPS for the periods presented:

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(1)Consists of interest expense related to the Related Party Notes which were paid off in full during the second quarter of fiscal 2021.

(2)Primarily foreign translation gains and losses in each period.

(3)Fiscal 2023 consists primarily of costs associated with global transformation and U.S. initiatives such as the decision to exit the Branded Sweet Treats business, including property, plant and equipment impairments, inventory write-offs, employee severance, and other related costs (approximately $17.9 million of the total). Fiscal 2022 consists mainly of equipment disposals, equipment relocation and installation, consulting and advisory fees, and other costs associated with our shift of Branded Sweet Treats manufacturing capability from Burlington, Iowa to Winston-Salem, North Carolina.

(4)Consists of acquisition and integration-related costs in connection with the Company’s business and franchise acquisitions, including legal, due diligence, and advisory fees incurred in connection with acquisition and integration-related activities for the applicable period.

(5)Consists of start-up costs associated with entry into new countries for which the Company’s brands have not previously operated, including the Insomnia Cookies brand entering Canada and the U.K.

(6)Fiscal 2023 includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment, primarily associated with strategic shop exits, primarily in the U.S. (approximately $16.0 million of the total). Fiscal 2022 includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment, primarily

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associated with strategic shop exits. Fiscal 2022 expenses are also inclusive of accelerated depreciation related to replacing a point of sale system.

(7)Fiscal 2023 and fiscal 2022 consist primarily of costs associated with restructuring of the global executive team. Fiscal 2021 consists of severance and related benefits costs associated with the Company’s realignment of the Company Shop organizational structure to better support the DFD and Branded Sweet Treats businesses.

(8)Includes consulting and advisory fees incurred in connection with preparation for and execution of the Company’s IPO.

(9)Fiscal 2023, fiscal 2022, and fiscal 2021 consist primarily of legal and other regulatory expenses incurred outside the ordinary course of business on matters described in Note 15, Commitments and Contingencies, to the Company’s audited Consolidated Financial Statements, including the net settlement of approximately $3.3 million negotiated with TSW Foods, LLC in fiscal 2022.

(10)Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the Consolidated Statements of Operations.

(11)Includes interest expense and debt issuance costs incurred and recognized as expenses in connection with the extinguishment of the KKI Term Loan Facility within four business days of receipt of the net proceeds from the IPO.

(12)Includes interest expenses related to unamortized debt issuance costs from the 2019 Facility associated with extinguished lenders as a result of the March 2023 debt refinancing described in Note 8, Long-Term Debt to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K.

(13)Tax impact of adjustments calculated applying the applicable statutory rates. The Company’s adjusted effective tax rate is 27.2%, 24.1%, and 22.4% for each of the fiscal years 2023, 2022, and 2021, respectively. Fiscal 2023 also includes the impact of disallowed executive compensation expense. Fiscal 2022 includes the impact of disallowed executive compensation expense and a discrete tax benefit related to a legal accrual. Fiscal 2021 includes the impact of disallowed executive compensation expense incurred in connection with the IPO.

(14)Fiscal 2023 consists of the recognition of a previously unrecognized tax benefit unrelated to ongoing operations, the effect of tax law changes on existing temporary differences, and a discrete tax benefit unrelated to ongoing operations. Fiscal 2022 consists of the recognition of previously unrecognized tax benefits unrelated to ongoing operations, as well as benefits attributable to multiple tax years due to lapse of the statute of limitations. Fiscal 2022 also includes the effect of discrete adjustments to the Company’s deferred tax liabilities that are unrelated to the Company’s ongoing operations. Fiscal 2021 consists primarily of the effect of tax law changes on existing temporary differences.

Sales Per Hub

In order to measure the effectiveness of our Hub and Spoke model, we use “Sales per Hub” on a trailing four-quarter basis, which includes all revenue generated from a Hub and its associated Spokes. Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes during the period. Fresh Revenues include product sales generated from our Doughnut Shop business (including Ecommerce and delivery), as well as DFD sales, but excluding all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business. The Average Hub with Spokes for a period is calculated as the average of the number of Hubs with Spokes at the end of the five most recent quarters. The Sales per Hub performance measure allows us and investors to measure our effectiveness at leveraging the Hubs in the Hub and Spoke model to distribute product and generate cost efficiencies and profitability.

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Sales per Hub was as follows for each of the periods below:

(1)Includes the exited Branded Sweet Treats business revenues.

(2)Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes.

(3)Total International net revenues is equal to Fresh Revenues from Hubs with Spokes for that business segment.

(4)International sales per Hub comparative data has been restated in constant currency based on current exchange rates.

In our International segment, where the Hub and Spoke model originated, Sales per Hub was $10.0 million, slightly down from $10.1 million in the full fiscal year 2022, and up from $8.7 million in the full fiscal year 2021. The International segment illustrates the benefits of leveraging our Hub and Spoke model as the most efficient way to grow the business, as shown by the consistent Sales per Hub and sequential adjusted EBITDA margin improvement despite elevated commodity costs and macroeconomic conditions. In the U.S. segment, we had Sales per Hub of $4.9 million, up from $4.5 million in the full fiscal year 2022 and up from $4.0 million in the full fiscal year 2021. U.S. growth was driven by our efforts to increase the number of DFD Doors served by our Hubs and to increase APD for the DFD Door portfolio, as the segment makes progress toward optimizing the model to look more like our International segment. As we further extend the Hub and Spoke model into existing and new markets around the world, we expect to see this measure continue to grow.

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Results of Operations

The following comparisons are historical results and are not indicative of future results which could differ materially from the historical financial information presented.

Fiscal Year ended December 31, 2023 compared to the Fiscal Year ended January 1, 2023

The following table presents our audited consolidated results of operations for fiscal 2023 and fiscal 2022:

Royalties and other revenues: Royalties and other revenues increased $2.9 million, or 9.1%, from fiscal 2022 to fiscal 2023, led by performance of the international franchise business and expansion into new markets, partially offset by continued foreign exchange headwinds.

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The following table presents a further breakdown of total net revenue and organic revenue growth by segment for the periods indicated:

Total net revenue growth of $156.2 million, or approximately 10.2%, and organic revenue growth of $181.7 million, or approximately 12.2%, was driven by the continued and successful execution of our omni-channel growth strategy globally, high impact brand activations, and product premiumization efforts. We have continued to increase availability through new Global Points of Access, including capital-light DFD Doors, and via Ecommerce and delivery during fiscal 2023. Additionally, we have continued to take pricing actions to offset cost inflation throughout fiscal 2023.

U.S. segment revenue grew $94.7 million, or approximately 9.4% from fiscal 2022 to fiscal 2023, and was impacted by our decision to exit the Branded Sweet Treats business in the first quarter of fiscal 2023 as well as shop optimization program closures near the end of fiscal 2022. Organic revenue grew $123.0 million, or approximately 12.6%, from fiscal 2022 to fiscal 2023, driven by an additional 1,116 Points of Access compared to fiscal 2022, including an increase of 1,079 DFD Doors, higher Ecommerce and delivery revenues, growth from Insomnia Cookies, and growth in DFD APD as we continue to expand the types of premium products available to consumers such as specialty doughnuts. Our organic growth has been supplemented by effective pricing increases, leading to an increase in the average transaction size, but offset some by transaction softness.

Our International segment net revenue grew $35.9 million, or approximately 9.8%, from fiscal 2022 to fiscal 2023, aided by foreign currency translation impacts of $10.4 million from a strengthening British pound and Mexican peso. International organic revenue grew $25.5 million or approximately 7.0%, from fiscal 2022 to fiscal 2023, driven by increased pricing and Points of Access growth of 686, or 19.8%, compared to fiscal 2022 with DFD Doors increasing by 661. International organic revenue growth was offset some by softer transaction volume compared to last year as a result of the inflationary impact on consumers as well as regulatory initiatives in the U.K. which impacted placement and promotion of our products within grocery stores.

Our Market Development segment net revenue grew $25.6 million, or approximately 16.7%, from fiscal 2022 to fiscal 2023, in spite of the impacts of franchise acquisitions and certain foreign currencies devaluing against the U.S. dollar. When adjusted for the impacts of acquisitions and foreign currency, Market Development organic revenue grew $33.2 million, or approximately 21.6%, from fiscal 2022 to fiscal 2023, driven by strong performance in our international franchise markets, Canada, and Japan, aided by Hub and Spoke model expansion.

Product and distribution costs (exclusive of depreciation and amortization): Product and distribution costs increased $37.0 million, or 9.1%, from fiscal 2022 to fiscal 2023, largely in line with and attributable to the same factors as our revenue growth. Product and distribution costs as a percentage of revenue decreased by approximately 30 basis points from 26.6% in fiscal 2022 to 26.3% in fiscal 2023. This decrease was primarily driven by the exit of the lower-margin Branded Sweet Treats business earlier in fiscal 2023. We also saw benefits from pricing actions taken throughout the year to offset materials cost inflation. We expect to continue to see impacts from materials cost inflation in fiscal 2024 — refer to “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A of Part II of this Annual Report on Form 10-K for further information on our strategies to effectively manage inflationary cost increases.

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Operating expenses: Operating expenses increased $72.3 million, or 10.3%, from fiscal 2022 to fiscal 2023, driven mainly by labor cost inflation and investments to support growth. Operating expenses as a percentage of revenue increased approximately 10 basis points, from 46.0% in fiscal 2022 to 46.1% in fiscal 2023 primarily due to the impact of lower transaction volumes on operating leverage, particularly for the International segment. This has been partially offset by efficiency benefits from Hub and Spoke expansion and our focus on labor management and demand planning, which we continue to refine with new tools.

Selling, general and administrative expense: Selling, general and administrative (“SG&A”) expenses increased $43.7 million, or 19.6%, from fiscal 2022 to fiscal 2023. As a percentage of revenue, SG&A increased by approximately 120 basis points, from 14.6% in fiscal 2022 to 15.8% in fiscal 2023, primarily driven by increases in performance-based compensation accruals, investment in global transformation initiatives, and higher share-based compensation expenses in fiscal 2023.

Other expenses, net: Other expenses, net of $10.4 million in fiscal 2023 were primarily driven by impairments and lease termination costs associated with the Branded Sweet Treats exit and the decision to exit certain other underperforming shops, net of a gain from a sale-leaseback transaction. Other expenses, net of $10.2 million in fiscal 2022 were primarily driven by impairment and lease termination costs, net of gains from sale-leaseback transactions. Refer to Note 9, Leases, to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for further information.

Depreciation and amortization expense: Depreciation and amortization expense increased $15.6 million, or 14.2%, from fiscal 2022 to fiscal 2023, primarily driven by higher capital spend and assets placed into service to support the Hub and Spoke model evolution as well as expansion of Insomnia Cookies both domestically and internationally.

Interest expense, net: Interest expense, net increased $16.2 million, or 47.6%, from fiscal 2022 to fiscal 2023. The increase was primarily driven by increases in the benchmark interest rates associated with the unhedged portion of our variable rate long-term debt, as well as an increase in the unhedged principal amount compared to last year. The interest rate swap arrangements associated with the hedged portion of our long-term debt are set to mature in June 2024; we are currently evaluating arrangements to extend the maturity of these contracts. The increase in interest expense also includes $0.5 million related to our debt refinancing discussed in Note 8, Long-Term Debt, to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K.

Income tax (benefit)/expense: Income tax benefit was $4.3 million in fiscal 2023, while income tax expense was $0.6 million in fiscal 2022. The fluctuation of $5.0 million from fiscal 2022 to fiscal 2023 was driven primarily by lower pre-tax results in fiscal 2023.

Net income attributable to noncontrolling interest: Net income attributable to noncontrolling interest decreased $5.6 million, or 81.3%, from fiscal 2022 to fiscal 2023, driven by less earnings allocated to certain consolidated subsidiaries, particularly Insomnia Cookies and WKS Krispy Kreme, and partially offset by more earnings allocated to KK Canada.

Results of Operations by Segment – Fiscal Year ended December 31, 2023 compared to the Fiscal Year ended January 1, 2023

The following table presents Adjusted EBITDA by segment for the periods indicated:

(1)Refer to “Key Performance Indicators and Non-GAAP Measures” above for a reconciliation of Adjusted EBITDA to net loss.

U.S. segment Adjusted EBITDA increased $18.7 million, or 16.7%, with margin expansion of 80 basis points to 11.9% from fiscal 2022 to fiscal 2023, primarily driven by efficiencies from Hub and Spoke expansion as we added 1,116 Points of Access,

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labor optimization, waste mitigation, and improvements from the Krispy Kreme U.S. portfolio optimization of our Hubs without Spokes. We also effectively offset commodity inflation and labor pressures by implementing pricing increases. The U.S. Adjusted EBITDA margin expansion was partially offset by higher product costs at Insomnia Cookies.

International segment Adjusted EBITDA increased $1.0 million, or 1.3%, with margin decline of approximately 160 basis points to 19.0% from fiscal 2022 to fiscal 2023, primarily driven by cost inflation and lower transaction volume, particularly in the U.K.

Market Development segment Adjusted EBITDA increased $12.4 million, or 24.4%, with margin expansion of 220 basis points to 35.1% from fiscal 2022 to fiscal 2023, driven mainly by strong margin improvement in our Company-owned Japan and Canada businesses from Hub and Spoke efficiencies. Strength in international franchise revenues also more than offset cost inflation and the strong U.S. dollar.

Corporate expenses within Adjusted EBITDA increased $11.2 million, or 23.4% from fiscal 2022 to fiscal 2023. As a percentage of total net revenues, corporate expenses within Adjusted EBITDA increased by 40 basis points to 3.5% from fiscal 2022 to fiscal 2023, primarily due to strategic investments in global leadership, global transformation initiatives, and increases in performance-based compensation accruals.

Capital Resources and Liquidity

Our principal sources of liquidity to date have included cash from operating activities, cash on hand, amounts available under our credit facility, and commercial trade financing including our supply chain financing programs (“SCF programs”) and structured payables programs. Our primary use of liquidity is to fund the cash requirements of our business operations, including working capital needs, capital expenditures, acquisitions, and other commitments.

Our future obligations primarily consist of our debt and lease obligations, as well as commitments under ingredient and other forward purchase contracts. As of December 31, 2023, we had the following future obligations:

•An aggregate principal amount of $837.5 million outstanding under the 2023 Facility;

•An aggregate principal amount of $11.0 million outstanding under short-term, uncommitted lines of credit

•Non-cancellable future minimum operating lease payments totaling $759.2 million;

•Non-cancellable future minimum finance lease payments totaling $63.3 million; and

•Purchase commitments under ingredient and other forward purchase contracts of $130.5 million.

Refer to Note 8, Long-Term Debt, Note 9, Leases, and Note 15, Commitments and Contingencies, to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for further information.

We had cash and cash equivalents of $38.2 million and $35.4 million as of December 31, 2023 and January 1, 2023, respectively. We believe that our existing cash and cash equivalents and debt facilities will be sufficient to fund our operating and capital needs for at least the next twelve months. In fiscal 2024, we expect to use our available cash to continue to position the business for sustainable growth, including investing in shop improvements, ways to better serve our consumers, and ways to increase our omni-channel presence as we expand our DFD Doors in priority areas, as well as investing in new shop openings and new market penetration within the U.S. and internationally. Total capital expenditures for fiscal 2024 are expected to be between 7% and 8% of net revenues, as we continue to deploy the capital-efficient Hub and Spoke model globally. We also expect to continue to reduce leverage by repaying debt, as well as to continue to return cash to shareholders through common stock cash dividend payments.

Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depend on, many factors, including our growth rate, the timing and extent of spending to acquire franchises, the growth of our presence in new markets and the expansion of our omni-channel model in existing markets. We may enter into arrangements in the future to acquire or invest in complementary businesses, services and technologies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected.

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Cash Flows

We generate significant cash from operations and have substantial credit availability and capacity to fund operating and discretionary spending such as capital expenditures and debt repayments. Our requirement for working capital is not significant because our consumers pay us in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the vendor of such items. The following table and discussion present, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities:

Cash Flows Provided by Operating Activities

Cash provided by operations totaled $45.5 million for fiscal 2023, a decrease of $94.3 million compared with fiscal 2022. Cash provided by operations decreased primarily due to payments of obligations due under our SCF programs discussed in Note 7, Vendor Finance Programs to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K. In an effort to normalize payment terms, we have reduced outstanding balances under the SCF programs by approximately $108.2 million during fiscal 2023.

Cash Flows Used for Investing Activities

Cash used for investing activities totaled $112.6 million for fiscal 2023, a decrease of $8.9 million compared with fiscal 2022. The decrease is primarily due to $17.3 million cash used for acquisitions of franchised shops in fiscal 2022, partially offset by an increase in cash spent on property and equipment purchases in fiscal 2023 related to Hub and Spoke expansion.

Cash Flows Provided by/(Used for) Financing Activities

Cash provided by financing activities totaled $71.9 million for fiscal 2023, an increase of $88.7 million compared with fiscal 2022. The increase was primarily due to draws on our 2023 Facility used in part to fund payments to reduce our vendor finance program obligations, including the SCF programs, during fiscal 2023. The increase was also impacted by payments of $12.5 million during fiscal 2022 for issuance costs in connection with the IPO.

Payments on our structured payables resulted in a net $39.0 million change in cash flows (net proceeds from structured payables of $26.6 million in fiscal 2023 compared to net payments on structured payables of $12.4 million in fiscal 2022). Refer to Note 7, Vendor Finance Programs to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for further information.

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Debt

Our long-term debt obligations consist of the following:

2023 Secured Credit Facility

In March 2023, we refinanced our existing credit agreement (the 2019 Facility) and entered into the 2023 Facility consisting of a $300.0 million senior secured revolving credit facility and a term loan with a principal amount of $700.0 million. The loans and commitments under the 2019 Facility were due to mature in June 2024, and the loans and commitments under the 2023 Facility will mature in March 2028. Refer to Note 8, Long-Term Debt to the audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K for further information.

Under the terms of the 2023 Facility, we are subject to a requirement to maintain a leverage ratio of less than 5.00 to 1.00 as of the end of each quarterly Test Period (as defined in the 2023 Facility) through maturity in March 2028. The leverage ratio under the 2023 Facility is defined as the ratio of (a) Total Indebtedness (as defined in the 2023 Facility, which includes all debt and finance lease obligations) minus unrestricted cash and cash equivalents to (b) a defined calculation of Adjusted EBITDA (2023 Facility Adjusted EBITDA) for the most recently ended Test Period. Our leverage ratio was 3.48 to 1.00 as of the end of fiscal 2023 compared to 3.41 to 1.00 as of the end of fiscal 2022, primarily due to the increase in long-term debt.

We were in compliance with the financial covenants related to the 2023 Facility as of December 31, 2023 and expect to remain in compliance over the next 12 months. If we are unable to meet the 2023 Facility financial or other covenants in future periods, it may negatively impact our liquidity by limiting our ability to draw on the revolving credit facility, could result in the lenders accelerating the maturity of such indebtedness and foreclosing upon the collateral pledged thereunder, and could require the replacement of the 2023 Facility with new sources of financing, which there is no guaranty we could secure.

Short-Term Lines of Credit

In September 2023, the Company approved two new agreements with existing lenders providing for short-term, uncommitted lines of credit up to $25.0 million. Borrowings under these short-term lines of credit are payable to the lenders on a revolving basis for tenors up to a maximum of three months and are subject to an interest rate of adjusted term Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment of 0.10% plus a margin of 1.75%. As of December 31, 2023, the Company had drawn $11.0 million under the agreements which is classified within Current portion of long-term debt on the Consolidated Balance Sheets.

Critical Accounting Estimates

The financial information discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon or derived from the audited Consolidated Financial Statements, which have been prepared in conformity with GAAP. The preparation of the financial statements requires the use of judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the audited Consolidated Financial Statements.

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On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. We review our financial reporting and disclosure practices and accounting policies quarterly to confirm that they provide accurate and transparent information relative to the current economic and business environment. A summary of our significant accounting policies is included in Note 1, Description of Business and Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements. We believe that our critical accounting estimates are:

Self-Insurance Risks and Receivables from Insurers

We are subject to workers’ compensation, vehicle, and general liability claims and are self-insured for a significant portion of our workers’ compensation, vehicle and general liability claims up to the amount of stop-loss insurance coverage purchased from commercial insurance carriers. We maintain accruals for the estimated cost of claims, without regard to the effects of stop-loss coverage, using actuarial methods which evaluate known open and incurred but not reported claims and consider historical loss development experience. In addition, we record receivables from the insurance carriers for claims amounts estimated to be recovered under the stop-loss insurance policies when these amounts are estimable and probable of collection. We estimate such stop-loss receivables using the same actuarial methods used to establish the related claims accruals and taking into account the amount of risk transferred to the carriers under the stop-loss policies. The stop-loss policies provide coverage for claims in excess of retained self-insurance risks, which are determined on a claim-by-claim basis. As of December 31, 2023 and January 1, 2023, the Company had approximately $21.0 million and $17.7 million, respectively, reserved for such programs. Inclusive of the receivables from the stop-loss insurance policies, the Company’s limited liability balance was $10.8 million and $8.4 million as of December 31, 2023 and January 1, 2023, respectively.

Our estimated liability is not discounted and is based on a number of assumptions and factors. The critical assumptions used in determining these related expenses and obligations are future cost projections of claims, which include healthcare cost projections. These critical assumptions are calculated based on historical Company data and experience, as well as appropriate market indicators including inflation, societal attitudes toward legal action, and changes in law. The assumptions are evaluated at least semiannually by us in conjunction with outside actuaries and are closely monitored and adjusted when warranted by changing circumstances. If a greater amount of claims are reported, or if medical costs increase beyond our expectations, our liabilities may not be sufficient, and we could recognize additional expense.

Income Taxes

Our provision for income taxes, deferred tax assets and liabilities including valuation allowance requires the use of estimates based on our management’s interpretation and application of complex tax laws and accounting guidance. We establish reserves for uncertain tax positions for material, known tax exposures in accordance with ASC 740, Income Taxes relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item. We may adjust these reserves when our judgment changes as a result of the evaluation of new information not previously available and will be reflected in the period in which the new information is available. While we believe that our reserves are adequate, issues raised by a tax authority may be resolved at an amount different than the related reserve and could materially increase or decrease our income tax provision in future periods.

Realization of deferred tax assets involves estimates regarding (i) the timing and amount of the reversal of taxable temporary differences, (ii) expected future taxable income, (iii) the ability to carry back or carry forward net operating losses and tax credits, and (iv) the impact of tax planning strategies. We believe that it is more likely than not that we will not realize the benefit of certain deferred tax assets and, accordingly, have established a valuation allowance against them. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of and potential changes to ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that the remaining deferred tax assets will be realized through future taxable earnings or alternative tax strategies. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or tax strategies are no longer viable.

Goodwill and Indefinite Lived Intangible Assets

For each reporting unit, the Company assesses goodwill for impairment annually at the beginning of the fourth fiscal quarter or more frequently when impairment indicators are present. If the carrying value of the reporting unit exceeds its fair value, the

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Company recognizes an impairment charge for the difference up to the carrying value of the allocated goodwill. The fair value is estimated using a combination of a discounted cash flow approach and a market approach.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit is influenced by a number of factors, inclusive of the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new shop concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives, local market economics, and the local business environment impacting the reporting unit’s performance. The discount rate is selected based on the estimated cost of capital for a market participant to operate the reporting unit in the region. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance, and changes in our business strategies, including retail initiatives and international expansion.

For the fiscal years 2023, 2022, and 2021, there were no goodwill impairment charges. We continue to believe the fair value of each of our reporting units is significantly in excess of its carrying value, and absent a sustained multi-year global decline in our business in key markets such as the U.S., we do not anticipate incurring significant goodwill impairment in the next 12 months.

Other intangible assets, net primarily represent the trade names for our brands, franchise agreements (domestic and international), reacquired franchise rights, and customer relationships. The trade names have been assigned an indefinite useful life and are reviewed annually for impairment. The fair value calculation for the trade names includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group’s forecasted growth and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance, and changes in our business strategies, including retail initiatives and international expansion. All other intangible assets are amortized on a straight-line basis over their estimated useful lives. Definite-lived intangible assets are assessed for impairment whenever triggering events or indicators of potential impairment occur. We did not have any impairment charges of indefinite-lived intangible assets during any of the periods presented, and we do not anticipate incurring significant impairment charges in the next 12 months.

New Accounting Pronouncements

Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements for a detailed description of recent accounting pronouncements.

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