CHARLOTTE, NC. — An impending staged nationwide rollout with McDonald’s beginning in Chicago and the Midwest this fall is among factors Krispy Kreme, Inc.’s management sees as part of an improving financial picture ahead, even after generating weak second-quarter bottom-line results. The company’s shares rose sharply after the company’s financials were released.

In the quarter ended June 30, Krispy Kreme sustained a loss of $5.49 million, compared with net income of $223,000, equal to less than 1¢ per share on the common stock, in the second quarter last year. Sales were $438.9 million, up 7% from $408.9 million.

Adjusted net income in the second quarter was $9.11 million, or 5¢ per share, down 20% from $11.4 million, or 7¢, in the second quarter last year.  The decrease was attributed principally to increased depreciation and amortization linked to “the strategy of making fresh donuts more available and Insomnia Cookies’ continued expansion.”

Adjusted EBITDA in the quarter was $54.7 million, up 12% from $48.8 million. EBITDA margins widened 60 basis points to 12.5% from 11.9%. The improvement reflects “optimization” of the company’s hub-and-spoke strategy together with efficiencies gained, lower compensation costs and other cost controls, Krispy Kreme said. 

Krispy Kreme lowered its guidance for adjusted earnings per share to 24¢ to 28¢ per share, down 3¢ from its previous guidance of 27¢ to 31¢. Organic sales growth was revised downward to 6% to 8% from 5% to 7%. Management attributed both decreases as well as other guidance updates to the sale of a stake in Insomnia Cookies. The company anticipates net sales of $1.65 billion to $1.69 billion for the year and adjusted EBITDA of $215 million to $220 million.

Investor response to the results and the update were positive. The company’s shares were up $1.24, or 13%, in trading Aug. 8 on Nasdaq, closing at $10.44. Shares remained well below the stock’s 52-week high of $17.84.

In the United States alone, Krispy Kreme adjusted EBITDA was $32.7 million in the second quarter, up 16% from a year earlier. The company said EBITDA margins widened by 80 basis points to 11.3% thanks to labor and waste optimization and productivity benefits associated with the hub-and-spoke model. Promotional activity and McDonald’s startup costs were offsets.

International margins tightened because of sluggish volumes in the United Kingdom. Management said it was taking steps to improve UK performance and noted global points of access to Krispy Kreme increased 2,981, or 23%, from a year earlier, to 15,853 at the end of the second quarter.

“And as of tomorrow, Krispy Kreme will be available in 40 countries with the opening of our first Hot Light Theater in Morocco,” Joshua A. Charlesworth, chief executive officer, said Aug. 8 in a call with investment analysts.

During the call, Charlesworth offered additional details about the planned rollout of Krispy Kreme donuts nationally at McDonald’s restaurants and also talked about opportunities for expansion the company sees into major retailers.

“Starting in Chicago, we expect to serve fresh donuts in more than 1,000 McDonald's restaurants by the end of the year, add 5,000 in 2025 and 6,000 in 2026 bringing us to more than 85% of the US footprint,” Charlesworth said.

Key to the successful execution of the plans is the buildout and expanded utilization of company’s 151 US hubs with spokes, he said.

Currently the hubs serve an average of 50 points of access apiece.

“We expect this to increase to over 100 by 2026, improving efficiency and profitability,” he said.

Additionally, the company has a stated goal to add 30 new hubs by the end of 2026 in support of its expansion plans.

“We’re on track to achieve this goal and have 17 of the 30 hubs already underway, including Seattle, Minneapolis and Philadelphia,” Charlesworth said.

He called the McDonald’s relationship “a bit of a catalyst” for Krispy Kreme, enabling its delivered fresh daily (DFD) business to expand more quickly.

“Our biggest opportunity is to make it easier for people to buy our fresh donuts,” Charlesworth said. “We are doing this by increasing availability through our donut shops, online and by delivering fresh daily to grocery convenience stores and quick-service restaurants and the pace of our expansion is accelerating…With existing customers, such as Walmart, which still only lists us in about 25% of their stores, we are exploring the opportunity to go nationwide. We have agreed to expand with Target, a new customer this year.”