Americans ate a lot of treats last year, at least if you ask Krispy Kreme.
The Charlotte, N.C.-based company, which owns the flagship brand Krispy Kreme Doughnuts as well as Insomnia Cookies, said its revenue grew more than 9% to $404.6 million. In the U.S., a typical “hub” shop, which sells doughnuts on site and in ancillary locations called “DFD doors,” generated 15% sales growth in the quarter as consumers bought more doughnuts during Halloween and the Christmas holiday.
The performance put a capstone on a strong year for Krispy Kreme, which sold a record 1.63 billion doughnuts globally in 2022. “That’s a lot of doughnuts,” CEO Mike Tattersfield told analysts on Wednesday, according to a transcript on the financial services site Sentieo.
It wasn’t just at the flagship chain, either. Insomnia revenue grew 24% in the quarter while a typical unit averaged $850,000 in revenue over the course of the year, with store-level profit margins near 30%.
Krispy Kreme also posted a rosy revenue and earnings outlook for 2023 with 8% to 10% revenue growth and 8% to 13% in adjusted EBITDA growth, or earnings before interest, taxes, depreciation and amortization. Executives suggested that some of the inflation that dogged the company over the past year and a half will abate throughout 2023.
The performance last year and projections for 2023 sent Krispy Kreme’s stock up 7% on Wednesday.
Krispy Kreme has been deploying a strategy in which it makes doughnuts from hub shops and delivers them daily to the DFD doors. Those doors are at grocers, convenience stores and pharmacies and the company is now experimenting with a fast-food brand in McDonald’s, where the two chains are testing doughnut sales in Louisville, Ky.
Tattersfield noted that the company believes it can manage to deliver its doughnuts to another quick-service restaurant brand without sacrificing quality, which could increase the points of access where it can sell doughnuts. But Krispy Kreme has other questions it has to answer, namely “how our brand also works with another brand.”
Krispy Kreme has been closing unprofitable locations as part of an “optimization” effort. The company closed 14 underperforming shops last year, including six in the fourth quarter. It expects to close another seven locations in the first half of this year. Each of these locations loses money. The chain has 236 doughnut “hubs” in the U.S., 99 of which do not deliver doughnuts to ancillary locations.
The DFD doors are making up a growing percentage of the company’s overall business. They generated 21% of Krispy Kreme sales in 2021, up from 17% the year before. The company now has 5,700 of these locations in the U.S., each of which sells an average of $580 in doughnuts per week.
At the same time, Krispy Kreme has focused on more premium doughnut sales and suggested it would move away from some of the discounting that marked 2022. The company last year used a gas price promotion, tying the price of a dozen doughnuts to the price of a gallon of gas.
This year, the company expects to focus more on higher-priced specialty doughnuts while moving away from the gas price promotion. Executives said they will still do some discounting, but will be selective about it, such as recent offers tied to the New Year and Friday the 13th.
“We still believe in selective price promotion,” Krispy Kreme President Josh Charlesworth said. “We’ll do that selectively while also driving innovation and excitement around our premium specialty doughnuts.”
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