Krispy Kreme Inc Aktie

Greetings. Welcome to the Krispy Kreme Q3 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. Now I'll turn the conference over to Steve West, Vice President, Investor Relations. Thank you, Steve. You may begin.

Good morning, everyone, and welcome to Krispy Kreme's third quarter 2026 earnings call. Joining me are President and Chief Executive Officer Josh Charlesworth and Chief Financial Officer Raphael Duvivier. The third quarter earnings release and accompanying presentation are available on our Investor Relations website at investors.krispykreme.com. A replay of this call will also be available on our website.

Today's remarks contain forward-looking statements, including those of expectations, future events, or financial performance. Forward-looking statements 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, annual report on Form 10-K filed with the SEC, and 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-GAAP financial measures. Information about these non-GAAP measures and reconciliations to the closest comparable GAAP measures are available in our earnings release and the accompanying presentation. Any reference to percentage growth when discussing third quarter results is a comparison to the third quarter of 2025, unless otherwise indicated. Finally, we are tentatively scheduled to report our fourth quarter and full year financial results and host our quarterly earnings call on March 4, 2027. I will now turn the call over to Josh.

Thank you, Steve, and good morning, everyone. The third quarter marked another period of significant progress on our turnaround to strengthen the balance sheet and drive sustainable, profitable growth, which gives us the confidence to increase our full-year guidance. Krispy Kreme is a compelling growth story, supported by sustained consumer demand for our iconic fresh donuts, even in a dynamic macro environment. Unlocking that demand continues to be our priority as we pursue profitable U.S. expansion and capital-light international franchise growth. In the third quarter, global systemwide sales increased by 1%, and our goal remains to grow by 2% to 4% to more than $2 billion in 2026. Our results demonstrate the success of the actions we are taking to drive sustainable growth and improve profitability. In the third quarter, adjusted EBITDA margin expanded 240 basis points compared to last year when excluding the cyber insurance recovery.

Now, let's move to the 4 pillars of our turnaround plan and the progress we are making against each. Number 1, refranchising. Number 2, improving returns on capital. Number 3, expanding margins. And Number 4, driving sustainable, profitable U.S. growth. Our first pillar, refranchising, enables us to drive more profitable systemwide sales while accelerating new shop development through a capital-light model. Earlier this year, we completed the refranchising of Japan and the western U.S., with both transactions contributing to a reduction in net debt. Today, franchisees generate approximately 42% of our systemwide sales. And we expect that percentage to grow as we continue to pursue additional refranchising opportunities.

We are disciplined in selecting the right partners, both internationally and in the U.S., to maximize value and position the brand for long-term growth. We recently announced a development agreement with an existing franchisee to open 33 new donut shops across the New York City metropolitan area over the next 5 years. This is an exciting opportunity to expand our presence in one of the country's largest consumer markets through our capital-light franchise model. As we look ahead, we will continue to evaluate capital-efficient ways to expand the brand. The second pillar of our turnaround is improving returns on capital. Across the business, we are reducing capital intensity and making better use of our existing assets while our franchisees invest to expand our footprint. Year-to-date, we have reduced CapEx by approximately 65%, a meaningful improvement that supports our goal of generating positive free cash flow in 2026.

This year, we have already announced 3 new international franchise agreements: Estonia, Mauritius, and the Netherlands. Today, we announced a 4th agreement to enter Pakistan with Gray Mackenzie Restaurants to open 120 donut shops over the next 5 years. We are also seeing sustained demand in existing international franchise markets, including Brazil, Spain, and recently refranchised Japan. By the end of the third quarter, there were 98 new shop openings, nearly all of which are franchised, led by India, South Korea, and the Middle East. The strong interest in development from franchisees around the world speaks to the strength of the Krispy Kreme brand and the significant opportunity to expand our global footprint through our capital-light franchise model. We are actively pursuing new ways to expand. Next week, one of our longtime franchisees will open a reimagined shop prototype in Las Vegas, designed to bring the Krispy Kreme Hot Light experience and fresh, hot Original Glazed donuts to consumers in a smaller footprint shop format. While we're in the initial phase of testing the new Hot Light Express concept, we are encouraged by the interest we've already seen from franchisees as we focus on ways of improving capital returns within our hub-and-spoke model.

The third pillar of our turnaround is expanding margins. We are simplifying the business and taking meaningful costs out of the P&L. These actions are producing significant year-over-year margin improvement, especially in our U.S. segment. In the U.S., we are making donuts more efficiently through enhanced production planning, labor optimization, and streamlined hub operations, resulting in a meaningful reduction in labor spend. We're also increasing delivery efficiency through improved route management and demand planning, as well as optimized production and delivery schedules. The fourth pillar of our turnaround is sustainable, profitable growth in the U.S. across our donut shops, digital channels, and fresh delivery. Our donut shops are an important driver of profitable U.S. growth.

We continue to see success with our expanded core menu, led by the iconic Original Glazed Donut, along with a steady rotation of seasonal collections and innovative limited-time offerings, such as our popular Pokémon collection. Each plays an important role. Our core menu delivers consistency and value. Seasonal collections provide variety and new flavors, and limited-time offerings create excitement and cultural relevance. Together, they keep the brand fresh, give consumers new reasons to visit, and drive sustained demand, as we saw last weekend with a successful Halloween. Our digital channel continues to be a key driver of U.S. growth as a result of our ongoing improvements to our proprietary digital platforms, including more convenient payment options, as well as the continued growth of our loyalty program, which now has more than 18 million U.S. members. Since announcing our turnaround plan just over a year ago, we have taken action to improve profitability and position our U.S. fresh delivery business for sustainable growth. As a reminder, after a thorough assessment of our fresh delivery network last year, we exited approximately 1,500 underperforming doors across the channels we serve today.

Since then, we have been adding more profitable, high-volume doors, and fresh delivery returned to growth in the third quarter. We have added 715 net new doors year-over-year, which have higher average weekly sales than those we exited. In total, together with our franchisees, we now serve approximately 7,700 fresh delivery doors across the U.S. Sustainable, profitable growth in fresh delivery depends on having the right conditions in place, namely high-traffic locations and prominent in-store visibility. We are gathering insights specific to each channel, including mass, grocery, club, and convenience, to better understand what drives success. In mass, including Walmart and Target, securing planogram placement with customers drives growth and unlocks digital opportunities. In grocery, more prominent front-of-store placement increases visibility and drives sales. We are working with several customers to improve our placement and make our donuts more accessible to shoppers. Publix is an example of this and has been a key driver of our recent door growth.

In club, which includes Costco and Sam's Club, large store size and seasonal product rotations require a different approach. At Sam's Club, we've seen success by improving the prominence of our displays, making it easier for customers to find our products. In August, we concluded our latest rotation at Costco in the U.S., and we are now exploring different opportunities with them, including seasonal offerings and roadshows. And finally, in convenience stores, where we sell mostly loose donuts, traffic trends are very important. We believe increased fuel prices have been a factor in reduced traffic this year. As a result, we are reviewing our footprint to optimize our door counts based on where we believe the conditions are right to support sustainable, profitable sales. Overall, we are pleased with the progress in fresh delivery and remain focused on adapting our approach to drive sustainable, profitable growth.

On the topic of GLP-1 medications, our research shows that Krispy Kreme consumers who use GLP-1s are just as likely as non-users to purchase sweet treats for holidays and special occasions. While we recognize that GLP-1 users generally have lower appetites, our research shows that they have higher purchase consideration for Krispy Kreme. We believe this reflects 3 factors: quality matters when consumers choose to indulge; Krispy Kreme is typically purchased just 2 to 3 times per year, often tied to special occasions; and our fresh donuts are often purchased for others, with approximately 80% shared and 40% gifted. We believe our focus on quality, occasional indulgence, and sharing positions us well as consumer habits evolve.

For example, our growing Minis category, featuring donut Minis, Dots, and mini crullers, offers consumers compelling value and greater variety in smaller sharing sizes. As we approach the end of the year, we are pleased with our operational and financial momentum. The actions we have taken are positioning Krispy Kreme for sustainable, profitable long-term growth and delivering the outcomes our turnaround plan was designed to achieve: improved financial flexibility, reduced capital intensity, expanded margins through greater operational efficiency, and improved sustainable, profitable U.S. growth. With that, I will turn the call over to Raphael to review our financial results.

Thank you, Josh. I'm pleased with our continued operational improvements and the strong financial momentum we have experienced this year, driven by our turnaround plan. As expected, due to refranchising, year-to-date net revenue is down to $1 billion, but our adjusted EBITDA of $97 million is up $13 million versus last year, reflecting the benefit of our turnaround actions. Adjusted EBITDA margin improved by 200 basis points to 9.5%, and free cash flow increased by $82 million. Our leverage is now 1.2 turns lower than it was at the end of 2025. Now turning to the third quarter, net revenue was $329 million, down 12%, primarily due to refranchising of our western U.S. and Japan businesses. Organic revenue, which excludes refranchising and FX, was essentially flat. Adjusted EBITDA of $35.3 million decreased 13.1%, due primarily to lapping the $9.3 million cyber recovery in the third quarter of last year.

Excluding the one-time cyber recovery, our adjusted EBITDA increased 13% and our adjusted EBITDA margin improved by 240 basis points, driven by productivity initiatives across our network and cost controls at the corporate level. In our U.S. segment, organic revenue increased 0.9%, driven by fresh delivery and digital. We continue to take disciplined actions to optimize productivity in our production hubs, which is reflected in more than 10% growth in our sales per hub year-over-year. As reported, adjusted EBITDA for the U.S. segment declined to $13.9 million. Excluding the $9.3 million cyber-related insurance recovery in the third quarter of last year, our U.S. adjusted EBITDA grew 18% and adjusted EBITDA margin increased 320 basis points, reflecting greater operating efficiencies.

In our International segment, organic revenue was down 5.4%, due primarily to declines in the U.K., partially offset by growth in Canada. Adjusted EBITDA of $20.1 million was 13.2% lower, driven by the refranchising of Japan. Additionally, our adjusted EBITDA margin for the international business was 16.3%, a slight decrease of 20 basis points. In the U.K., we're starting to see improved profitability following operational improvements we implemented during the summer. In October, we also implemented a restructuring of our U.K. production network to increase efficiencies and profitability.

In our Market Development segment, organic revenue increased 14%, driven by growth in royalty revenues from the U.S., Middle East, Japan, and Brazil. Adjusted EBITDA increased 54% to $18.5 million, due to the refranchising of the western U.S. and Japan. Adjusted EBITDA margin decreased to 41.6%, driven by a higher domestic versus international revenue mix associated with refranchising. We reported adjusted earnings per share of $0.06, an improvement of $0.05 versus last year. This was driven by a favorable tax rate, our refranchising deals, and cost efficiencies from our turnaround plan, partially offset by the cyber insurance recovery in 2025.

Moving to our balance sheet, as I said previously, our net leverage ratio of 5.5x was 1.2 turns better than at the end of 2025. We are pleased with the progress but continue to view lowering our leverage ratio as a top priority. We expect to do this through net debt reduction and adjusted EBITDA growth and still anticipate our full-year net leverage ratio to be below 5.5x. Free cash flow, which includes approximately $4 million in transaction-related fees, improved by $82 million in the first 3 quarters of 2026, driven by our focus on reducing capital intensity. We continue to expect to report positive free cash flow of more than $15 million in 2026.

Our year-to-date CapEx of $28.6 million decreased approximately 65% compared to the same period last year. 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 should contribute positively to free cash flow generation.

Moving to our financial targets, I'm pleased to say we are improving and narrowing guidance for some metrics as laid out in our earnings release. This includes increasing and narrowing our net revenue range to $1.35 billion to $1.4 billion, maintaining our adjusted EBITDA range of $113 million to $150 million despite inflation in global commodities this year, maintaining our systemwide sales growth range of 2% to 4% in constant currency, and lowering and narrowing our CapEx to $40 million to $45 million.

Finally, before I close, I wanted to provide context for our 2026 Adjusted EBITDA Guidance. Our guidance range represents an increase of $25 million to $35 million compared to 2025, when excluding the $14.1 million cyber insurance recovery last year, and an estimated $11 million of adjusted EBITDA from our WKS and Japan operations that were refranchised in March 2026. We believe this allows investors to better understand our 2026 guidance and the positive impact our turnaround is having in our financials. Operator, you may now open the line for questions.

Thank you. We will now be conducting a question and answer session. [Operator Instructions] One moment, please, while we poll for questions.

Our first question is from Sara Senatore with Bank of America. Proceed with your question.

Hi, good morning. This is Ashling on for Sara. So you raised the fiscal '26 revenue guide by $100 million at the midpoint, but you held the adjusted EBITDA flat. Can you just walk through kind of what drove the higher revenue outlook and why it doesn't carry through to EBITDA? Is that mostly just lower-margin product sales to refranchised partners?

Hey, hi. Thanks for the question. This is Raphael. Look, we are pleased we could raise our revenue guidance range, actually tighten it in such what I call a dynamic macro environment, and with that, actually maintaining the EBITDA range guidance. Look, we have worked hard this year to control costs. We believe the financial results combined with our increased revenue guidance speak to the results of the turnaround plan.

Just as a follow-up on the New York City development agreement for the 33 shops, it's kind of the first sizable U.S. franchise development commitment we've seen. Should we read that as a template for other company-operated U.S. markets, or is it specific to that franchisee and territory?

Sure. Ashling, we're really pleased to be able to announce the expansion in New York. This is an existing franchisee we've been working with for a few years, but adding more than 30 shops over the next 5 years, it'll be exciting to bring Krispy Kreme to more places, make it more convenient for people to access donuts. And in fact, when you look across the U.S., we have great partners across the U.S. already, more than 20 franchisees, our biggest being the WKS Restaurant Group, which is also looking to expand in the western states. So pleased to work to bring our doughnuts to more places and make it convenient for people to access them.

Great, thanks for the color. I'll pass it back.

Our next question is from Brian Harbour with Morgan Stanley. Please proceed with your question.

I guess just because there's so much movement in the P&L right now, it's a little bit hard to discern this, but just like demand generally in the U.S., how would you characterize that? Maybe 3Q versus the start of the year. How do you think it looks into 4Q here?

Sure. Yes, hi, Brian. We're seeing sustained consumer demand in, as Raphael described, this dynamic macro environment. The areas where we're seeing most growth in the U.S. are in our digital and fresh delivery channels. Internationally, it's with our franchise partners. When you dig deeper and look where the growth is being driven, we're seeing value important to our consumer. We're seeing strength with our dozens business. And in fact, the promotions with our Double Dozens, where we provide a discount on the second dozen, are performing particularly well.

But interestingly, in this environment, Krispy Kreme, as a sharing special occasion business, also does well. We saw our Pokémon collection was very popular earlier in the quarter. And just last weekend, we had a successful Halloween. So overall, sustained demand is what we're seeing.

And just, I guess, currently, and then as we start to think about next year, where are you on sort of COGS inflation across kind of your 3 major inputs, plus also just trucking? I assume there's a fuel cost that gets passed through. I don't remember exactly how much and what the timing is, but could you just talk about that a little bit?

Hey, Brian, this is Raphael. Look, inflation, I would say, is higher, certainly, in both commodities and fuel. If you think about edible oils, we've seen a significant increase since last quarter, but we have been able to manage it. Therefore, that's why we're keeping guidance. Look, we are not discussing 2027 outlook yet at this time, but our plan is to continue to cover food commodity inflation through our cost initiatives and some modest and selective pricing.

Our next question is from John Tower with Citi. Please proceed with your question.

Hi, this is Gautam on for John Tower. I was wondering if you could maybe provide some color on how volumes have been at big box retail partners relative to your initial expectations and how much additional distribution opportunity do you have in the U.S.?

Could you just repeat the question, Gautam? I just didn't quite catch it.

Yes, sure. Sorry. Can you hear me?

Yes, go for it.

Yes. If you could just provide some context on volumes of big box retail partners, how has that tracked relative to your initial expectations, and how much additional distribution opportunity do you have across the U.S.?

No, thank you. So by big box retailers, you know, I assume you're referencing the likes of Walmart and Target, where we have been adding distribution over the last year. We're pleased today to share that our fresh delivery business as a whole is back to growth after the interventions we made last year to make sure it's sustainable, profitable growth. And those big box retailers are an important part of that turnaround. We've been adding distribution with them because they have higher traffic and because the partners really understand the importance of merchandising and prominence in stores.

So we're pleased with the momentum we're seeing with them, and we still see plenty of opportunity. We are not in all the Walmarts or Targets. In fact, we're in less than 100 across both. So we look forward to continuing to work with them to expand access to our doughnuts.

Thank you. Our next question is from Daniel Guglielmo with Capital One Securities. Please proceed with your question.

Hi, everyone. You all have made great inroads with the franchise development growth, and in the opening remarks, you mentioned a few new countries that you're adding as well. So can you just remind us what the operational lift is for you all to stand up a new franchise market in a different country? I'm sure you have a pretty good playbook at this point, so any insights would be helpful.

Yes, we do. We've been adding countries to the system for a number of years now. We have a team in Dubai dedicated to supporting those international franchise partners, as well as here in North Carolina. We're well used to helping people source ingredients. We have a very well-thought-through network across the world and supply chain that helps people open up new markets. As a reminder, we actually still make the equipment here in North Carolina and service it. And so we're able to support the various partners directly.

And it was exciting today to announce a 4th country for this year as an agreement we've announced this time with Pakistan. And the business there that we've partnered with, Gray Mackenzie Restaurants, they've outlined a commitment to 120 new shops in the next 5 years. So it was a great addition to our pipeline of growth with international franchisees. Thank you.

Okay, awesome. Thanks. And then on the 2026 goals from last year, one goal was to target 2 to 3 international refranchising deals. You got Japan done earlier this year, but there are still more to go. So can you just talk about how those conversations have changed throughout the year, with kind of interest rates rising quickly across the globe? Any color there would be helpful.

Hi, Dan. Good to hear from you. This is Raphael. Look, as you said, we are pleased with the deals that we did this year, I would say not only Japan, but WKS. And as you can see, they are flowing to the P&L as expected. On your comment, look, we still have kept our goal consistent: 2 to 3. We're still pursuing one additional one. I think it's important to remember that as we think about partners, we want to make sure that we're bringing partners that have capital and need to commit for growth. And when we do deals, they're accretive to the P&L from a DCF but also from an EPS perspective, which really is what we have accomplished so far. So we'll keep you guys updated as we progress on that front.

One thing I'll add is in Japan, obviously, we refranchised earlier this year, and we're pleased to see shop openings and growth momentum with the new partner there. And that is top of mind for us is opening new shops. We opened 98 this year with our franchise partners around the world. So refranchising is an important enabler to grow the brand and expand.

Great. Thank you.

[Operator Instructions] Our next question is from Rahul Krotthapalli with JPMorgan. Please proceed with your question.

Hi, good morning. This is Crystal on for Rahul. I wanted to first ask on competition. Given some other sweet treat concepts have been struggling, is there any opportunity for you to market your way into this to take some share?

Well, you know, I focus on what we do best, and we're pretty differentiated, which is offer awesome fresh donuts, particularly for sharing and gifting occasions. This quarter we saw our limited-time collections doing really well, such as Pokémon and, as I said, the seasonal celebrations. Some other innovation that we brought is smaller sharing sizes to bring variety and smaller sharing portions for our customers. We have a mini crullers range that's still relatively new and growing well in our fresh delivery channel, for example.

Our job is to bring to the consumer what they're looking for and make it easier for them to find. And we've certainly been benefiting from making those donuts available in more convenient locations. And so that'll be our focus, and let them make the choice.

Perfect. And then also given the category headwinds that specialty beverage/coffee is seeing, would refreshing the platform make sense or be a priority to improve profitability? And do you see any maybe attach opportunity?

Oh, we're very proud of our coffees and beverages. But our focus is naturally on the fresh doughnuts. That's what we absolutely excel in: welcoming consumers to our donut shops, bringing the donuts, the fresh donuts, to more convenient locations like our fresh delivery partners, and also online, the digital channel, making it more convenient to pick up. And I'll tell you, the fourth quarter, it's our peak season. We're very focused on meeting that demand for the different celebrations and seasonal moments that people are looking for our donuts for.

Thank you. We have reached the end of the question and answer session. I would like to turn the floor back over to Josh Charlesworth for closing comments.

We are pleased to have delivered another consecutive quarter of significant progress on our turnaround: strengthen the balance sheet, drive sustainable, profitable growth. We're confident in the foundation we're building for Krispy Kreme's next era of growth and believe our results continue to demonstrate that we're well on our way. Thank you very much for joining us.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

This live transcript is auto-generated without human intervention or review.

Thank you. 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 1 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 Raphael Duvivier. The 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, annual report on Form 10-K 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-GAAP financial measures.

Information about these non-GAAP measures and reconciliations to the closest comparable GAAP 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 the call to questions.

over to Josh. Thank you Steve and good morning everyone. The 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. B-Cream remains a compelling global growth story, supported by increasing consumer demand for our iconic fresh donuts, even in a dynamic macro environment. Unlocking that demand remains our priority, and we are doing so through our two largest opportunities, profitable US expansion and capital-line 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 optimizing 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-light model. So far this year, we have completed two transactions that advanced this strategy in Japan and the Western US, both of which contributed to a reduction in net debt. In the past year, approximately 25% of system-wide sales were generated by franchisees.

Today, franchisees account for 42% of system-wide sales. 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 but 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 U.S. 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 under-penetrated, 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 advanced production planning, labor optimization, and streamlined hub operations, all leading to a meaningful reduction in labor spend. continue to increase delivery efficiency for 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 donuts. 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 donut shops, digital channels, and fresh delivery partners. Our donut shops are the largest driver of sustainable profitable growth in the US. The strength of our donut shops has been driven by our recently expanded core menu, led by our iconic original glazed donut. supported by five seasonal download 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 flavors 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 dozen offer provide value for consumers while driving donut 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. 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 donuts 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 Sam's 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. expanding our relationship with Target to enhance merchandising and checkout 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 Suk 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 GLP-1 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 ways consumers experience and share Krispy Kreme, including through our high-performing minis category. Featuring donut minis, donut dots, and mini crawlers, 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 margins through greater operational efficiency, and improved sustainable profitable US growth. With that, Rafael will now review our second quarter 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 P&L. We continue to leverage the balance sheet through increased adjusted EBITDA and increase our profitability by expanding our adjusted EBITDA margin. Net revenue was $331 million in the second quarter, down 13 percent reflecting our planned re-franchising of the Western US and Japan. Excluding with franchising, we were essentially flat on our organic revenue basis. In fact, system-wide sales were $497 million, up 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 US 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 US segment increased 38% to $13.8 million, reflecting continued traction from our turnaround plan, more than upsetting the impact of our re-franchising efforts. We benefited from cost control initiatives and increased efficiencies, including outsourcing our US logistic network, 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 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 Western U.S. and Japan and increased royalty revenue.

Adjusted EBITDA margin decreased to 47.3%, driven by higher domestic versus international revenue mix associated with re-franchising. Our adjusted earnings per share improved 12 cents year over year, about 2 cents of which was due to our re-franchising deals. Moving to our balance sheet, we continued to deleverage and ended the quarter with a net leverage ratio of 5.4 times our trading four quarters of adjusted EBITDA. 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 improved 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. CapEx 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 contributed 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 repranchise additional markets to trusted partners to grow our brand around the world. believe this will lead to higher margins, reduce capex and generate more free cash flow than only the markets ourselves. While some grief and change deals can be diluted to the income statement, we believe it important to view them from a discounted cash flow perspective. our re-franchising deals intend to be accreted to free cash flow over time by increasing high margin royalty stream and reducing capex which we believe will increase long-term sharehold value. Moving to our financial targets, I'm pleased to say we're maintaining our previously stated full-year guidance metrics as laid out in our earnest release. And key metrics include net revenue of 1.25 to $1.35 billion.

System-wide sales growth of 2% to 4% in constant currency. Adjusted EBITDA of $140 to $150 million. capital expenditures of 50 to 60 million dollars. 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 dollars cyber related insurance gain. Adjusted behind the third quarter of 2025 would have been $31.3 million excluding this gain.

And 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. 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 lineup 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 1 to raise your hand. To withdraw your question, press star 1 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 the Q&A roster.

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

Yes, thanks. Good morning, guys. Just, you know, when I think about sort of EBITDA margins, I mean, you don't have a longer term target out there right now, but like you've obviously completed quite a bit here. On the cost side, you've sort of completed the outsourcing of delivery. I mean, where do you see this going over time or as we think about kind of upside? into next year and beyond, what will be the key margin drivers? Where do you see that going? Hey, Brian, how are you?.

We were happy with the turnaround plan. I think as you said, look, this is the fourth quarter. We've seen the results. It's more important than the first quarter where we've seen the two deals that we already did. Japan and the Western US flow 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 capitalized, we believe margins will continue to increase and as well drive more free cash flow by 20%.

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, 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 of that logistics outsourcing as well.

Okay. Which of the, um, which of the DFD, you know, uh, I guess for you right now, do you continue to still have some net closures or are there places that you're still rationalizing? It seems like Walmart and Target are more of the focus for growth, but could you talk more about what's working best there and should that continue to drive that increase in average weekly sales? Sure.

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 and 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 how 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 distribute so far this year in the US by about 450 doors, but we've also increased the average weekly sales in our whole network by over 30% compared to a year ago. So to 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, Walmart.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.

Great. Thank you. I'm looking at your margin stuff for the the quarter and actually your U.S. organic sales, I could have looked like the U.S. organic sales were better than we would have thought and even the margins we could have envisioned stronger than what they were. So I'm just wondering, are there any ramp costs or any call-outs this quarter that you would point out? You talked about some of the expansion you're doing with certain retailers, so maybe there's something there that we should be thinking about and modeling into the second half.

Do you have a quick follow-up? Sure. I'll start with the growth and I'll hand over to Rafael to talk about the margins. Two both importantly go hand in hand. You know, we actually, you're right. We saw strong underlying growth in the second quarter in the U.S. If you exclude the McDonald's business that we exited from last year, the the organic growth was up 4.4% in the second quarter. You know, we're seeing popularity, both with our popular and affordable original glazed donuts, especially these second dozen promotions that are driving additional volume and ticket, but also our donut 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. It's good to see the underlying growth coming through, but also the profit. Raphael. Hey, David.

on the US margin and we are pleased with the results in the quarter right if I look at the margin we almost double the US margin compared to last quarter you have to remember as well that q3 and q4 the second half is stronger for us so So you should see higher margins as we get to the balance of the year.

That's great. And I guess international sales, anything to point out, you know, look like organic sales were maybe a little lighter any trends you want to call out there or actions that you're taking in your key international markets and I'll pass it on.

Yes, so look at international. We continue to see strong growth in Canada, even in places like Japan. You also just going back because we recently were franchise, but they're growing right, so it's not hitting that segment anymore, but they open five shops. already this quarter. We did see some decline in our company own UK market is mostly from door resumption rationalization that we did last year plus the extreme hot weather. expected gold sales and profits, but we feel confident on the on the on the deep turnaround plan as we head to the second half of the year.

Thanks, guys. Thanks, David. Your next question comes from the line of Sarah Senatore with Bank of America. Your line is open. Please go ahead.

Hi, this is Ashling on for Sarah. Good morning, guys. I was just wondering if you could give a little more color on what is happening in the UK and Australia. It sounds like those markets are still kind of weighing on international. So I'm curious whether the pressure is mostly, you know, demand or brand relevance. And when you have markets that are underperforming, does that make sense? re-franchising more attractive because a local partner may be kind of better positioned to fix them or more challenging because it weighs on valuation.

hey as when this is Rafael thanks for the question look I was just saying we We did see some decline in the UK on the revenue side. There's also portfolio mix just as we look at the margin that you have to think about it. But yes, in the UK we have door personalization plus extreme hot weather. 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 opportunity for us in both Australia and UK. We also said we want to re-franchise all the markets outside of the US. working as we said last quarter on Canada and make sure that we're finding the right partners that can bring capital for us to grow and continue to develop all the markets.

Great. Thank you for the color. I'll pass it back. Your next question comes from the line of Rahul Krathapalli with JP Morgan. Your line is open. Please go ahead.

Hi, good morning. This is Christopher on for John for a whole. I just want to ask on the retail partners after the 450 that at this year, but where do you see current DFT penetration across the retailers today versus where you wanted to land over the long term. and doors and how this will change going forward as you focus on improving profitability.

Yes, 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 doughnuts 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 are right, where the traffic is high in the store, where we can secure really good indoors, in-store displays, or indeed, beyond their online platforms. And that's an ongoing journey. We added 450 already this year, this year on top of about seven and a half thousand that we had at the beginning of the year. So, you know, 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.

And then just to follow up on competition, like where do you see Krispy Kreme positioning themselves amongst the broader space of desserts and sweets and how has competition come changed?.

That's a great question. You know, we make high quality fresh doughnuts. made from scratch with our Krispy Kremers preparing the dough making and decorating the doughnuts in front of the eyes of the customer and those same doughnuts we sell in our donut 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 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 experience. 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-donut shop chain, it's a pretty unique player in the industry. So we worry mostly about making sure our great donuts are high quality and available and convenient 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.

Hi, this is Gautam Nanda on for John Tower. Thanks for the question. Can you provide some insight to commodity inflation during the quarter and have you begun contracting with suppliers for 2027?.

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

Thank you. And just for a follow-up, could you provide any color on maybe how your retail doors are performing across maybe higher versus lower-income set codes?.

Yes, sure. 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 single but actually usually bought in dozens, and increasingly in double dozens, where we've been providing additional discounts almost every day to our customers to enable them to, by those at 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 Guglielmo with Capital One Securities. Your line is open. Please go ahead. Hi, everyone. Thank you for taking my questions.

Biden stayed the same this quarter, but the midpoint of adjusted EBITDA represents 3% growth this year on a much stronger capital structure. Can you just highlight why it was so important to bring leverage down before moving on to this next phase of growth for Krispy Kreme? Hey Dan, hi, this is Rafael. Good question.

You remember as well that we quoted the impact of Japan WKS on a four year basis. So when you look at when you adjust for that, you're going to end 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. I 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 fuel our capital growth going forward. As we move to a lower capex, higher EBITDA margin and leverage global partners across the globe to grow the business.

And that's what we are already doing, by the way, in a lot of places, like we mentioned last quarter and still the same this one, we've already seen growth in Brazil, in Spain, Middle East, And as I was saying before as well on Japan, where we just re-franchising with our new partner, Unison, and then they're putting in business with growth.

Great, great. I appreciate that color. And then longer term with the focus on system-wide sales in the U.S. 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 operate at around about 25% production utilization. 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. utilization isn't as low but there's also a lot of opportunity for for our franchisees to expand. And we've seen already this year in India, Brazil, 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, 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 the number one reason why people say they may not yet purchase Krispy Kreme, they just don't have 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.

Thank you everyone for joining the call. It's important 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 Kremers 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.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, everyone, and thank you for standing by. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead.

Hello, everyone, and welcome to Krispy Kreme's First Quarter 2026 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com. Joining me on the call are President and Chief Executive Officer, Joshua Charlesworth; and Chief Financial Officer, Raphael Duvivier. After their prepared remarks, we will host a question-and-answer session. But before we begin, please note that during this call, we will be making forward-looking statements, including statements of expectations, future events or future financial performance. Forward-looking statements are based on current expectations and are subject to risks and uncertainties.

Actual results could differ materially from those contained in any forward-looking statements because of factors described in the cautionary statements in today's earnings press release, our annual report on Form 10-K filed with the SEC and in other SEC filings we make from time to time.

We assume no obligation to update any forward-looking statements, except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding these non-GAAP measures, including a reconciliation to the closest comparable GAAP measure. Raphael will take us through our financial performance in a moment, but first, here's Joshua.

Thank you, Christine, and good morning, everyone. We are pleased with our significant progress in the first quarter as we continue to advance our turnaround to deleverage our balance sheet and drive sustainable, profitable growth.

Krispy Kreme remains a compelling growth story, supported by strong consumer demand for our iconic fresh doughnuts. Unlocking that demand remains our priority, and we are doing so through our 2 largest opportunities, profitable U.S. expansion and capital-light international franchise growth.

This year, we expect system-wide sales to grow 2% to 4% compared to last year to over $2 billion, driven primarily by international expansion. In the back half of the year, we anticipate growth in the U.S. as we lap the now ended partnership with McDonald's, which we exited last July.

While we recognize that the broader macroeconomic environment remains dynamic, this outlook is driven by anticipated higher volumes, points of access expansion and franchise development.

Last year, approximately 25% of system-wide sales were generated by franchisees. After the refranchising transactions in the first quarter, the expected percent of franchise sales going forward has increased to 42%, reflecting strong progress toward our goal of reaching 50% of system-wide sales generated by franchisees entering 2027.

Now let's move to the 4 pillars of our turnaround plan and the progress we are making on each. Number one, refranchising; number two, improving returns on capital; number three, expanding margins; and number four, driving sustainable, profitable U.S. growth.

Our first pillar, refranchising, enables us to drive more profitable system-wide sales growth while accelerating new shop development through a capital-light model. In March, we completed 2 transactions advancing this strategy, contributing to a reduction in net debt. In Japan, we entered a refranchising agreement with Unison Capital, an experienced operator in the retail restaurant sector.

Krispy Kreme has a 20-year presence in Japan with approximately 90 shops and 300 fresh delivery points of access, and we are pleased to partner with Unison to support continued growth in this important market. Japan marks the first of the 2 to 3 international refranchising deals we are targeting in 2026. As we pursue refranchising across our other international markets, we remain focused on identifying the right partners to maximize value and position our brand for long-term growth. We also reduced our ownership in our Western U.S. joint venture to a 20% minority stake with our long-standing partner, WKS Restaurant Group.

The WKS franchisee now operates more than 70 shops across the Western U.S. and has agreed to develop new shops and further expand Krispy Kreme's fresh delivery footprint over the coming years. The second pillar of our turnaround is improving returns on capital.

Across the business, we are reducing capital intensity and improving utilization of existing assets, while our franchisees continue investing to support brand growth. The combination of these factors has resulted in a significant decrease in CapEx in the first quarter compared to last year, which we expect to contribute to positive free cash flow in 2026.

Our international development pipeline is an important driver for our capital-light growth. We are projecting more than 100 shop openings this year, nearly all through franchisees as we continue expanding fresh delivery doors across grocery, convenience, club wholesalers and quick service restaurants outside of the U.S. In the first quarter, we opened 26 shops around the world. In April, we celebrated our first anniversary in Brazil.

And just yesterday, we opened our second Hot Light Theater shop in Sao Paulo, supporting our growing hub-and-spoke network in this important market. Today, the Krispy Kreme system consists of more than 2,100 locations, both company-owned and franchised across 42 countries, including the U.S.

This year, we expect to add 3 to 4 new markets, including the Netherlands, which we recently announced. The first Hot Light Theater shop in the Netherlands is expected to open in late 2026 and will service both a retail shop and a production hub, anchoring a broader phased expansion to approximately 30 shops across the country over the next 5 years.

The Netherlands represents our sixth Western European market, along with the U.K., Ireland, France, Spain and Switzerland. In the U.S., we are prioritizing leveraging existing capacity to drive growth more efficiently. Our current network utilization is only about 25%, demonstrating that we can reach significantly more locations without incremental capacity investment. Walmart and Target, along with other strategic partners, remain meaningfully underpenetrated, and we have the capacity to support their growth through the same facilities that currently deliver to more than 7,400 fresh 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 a significant margin improvement in the first quarter, led by a strong increase in the U.S. segment.

In the U.S., we are making doughnuts more efficiently through improved production planning, labor optimization and streamlined hub operations. Doughnuts are also being delivered more efficiently by improving route management and demand planning and by optimizing production and delivery schedules to support cost-effective expansion.

In April, we completed the transition of our U.S. fresh delivery network to third-party logistics partners ahead of schedule. Now that we have successfully outsourced our U.S. logistics, we have greater cost predictability and reduced operational risk, enabling our teams to focus on what they do best, making fresh doughnuts. We expect the benefits of our logistics optimization to offset the impact of recent increases in fuel prices. As a result of the cost reduction initiatives implemented last year, we improved profitability in the first quarter with shop and delivery labor and SG&A expenses declining more than 10% versus the year ago period.

The fourth pillar of our turnaround is sustainable, profitable growth in the U.S. 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 improve profitability as we have done for 3 consecutive quarters.

After completing our door optimization in the third quarter last year, we have returned to growth in the last 2 quarters, adding over 250 higher-volume, higher-margin doors in quarter 1 with strategic partners such as Publix, Sam's Club and Target.

We also launched in Jewel-Osco, which is part of the Albertsons family of brands. With our U.S. logistics now fully outsourced and our optimized fresh delivery footprint in place, we believe we now have the right formula for profitable growth, stronger average weekly sales per door supported by more predictable logistics. In my recent meetings with our strategic fresh delivery partners, it was encouraging to hear their enthusiasm for growing Krispy Kreme, not only through new locations, but by strengthening the brand in existing doors. In support of this, we are working closely with them to enhance merchandising and in-store doughnut displays while also improving our presence on their digital platforms.

Other drivers of sustainable profitable growth in the U.S. are the original glazed, especially in dozens, our LTOs and the digital channel. We're seeing strong results across each. Both original glazed and dozen sales are up, driven in part by second dozen promotional offers. Our innovative limited time offerings, which are often tied to seasonal and cultural events continue to drive incremental traffic.

For example, we had record sales for both Valentine's Day and St. Patrick's Day, reinforcing Krispy Kreme as a top choice for gifting, sharing and celebrating while highlighting strong consumer demand for our fresh doughnuts.

We also saw an enthusiastic response to our Artemis 2 doughnut, celebrating NASA's historic deep space Crew mission. While we had originally planned to feature the doughnut for 3 days, we extended the promotion for the duration of the mission due to high demand. Our LTOs performed particularly well in our rapidly growing digital channel, which represented 23% of U.S. retail sales in the first quarter. Our digital presence, including our loyalty program, which has over 17 million members, continues to drive engagement across all age groups, while also encouraging repeat transactions through customized rewards.

Beyond tapping into cultural moments to create relevant buzzworthy offerings, we also stay closely attuned to evolving consumer trends, including the increased use of GLP-1 and other weight loss medications. As part of our ongoing commitment to better understand our consumers, we conducted research, which found that Krispy Kreme consumers who identify as users of these medications are just as likely as nonusers to purchase sweet treats for holidays and special occasions with a focus on quality and taste.

With our differentiated fresh doughnuts typically purchased 2 to 3 times per year, primarily for sharing occasions, 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 ways consumers experience and share Krispy Kreme, including through our high-performing minis category, which currently features Doughnut Minis and Doughnut Dots and our new mini crullers, which is a mini cake doughnut sold through select fresh delivery partners. This new product further strengthens our assortment of smaller shareable treats and provides consumers with more variety. Overall, we are pleased to have carried last year's momentum into the first quarter, delivering the results our turnaround plan was designed to achieve, including improving financial flexibility through refranchising our operations in Japan and the Western U.S., reducing capital intensity by opening new shops with franchisees and reducing our CapEx expanding margins through greater operational efficiency, including the full outsourcing of U.S. logistics and by driving sustainable, profitable U.S. growth through OG dozens, digital sales and by adding new high-volume doors with our strategic fresh delivery partners. With that, Raphael will now review our first quarter financials and provide an update on our 2026 full year outlook.

Thank you, Joshua. I'm pleased with our quarterly performance, which is driven by the disciplined execution of the turnaround plan. We are focused on sustainable, profitable growth through quality sales and effective cost management across the P&L. We deleverage our balance sheet through refranchising activity and by delivering higher adjusted EBITDA. We also generated free cash flow, our first positive free cash flow in a Q1 period since our 2021 IPO by continuing to reduce capital expenditures and better working capital management.

Net revenue was $367 million in the first quarter of 2026, down 2.2% year-over-year, reflecting our strategic closure of underperforming doors completed in the third quarter of 2025. System-wide sales were $485.3 million in the first quarter of 2026, increasing 0.7% in constant currency, excluding sales attributed to the now ended McDonald's USA partnership. Adjusted EBITDA of $33.1 million was an increase of 38% year-over-year, driven by productivity initiatives across our network and cost control at the corporate level.

This represents the third consecutive quarter of adjusted EBITDA growth year-over-year. At quarter end, our net leverage ratio, which reflects our net debt divided by trailing 4 quarters adjusted EBITDA, improved 1.2x quarter-over-quarter to 5.5x and reflected an improvement of 2x since we announced the turnaround plan in August last year. This is also below the forecasted 6x we previously shared due to the timing of WKS refranchising as the proceeds help us further reduce our net debt. In addition, we benefit from our turnaround initiatives, which led to the substantial improvement in adjusted EBITDA. We continue to have healthy liquidity, which has now increased to more than $300 million.

Our bank leverage is now below 4x, which lowers the interest rate on our primary credit facility by 25 basis points. In our U.S. segment, organic revenue declined 4% year-over-year due to the strategic closure of underperforming fresh delivery doors in the third quarter last year, including McDonald's, as we focus on quality growth.

We have since replaced low-volume doors with higher volume, higher-margin doors with strategic partners. Positioning Krispy Kreme products in the right place with the right partner at the right time resulted in substantially higher average weekly sales of $685, a 16.7% increase over year and a 3.8% increase quarter-over-quarter.

Adjusted EBITDA for the U.S. segment increased 61% to $25.5 million, up from $15.9 million in the first quarter last year, reflecting traction from our turnaround plan. We benefited from cost controls and other initiatives related to efficiencies in our operating network, including completing the outsource of our U.S. logistics networks, savings on SG&A and the eliminations of costs related to the now ended McDonald's USA partnership.

Adjusted EBITDA margin increased 480 basis points year-over-year. In our International segment, organic revenue increased by 0.4%, primarily due to growth in Canada and Mexico. Adjusted EBITDA for International segment was down 2.9% to $14.5 million, driven by the refranchising of our operations in Japan in early March.

In our Market Development segment, organic revenue declined 4.3% as growth in royalty revenues from international markets, including India, Brazil and Spain was more than offset by lower equipment sales in the quarter. Adjusted EBITDA for the Market Development segment rose 5.3% to $11.6 million.

Adjusted EBITDA for the Market Development segment rose 5.3% to $11.6 million. Adjusted EBITDA margin decreased year-over-year 60 basis points to 57.5%, driven by changes in the regional mix of product sales. Our highly attractive franchise margin levels support our intention to advance our capital-light growth strategy. As Joshua mentioned, we plan to open 3 to 4 new international franchise markets this year, including the Netherlands, which will open later this year. Let me now discuss our financial guidance, which we have expanded with a full year range for net revenue and for adjusted EBITDA.

Both ranges include the impact of refranchising transactions we have already completed, but not any future transactions. We expect net revenue of $1.25 billion to $1.35 billion. System-wide sales are expected to increase 2% to 4% in constant currency from $1.96 billion in 2025. We project at least 100 shop openings this year, nearly all franchised, including 26 shops that opened in the first quarter. We expect adjusted EBITDA of $140 million to $150 million. This range, as I said, includes the impact of refranchising transactions. We estimate that annualized impact of EBITDA of refranchising Japan and WKS is approximately $15 million.

Capital expenditures of $50 million to $60 million, which reflects a decrease of approximately 50% from last year, positive free cash flow of more than $15 million; and finally, net leverage ratio below 5.5x. Our first quarter demonstrated clear progress on our turnaround. We are driving sustainable, profitable growth in the U.S. and globally, deleveraging our balance sheet by expanding our capital-light model, increasing adjusted EBITDA and generating free cash flow through disciplined CapEx and tighter working capital management. In the quarters ahead, we intend to build on this approach and continue to deliver on the objectives outlined in our turnaround plan. I will now turn the call back over to Joshua.

We continue to build momentum with our focus on sustainable, profitable growth and a stronger balance sheet. We are confident in the foundation we are laying for Krispy Kreme's next year of growth and the progress we have made shows we are well on our way. Operator, let's now open it up for Q&A, please.

[Operator Instructions] Your first question comes from the line of Daniel Guglielmo with Capital One Securities.

We appreciated the 2026 guidance for both revenues and adjusted EBITDA goes to show how far we've come from last year. As you continue to execute on additional international refranchising deals, so over what's already been announced, how do you expect that to impact the guidance? Just trying to think through the puts and takes for those kinds of deals.

Thanks for the question. So yes, look, as we get more deals done, we'll update the guidance. The guidance we gave include the 2 deals that we have already done, so exclude WKS and Japan. And I provided some clarity on the annualized impact of both of around $50 million. As we get more deals done, we will update both numbers for revenue and EBITDA.

Appreciate that. And then U.S. consumer trends have been mixed based on business type in this kind of complex macro environment. Can you just dig in a little more into your U.S. customer trends? Are you seeing strength in certain regions? And how did demand trend by month in 1Q? And do you have any insights on April trends?

Dan, this is certainly a dynamic broader consumer environment. But at Krispy Kreme, we continue to see strong demand for our differentiated fresh doughnuts. For example, the original glazed in dozens, where we are driving value with our second dozen promotions has performed well through the quarter.

And we also saw in those gifting and sharing moments like Valentine's and the Artemis 2 doughnut, which is a real buzzworthy event, we saw strong demand so strong that we actually even had to expand availability. So we certainly saw weather disruption in January here in the Southeast, the home of Krispy Kreme. But overall, we saw a strong performance through the quarter and continue to see that in April, especially around these buzzworthy moments.

[Operator Instructions]

Well, assuming there are no more questions, thank you, everyone, for joining the call. And we're making significant progress on our turnaround plan to deleverage the balance sheet and position Krispy Kreme for sustainable long-term growth, and we look forward to continuing this momentum throughout 2026. Thank you again.

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

Hello, everyone, and thank you for standing by. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead.

Hello, everyone, and welcome to Krispy Kreme's Fourth Quarter and Full Year 2025 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com.

Joining me on the call are President and Chief Executive Officer, Josh Charlesworth; and Chief Financial Officer, Raphael Duvivier. After their prepared remarks, we will host a question-and-answer session. But before we begin, please note that during this call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events or future financial performance.

Forward-looking statements involve a number of risks, assumptions and uncertainties, and we caution investors that many factors could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the cautionary statements in our earnings press release, our annual report on Form 10-K filed with the SEC and in other SEC filings we make from time to time. Forward-looking statements represent our expectations only as of today, and we assume no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures.

Please refer to our earnings press release on our website for additional information regarding these non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Raphael will take us through our financial performance in a moment. But first, here's Josh.

Thank you, Christine, and good morning, everyone. Our fourth quarter results show that we are making meaningful progress on our turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth. Krispy Kreme continues to be a compelling growth story, anchored by our globally recognized brand and strong consumer demand for our iconic fresh doughnuts.

Our turnaround plan is centered on unlocking that demand through our 2 biggest opportunities, profitable U.S. expansion and capital-light international franchise growth. In 2025, we generated $2 billion in system-wide sales, and we expect to grow this by 2% to 4% in 2026 through higher sales volumes, points of access expansion and franchise development. Last year, approximately 75% of our system-wide sales came from company-operated locations.

As a result of our refranchising efforts, we expect nearly 50% of system-wide sales to come from franchisees as we begin 2027. We believe this shift will improve capital efficiency while supporting sustainable long-term growth. Although our decision to exit underperforming U.S. stores earlier in 2025 resulted in a modest decline in net revenue in the fourth quarter, we significantly increased adjusted EBITDA, expanded adjusted EBITDA margin, reduced our financial leverage and delivered positive free cash flow.

These results demonstrate the meaningful progress we are making on our turnaround plan focused on: one, refranchising; two, improving returns on capital; three, expanding margins; and four, driving sustainable, profitable U.S. growth. Our first pillar, refranchising, enables us to more profitably drive system-wide sales growth and accelerate unit development through our capital-light franchise model. In December, we announced a strategic refranchising agreement with Unison Capital for our operations in Japan, which we expect to close in March. Unison is a proven operator with extensive expertise in the retail restaurant sector, and we believe they are an ideal partner to continue to grow our iconic brand in Japan. Cash proceeds from the transaction are expected to be approximately $65 million.

Beyond Japan, our intent is to refranchise certain other international markets, prioritizing the right partners to maximize value and position the company for long-term growth. We are targeting 2 to 3 international refranchising deals in 2026. Additionally, we plan to reduce our ownership to a minority stake in our existing joint venture in the Western U.S. with the WKS Restaurant Group, which today represents about 15% of our U.S. revenues. As a franchisee, WKS Krispy Kreme will continue operating its existing shops, and our plan is to add company-operated shops on the West Coast to the joint venture. We also expect WKS to develop new shops and meaningfully expand our fresh delivery footprint over the next several years.

The second pillar is improving returns on capital. Across the business, we are reducing capital intensity and improving utilization of existing assets, while our franchisees continue to invest to support brand growth. This is reflected in our full year 2025 CapEx, which decreased 19% from 2024 and our expectation that 2026 CapEx will be nearly half of last year. This substantial reduction in CapEx should position us to generate stronger free cash flow in 2026. Our international development pipeline remains a key driver of capital-light growth.

We now operate more than 1,700 international shops, both company-owned and franchised across more than 40 countries. In 2026, we expect more than 100 shops opening globally while continuing to expand fresh delivery doors across grocery, convenience, club wholesalers and quick service restaurants. I recently visited our first Hot Light Theater shop in Madrid, Spain, an important and emerging European market for us, where I saw firsthand the enthusiasm for further expansion with our strong local franchise partner.

In November, we opened a Hot Light Theater shop and production hub in the underpenetrated Minneapolis market. This strategic opening generated immediate results, and we expect sales in the first 12 months to be approximately $10 million. This includes fresh delivery, which has already grown to [ 70 doors ]. Minneapolis exemplifies our disciplined, thoughtful approach to capital deployment. We strategically transformed the former drug store into a doughnut shop and production hub designed to efficiently support off-premises distribution. While Minneapolis demonstrates the strong returns we can generate from strategic new locations, our broader U.S. strategy is to moderate company hub development and prioritize leveraging existing capacity to drive growth more efficiently.

More broadly, we deliver to over 7,000 fresh delivery doors in the U.S. With our network utilization at only approximately 25%, we have the ability to reach thousands more locations without incremental capacity investment. Many of our strategic partners, such as Walmart and Target, remain underpenetrated. The third pillar is expanding margins. We are simplifying the business and reducing costs across the P&L. In the U.S., we are making doughnuts more efficiently through improved production planning, labor optimization and streamlined hub operations.

Donuts are being delivered more efficiently by improving route management and demand planning and by optimizing production and delivery schedules to support cost-effective expansion. By the end of 2025, 57% of our U.S. fresh delivery network was outsourced to third-party logistics partners, and we expect to complete the transition in 2026. Outsourcing logistics gives us more predictable costs, reduces risk and allows our teams to focus on what they do best. As a result of the cost reduction initiatives implemented last year, total shop and delivery labor and SG&A expenses declined more than 10% in the second half of the year versus the first half.

The fourth pillar is sustainable, profitable growth in the U.S., which we can achieve by offering our consumers the right products in the right quantities in the right place and at the right time. By the end of the third quarter of 2025, we fully exited McDonald's and completed the rationalization of another approximately 1,400 underperforming fresh delivery doors. By the end of the fourth quarter of 2025, we also added more than 1,100 new higher volume, higher-margin doors with strategic partners. We also saw growth return with a 200 door increase in the fourth quarter. The results of upgrading the quality of our fresh delivery doors are encouraging.

Average weekly sales per door have increased meaningfully, and these newer doors are performing well above the system average. We've also started 2026 by adding new distribution with Grocery customers, Publix and [ Jewel-Osco ]. Another key driver of sustainable profitable growth in the U.S. is our marketing strategy, focused on: one, driving everyday sales through our refreshed retail doughnut menu; two, creating excitement with buzz-worthy limited time offerings; and three, accelerating growth in digital. In the fourth quarter, our Trick or Treat! Halloween collection delivered our most successful Halloween campaign to date, while our Krispy Kreme [indiscernible] Peanuts offering generated strong consumer demand over the holiday season.

That momentum carried into 2026 with our Valentine's Day collection delivering record results, reinforcing Krispy Kreme as a top choice for gifting, sharing and celebrating special occasions with others. To give our consumers even more ways to enjoy and share Krispy Kreme, we continue to innovate and evolve our successful Minis category, which today includes our Doughnut Minis and Doughnut Dots. Later this year, we'll expand our lineup of smaller shareable treats with Mini Crullers, a mini cake doughnut available through strategic fresh delivery partners. Limited time offerings performed particularly well in our digital channel during 2025, with U.S. digital sales growing 15% year-over-year.

Digital represented 22.5% of U.S. retail sales in the fourth quarter, reflecting strength across the Krispy Kreme app and website as well as through third-party delivery partnerships. Our loyalty platform now surpassing 17 million members in the U.S. alone helps us to stay connected with consumers by reminding them of the joy of Krispy Kreme and rewarding them with offers that increase purchase frequency. Our digital presence continues to prove effective at building engagement across all age groups and driving incremental transactions. Heading into 2026, we believe we are well positioned amid a dynamic consumer environment.

Our affordable offerings are designed to be gifted and shared, bringing people together for celebrations and meaningful occasions. With a full calendar of innovative collections for seasonal and cultural moments ahead, such as our upcoming St. Patrick's Day offering, we expect to sustain engagement and drive demand throughout the year. We are building a stronger, more resilient Krispy Kreme and positioning ourselves for long-term profitable growth.

With that, Raphael will now review our fourth quarter financials and discuss our outlook for 2026.

Thank you, Josh. Our financial results reflect meaningful progress on our turnaround, positioning us to deliver sustainable, profitable growth while continuing to deleverage the balance sheet. In the second half of 2025, adjusted EBITDA reached $96.2 million, more than double the $44.1 million generated in the first half, even as net revenue grew less than 2%. Moving to our fourth quarter results. Adjusted EBITDA of $55.6 million rose 21% year-over-year and 37% quarter-over-quarter. Profitability was positively impacted by productivity initiatives across our network and at the corporate level.

Net revenue of $392.4 million represented a decrease of 2.9%, while organic revenue decreased 3.9%. These declines were driven by the strategic closure of underperforming fresh delivery doors, primarily in the U.S. as we focus on quality growth. Excluding these closures, we benefit from growth with strategic partners, higher digital sales and international expansion. As of the end of the fourth quarter, our net leverage ratio, which reflects our net debt divided by trailing 4 quarters adjusted EBITDA improved 0.6x quarter-over-quarter to 6.7x, falling below 7x is an encouraging milestone, driven by strong adjusted EBITDA and lower debt, and we expect to be at or below 6x by the end of the first quarter.

Our cash flow was strengthened by higher adjusted EBITDA, significantly reduced CapEx and working capital management that include better handling of receivables and lower inventories. For the fourth quarter, we generated $45 million in operating cash flow and $27.9 million in free cash flow. Free cash flow improved substantially compared to the third quarter and rose $34.8 million from the same quarter a year ago. At year-end, we had excess liquidity of $207 million, which we believe enable us to meet our short-term obligations and fund long-term investments while continuing to advance our turnaround. We are also in full compliance with our bank covenants.

In the U.S., organic revenue growth declined 5.8% year-over-year, in part due to exiting approximately 1,400 underperforming doors in 2025, which were replaced with more than 1,100 new high-volume, higher-margin doors with strategic partners, delivering substantially higher average weekly sales. Door optimization contributed to a year-over-year increase in average weekly sales to $660, a 7% increase quarter-over-quarter. This demonstrates our traction when Krispy Kreme displayed in the right place with the right partner at the right time. U.S. adjusted EBITDA increased 39.1% to $32.8 million, up from $23.6 million in the fourth quarter of 2024.

We benefit from cost controls and other initiatives related to efficiencies through our operating network, SG&A savings and the elimination of costs related to the now ended McDonald's USA partnership in addition to cybersecurity insurance recoveries of $4.8 million. Excluding cyber-related insurance recoveries, U.S. adjusted EBITDA increased 33% quarter-over-quarter to $28 million, demonstrating solid improvement resulting from our turnaround plan initiatives.

In our company-owned International segment, we saw negative organic growth of 0.3% as lower sales in Australia were partially offset by growth in Canada and Japan. International segment adjusted EBITDA rose 4.1% to $26.8 million, up from $25.7 million in the year ago quarter and up 15.7% from $23.2 million in the third quarter of 2025, driven in both cases by Mexico and Japan. For the second consecutive quarter, we generated adjusted EBITDA growth in the segment year-over-year.

Adjusted EBITDA margin increased 20 basis points year-over-year and 230 basis points quarter-over-quarter to 18.8%. In our Market Development segment, organic revenue declined 4.9% as growth in royalty revenues from international markets was more than offset by lower equipment sales. We're encouraged by the strong sales performance in Brazil, the Middle East, India and South Korea, and we look forward to further expanding point of access across Europe, highlighted by our recent entry into Spain. Market Development segment adjusted EBITDA rose 2.1% to $12.1 billion. Adjusted EBITDA margin increased 370 basis points to 61.5% year-over-year due to a higher mix of priority revenue.

Our highly attractive franchise margin levels support our intention to advance our capital-light strategy to refranchising. In addition, this year, we intend to open 3 to 4 new international franchise markets as we continue to spread the joy of Krispy Kreme around the world. Ending 2025 with meaningful progress provides solid momentum as we move into 2026, even amid a dynamic consumer environment. While we cannot control macroeconomic factors, we are focused on delivering quality sales growth and managing cost effectively across the entire P&L.

We are providing the following annual financial guidance and intend to provide further details as our refranchising efforts progress. We're including system-wide sales growth as a measure of brand health, which will become more important as we advance our refranchising strategy. We currently expect the following for the full year: system-wide sales up 2% to 4% in constant currency from $1.96 billion in 2025, open at least 100 shops globally, having ended 2025 with 2,125 shops, CapEx of $50 million to $60 million, positive free cash flow and net leverage ratio at or below 5.5x. Our success will be driven by our ability to continue deleveraging the balance sheet while further expanding our capital-light business model to drive sustainable, profitable growth. I'm confident in our ability to execute against these priorities and deliver clear proof points along the way. Thank you for the interest in Krispy Kreme.

We will now turn the call back over to Josh.

Thank you, Raphael. We are pleased with the meaningful progress achieved during the fourth quarter. We look forward to building on this momentum and growing our brand around the world in 2026. As we continue to expand, deleveraging the balance sheet and delivering sustainable profitable growth remain our 2 primary objectives. We plan to accomplish both through refranchising, improving returns on capital, expanding margins and continuing to drive sustainable, profitable U.S. growth. I am grateful to work alongside a highly capable team that shares my passion and belief in our opportunity as we continue to spread the joy that is Krispy Kreme to more people in more places around the world.

Operator, let's now open it up for Q&A, please.

[Operator Instructions]

Your first question comes from the line of Daniel Guglielmo of Capital One Securities.

[indiscernible] are making great progress on the turnaround [indiscernible] drive the best bottom line. You mentioned the moderated growth [indiscernible] are you starting to think about potential U.S. hub growth that you know can provide a good return? Or is it still too early?

Yes. I think that the line was a bit interrupted there, but I think you were asking around the potential expansion and supporting it with whether or not we need new hub growth. What's great about our opportunity in the U.S. is we have plenty of underpenetrated customers, places like Walmart and Target, where we're only about 30% of those. Costco, Sam's only about 20%. And so we have plenty of opportunity to grow. As we saw in the fourth quarter, we expanded access with new distribution by more than 200 doors in the U.S. So we intend to continue to drive that expansion opportunity as we grow the brand in the U.S. in 2026.

We also have a great opportunity in our capacity utilization is only around about 25%. So we're able to manufacture the doughnuts without significant investment in new production. And that is why our CapEx in the fourth quarter is actually nearly half what it had been year-over-year, and we expect CapEx overall to be about half the level in 2026 as it was in 2025 as we're able to pursue that growth opportunity, which is very compelling. We know our consumer continues to look for convenient access for our doughnuts, but without significant investment in infrastructure, enabling us to drive not just profitable growth but to strengthen the balance sheet as we go.

Great. I appreciate that color and hope the line is clear now. As a follow-up [indiscernible] this quarter [indiscernible] on those closures? Is it going to be a significant [indiscernible] or will it come down from here?

Yes. I'm sorry, the line broke up a little too much. You were asking around perhaps the door closures that we completed in the third quarter last year, a program that is over. We're now focused on expanding access to the brand and distribution. Was that what you were asking about?

Sorry about that. I took my head set off, and hopefully, is it clear now?

Yes, that's much better. If you could repeat that, that would be great.

Okay. Perfect. Yes. So there was a pretty significant shop closure expense for this quarter. For 2026, how much more do you guys have left to go on those closures? Is it going to be significant in the first half of 2026? Or will it come down from here?

Yes. What we saw regarding shops is that what we've been doing is with our production hubs and our retail shops, we've been really optimizing where we produce, how we then deliver the doughnuts, how many locations individual sites are supporting. And that has enabled us to improve productivity, drive efficiency throughout the system, both from a production and delivery point of view. So -- so we're not making closures right now. Instead, what we're doing is focusing production to be as efficient as possible.

This is all in support, of course, of the journey that we saw in the fourth quarter, where we saw meaningful EBITDA growth. And then we expect that to translate into 2026. We expect, for example, in the first quarter, EBITDA to be growing again versus the same quarter a year ago. So this is all part of our efforts around the turnaround to drive margins in the U.S. and become more profitable.

There are no further questions. I'd now like to hand the call back to Josh for final remarks.

Okay. Thank you very much. Appreciate everybody's interest in Krispy Kreme. We're making very good progress, as you heard, on our turnaround, strengthening the balance sheet and positioning Krispy Kreme for sustainable long-term growth. And we look forward to continuing this momentum into 2026. Thank you, everybody.

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

Good morning, everyone. My name is Raphael Gross. I'm a partner in ICR's consumer practice, and I'm very pleased to welcome Krispy Kreme to the ICR Conference.

Before we begin, let me remind everyone the company will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995, including statements of expectations, future events or future financial performance. Forward-looking statements involve a number of risks, assumptions and uncertainties, and many factors could cause actual results to differ materially from those contained in any forward-looking statements.

These factors and other risks and uncertainties are described in detail in the cautionary statements in the presentation accompanying this event and in the company's SEC filings. In addition, given that the company has finished its fourth quarter but has not yet released its 2025 results, the company's discussion today of financial results will be limited to its public disclosures. The company expects to announce its fourth quarter and full year 2025 results in late February.

Krispy Kreme has been delivering joy one doughnut at a time since 1937. It currently operates in more than 40 countries around the world through approximately 2,100 company-owned and franchise shops and has 15,000 global points of access via its retail partners. More than 90% of Krispy Kreme sales are doughnuts and more than 1 billion doughnuts are sold each year.

Here with me to discuss Krispy Kreme are Josh Charlesworth, President and CEO; and Raphael Duvivier, CFO. Thank you so much for participating in the conference. And just for everyone who's interested, there'll be Krispy Kreme doughnuts both today and tomorrow, and we appreciate that very much.

Josh, you've described Krispy Kreme as a growth company. How has this beloved brand that is nearly 90 years old still a growth company?

Good morning, everybody. Yes, Krispy Kreme is a growth story. It's a brand known across the world, such high brand awareness universally known almost. We see that time and again when we enter new markets as we did last year in places like Brazil and France the year before, enormous response, and that's enabled expansion for a number of years right now.

The demand is there for the fresh doughnuts because people see it super relevant for sharing occasions, special occasions, and they just love our fresh iconic doughnuts. But actually, it's really interesting. If you think about the size of the brand, it's top-of-mind awareness, we're still relatively only available in a small number of places. The number of -- percentage of households even in the U.S. where people purchased Krispy Kreme less than 15% penetration. And when we speak to consumers, they say the #1 reason why they may not purchase a Krispy Kreme is just convenient access. It's not always accessible to get our amazing fresh doughnuts.

So our growth strategy is to make the doughnuts available in more places, whether it's doughnut shops, through digital commerce or indeed off-premise distribution to grocery and convenience stores where we've seen a lot of growth in recent years. Now, in the summer last year, though, we just announced a turnaround plan because we want to make sure that, that growth was sustainable and profitable, and we wanted to deleverage our balance sheet. So the turnaround plan you see here is very much focused on capital-light and more profitable growth, not just growth.

So we have a turnaround plan in place. It has 4 components: refranchising, driving ROIC, expanding margins and quality growth. Maybe we'll discuss some of those things in further detail. Raphael, I'm going to start with you on refranchising. So as you know, there are many successful models that are company-operated models. They are successful hybrid models, combination company and franchise. And there are also successful franchise models in the quick service and snacking category. Why is Krispy Kreme evolving to a capital-light international franchise model right now?

Yes. Good morning, everyone. We have already a proven global franchise model that we can build on. We have just over 40 countries. And the reality is the vast majority of that is actually operated with franchise partners, big scalable partners. Think about, for example, our example in Korea, where we have Lotte, one of the biggest groups in Korea, which is our operator. But not only this, the places we just entered, Josh mentioned Brazil, we also enter with very capable partners. Think about Brazil, we entered last year with a Hotlight theater shop in Sao Paulo. Our partner is the largest convenience player in Brazil. They operate 1,500 convenience shops. So we can continue to build on those relationships we have because we can grow faster when we're using outside capital, and that's a big focus for us.

We also recently announced a refranchise agreement in Japan, right? Proceeds from this transaction, which will be approximately $65 million and will be used for debt paydown after transaction-related expenses and fees. You also said that you're looking to refranchise other markets internationally and are in active discussions with other operators to potentially refranchise those markets. Maybe discuss how that process is going.

Yes. The deal we just announced in Japan, very happy with the deal with Unison is a great partner and it's a great example of what I just described, how we can partner with someone that wants to grow the brand and help us achieve opportunity, chase the opportunity we have. Japan is probably one of the biggest opportunities we have globally. I feel very confident about the growth. Japan is also the first deal of many. We are working on the other ones to bring partners that can allow us to grow the business much faster with, as I said before, outside capital, focusing on long-term value by delivering growth.

We talked about refranchising and the opportunities there internationally. Josh, let me ask you, if we look at the U.S., would you consider refranchising select markets within the U.S.?

Look, we wouldn't rule out selective refranchising in the U.S. in the longer term. But right now, our focus is on making sure our company-owned operations in the U.S., which is the vast majority of what we have, are more profitable than they have been before and making the system more efficient and more productive. That being said, we are in discussions with our well and long-established JV partner in the Western states, the WKS Restaurant Group, to actually reduce our ownership stake with them. What's sitting behind that is we really want to support capital-light growth in the future. We're excited to grow the brand further, but we're looking to reduce our stake there. And if there are any proceeds from that, we'll use those to further pay down debt.

You talked about refranchising. Maybe let's talk about the second component of your plan, which is improving returns on capital. Josh, let's talk about Minneapolis. That's a recent hub that opened in November. Tell us about that market and how that market is performing so far.

It was exciting to open up in Minneapolis in the fourth quarter. The people of Minneapolis have really welcomed Krispy Kreme back to the city with incredible enthusiasm. We've seen lines around our doughnut shop in the Fridley area there. And actually, it's been a record-breaking opening not just in the U.S. but in the history of the company around the world. We actually saw $1 million of profitable sales from one doughnut shop in just 17 days, which really is a testament to the power and excitement of the brand. And it's really great to see the response from the community there.

What's interesting about this site is it's a former drug store that's been refurbished, and we actually designed it with off-premise distribution in mind as well. And we've already started that. We are already distributing in the Twin Cities area to about 48 off-premise locations, grocery convenience stores, a lot of Target stores. Of course, this is the home of Target, one of our best customers, which is great to bring the doughnuts to those targets and see that off-premise growth.

The whole rationale for that is that we use the off-premise locations to make it more convenient for people to buy the doughnuts and also to make our production facilities more efficient and more productive by increasing the utilization of the lines. We sell off-premise to about just over 7,000 locations across the U.S. today. But what's also interesting is actually, our production network is operating at about 25% utilization. So what it means is we can actually add more points of access, as we call them, more places where people can buy the same fresh doughnuts as they get in our doughnut shop at grocery convenience stores without making significant investment in further capacity, which is great for our future capital returns.

Just staying on that theme and switching over to Raphael for a moment, talking about leveraging existing capacity, what are the implications, therefore, for CapEx as it looks to 2026 versus 2025? What are the areas of focus for CapEx? And what does it mean for free cash flow generation?

Yes. CapEx -- reducing CapEx was and still is a big priority for us. So we did this in 2025. CapEx in 2026 will be lower, mostly for repairs and maintenance of existing shops. And then if you think lower CapEx, together with, one, operational improvements through the turnaround plan, but also our shift to the capital-light model, we will continue to improve the trajectory that we see in free cash flow. This was and still a big priority for me since taking over as the CFO.

Let's now talk about the third component of the plan, which is expanding margins. Josh, I'll start with you. Maybe you can give us some examples of how Krispy Kreme intends to generate higher margins within the shops themselves.

If you recall, we appointed a new COO this time last year, Nicola Steele. Actually, an internal appointment started off as a team member more than 15 years ago, and she has had a big impact over the last few months. We've seen programs that she's led that have optimized our production facilities, that have actually increased labor productivity. We've seen already improvements made to not just the making of the doughnuts but the delivery side as well, thinking about improvements like route management and designing delivery routes and scheduling. And that's all on top of a program that was already underway, which is the outsourcing to third-party logistics providers of the delivery to those grocery and convenience stores.

We have more than now half the network in the U.S. that's been outsourced. And we're seeing with those third parties that they have additional capabilities in fleet management. We see delivery technology that's bringing us new insights. They're obviously investing in various AI opportunities there, demand planning, the most obvious one. Think about how many deliveries we're making every day across the system and the complexity of that safety programs. And what that's bringing us already on the logistics side is a lot more predictability in our logistics costs and efficiency opportunities. We expect to have outsourced the whole of the delivery network in the U.S. during 2026. So that's an important example of the improvements we're making.

So really, what you're saying is Krispy Kreme should be making doughnuts and others that are experts in logistics should be doing logistics.

Yes. The teams have built up so much capability and mastery in doughnut making over the years, but the complexity of running a logistics operation, think about things like casualties and safety and insurance and managing all those fleet expertise. We found that by partnering with these experts who are thrilled to be working with the Krispy Kreme brand, it's a much more sustainable and we believe a more profitable approach for the future.

Let's stay on that topic of sustainable growth. You rationalized about 1,500 underperforming doors last year and replaced them with approximately 1,000 new doors, higher volume, higher margins. Josh, tell us about the strategic partners that provide the long runway of growth as you look ahead?

What's important when we deliver to these off-premise locations is that the conditions are right. We know the demand is there. The consumer is looking for access to our doughnuts. They love the doughnut. But what we found is locations with high traffic of people, good visibility of the doughnuts in store, sometimes in multiple locations where the branding is very clearly communicated is very, very important. Often, the doughnut purchase is not a planned purchase. Often, it's an impulse purchase or a purchase for a special occasion that people noticed our doughnuts were there when they were going for their regular shop. So it really has to stand out.

And with our strategic customer partners, we see them being -- really getting behind that, whether it's near the checkout in the bakery section or now increasingly, of course, online. These are great examples here on the screen from people like Target, Costco and Walmart, all of whom we have built a very strong partnership with and expect to continue to grow it.

Just from the standpoint of penetration in some of these partners that you're talking about, what is your penetration approximately in a Target or a Walmart, trying to give people some flavor as to how [indiscernible]?

We're in less than half of the store network in all 3 of those. It really is an opportunity for us. What we tend to find is that we just need to make sure that we've got a doughnut production facility nearby, and we can design delivery routes that are efficient so that we can hit a number of places at the same time. Fortunately, obviously, in some parts of the country, they're well spread out. But we're working to design those delivery routes, bring efficiency to the delivery. The third-party logistics are a big part of that, so we can get to more and more of them nationally. The Minneapolis example, obviously being the most recent one where we've seen rapid growth in a new geography.

Raphael, what are the implications for average weekly sales of the doors that you've added in the last year versus the doors that you've eliminated in the last year?

Yes. So let's see, we closed those 1,400 doors. But I mean, as you said, we opened also new better doors, good performing doors. So if you think about those new doors, they are doing more average weekly sales than the average. Josh mentioned Walmart, take Walmart example, a good partner for us where we're doing more than $1,000 of weekly sales. And we are actually just in 30% of the network. So a lot of opportunity for us to grow. This is a great example of sustainable growth for us in the U.S.

Let's now talk about your marketing efforts, particularly as it relates to the iconic Original Glazed doughnut. Why is it the right course of action to focus on a doughnut that people have been familiar with for so long. I'll start with that.

It's my favorite topic. We're talking about the doughnuts. This is great. And the Original Glazed. It's our most iconic fresh doughnut known around the world and loved. It actually represents more than half our sales. It's our most affordable doughnut as well. And it is indeed our most profitable. And so it's very important for us to continuously communicate and remind people of the joy, whether it's to have hot or to share at a barbecue or a seasonal occasion that doughnut can bring. And we do put a lot of effort around that, even glazing it with different flavors, different colors during the year. But it's also really important that we bring news to the consumer about our doughnut portfolio.

We are the doughnut innovators. More than 90% of our sales are fresh doughnuts. So it behooves us to continuously innovate and bring news and excitement to the category. We do that with limited time offerings as we did just over the holidays. We did a peanuts collection. So yes, there was a snoopy doughnut that was very much loved. And -- but we also have, in the fourth quarter, refreshed our everyday menu, improving the doughnuts that we already have, but also bringing in new varieties and new flavors, often reacting to calls on social media for various recent trends. New York Cheesecake is my favorite new one. And what's important about these is, yes, it brings variety and excitement to the category, but these are often premium positioned doughnuts at a higher price point.

So they represent for us also a source of profitable growth. What's great about this is what I'm talking about here is our core business. Our core business in -- that we've been doing for those 90 years, just continuously improving the doughnuts, which is a real theme for our turnaround to make sure that we're growing quality growth moving forward, sustainable growth, leveraging our core strengths.

And everyone, of course, will have an opportunity to try these new doughnuts shortly, and I hope everyone avails themselves of that opportunity.

Definitely.

Great. I want to talk a little about digital sales. How are you approaching digital sales? They seem to be on the increase, of course, is a wonderful thing. And maybe talk also about your loyalty program and how you're leveraging that.

Yes. Sure. Now digital commerce is really important for us. It's a lot about convenient access to our fresh doughnuts, and there's nothing more convenient than going on and seeing the doughnuts there, whether they're the original glazed or indeed nearly all these varieties will be available online. We find that people just find that it's so easy to make that snap decision to buy the doughnut. And when you see it online, of course, we're constantly using our social media presence, which is significant across all the platforms to remind people of the joy that's Krispy Kreme. And doughnuts travel really well, which is great. So that's why they work across multiple platforms.

We saw in the third quarter last year, 17% growth in digital commerce on the retail side. And what's an interesting longer-term growth opportunity for us as well is also working with our fresh delivery customers like Walmart, Kroger and others to be on their digital platforms and delivering through that. And we know that a lot of those grocers are seeing a lot of their growth from their own online platforms. And now by working, for example, is one where we went on to walmart.com during the course of 2025, which is a great boost for the company as a whole, but also for the digital platform itself.

So when we look at the financials, just to be clear for everyone, when we see digital sales in your earnings report, that's digital sales represented by the retail shop, but the number is obviously higher if people are ordering Krispy Kreme doughnuts on Walmart's platform.

Yes. And that would sit within the fresh delivery reporting. And it is a growing opportunity for us. You also mentioned around the loyalty program, which is something we introduced or relaunched in 2024. It's been very focused on rewarding our returning customers, making sure we can communicate to them, exciting new innovation. I mentioned all the different things we're doing. We've even -- we've now got rotating innovation like seasonal -- the loyalty platform gives us a place to quickly engage customers around that and give them advanced warning of the new doughnuts that are coming out, perhaps give them a special offer just for them. And that has been great.

We have 16 million loyalty members in the U.S. alone for a brand our size. We're really proud of that. And the way the younger consumer, in particular, is engaging between that and social media is really exciting to keep the relevance and modernity of the brand. It's a 90-year-old brand, but everybody loves it, whatever demographic, whatever age range and the digital platforms and the loyalty program has enabled us to recognize that, make it easier to remind people of the joy of Krispy Kreme and reward them where we can.

We're running out of time. We only have about a minute or so left. I wanted to just give you an opportunity for any final takeaways or thoughts.

Well, look, I think that we've talked a lot about the Krispy Kreme brand today and the doughnuts and getting them in more people's hands, and that is our job. In 2025, we wanted to do it more profitably, more sustainably while also deleveraging our balance sheet. And so we announced this turnaround plan. And I think it's clear that the early results are very promising. We are seeing the refranchise capital and margin improvements and a clear strategy for long-term profitable growth. And so we expect to continuously update the market on those proof points as we go.

And the last thing I'll just say is my confidence in the Krispy Kreme leadership team, my friend here, Raphael, the COO, Nicola and the whole team to execute that plan is very mobilized around that. The clarity top to bottom across the world, all 20-plus thousand people and Krispy Kremers who love the brand and get behind it gives me every confidence that long-term profitable growth is our long-term trajectory.

We're out of time, but I want to thank Josh and Raphael for being on the stage with me this morning. I appreciate that very much. Two things just to keep in mind. The first, of course, is there will be Krispy Kreme doughnuts for everyone to enjoy. And the second thing is the first breakout session is at 10:30, and it's in Mediterranean One. Thank you so much.

I think the doughnuts will be 10:00.

Yes. 10:00 doughnuts.

Thank you.

Thank you.

Hello, everyone, and thank you for standing by. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead.

Hello, everyone, and welcome to Krispy Kreme's Third Quarter 2025 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release for the third quarter of fiscal 2025. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com.

Joining me on the call are President and Chief Executive Officer, Josh Charlesworth; and Chief Financial Officer, Raphael Duvivier. After their prepared remarks, we will host a question-and-answer session.

But before we begin, please note that during this call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events, or future financial performance.

Forward-looking statements involve a number of risks, assumptions, and uncertainties, and we caution investors that many factors could cause actual results to differ materially from those contained in any forward-looking statements.

These factors and other risks and uncertainties are described in detail in the cautionary statements in our earnings press release, our annual report on Form 10-K filed with the SEC and in other SEC filings we make from time to time.

Forward-looking statements represent our expectations only as of today, and we assume no obligation to publicly update or revise any forward-looking statements, except as may be required by law.

Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding those non-GAAP measures, including a reconciliation to the closest comparable GAAP measures.

Raphael will take us through our quarterly financial performance in a moment. But first, here's Josh.

Thank you, Christine, and good morning, everyone. I am pleased with the early progress we are making on our turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth as reflected in our third quarter performance.

As a reminder, we are focused on: one, refranchising; two, improving returns on capital; three, expanding margins; and four, driving sustainable, profitable U.S. growth.

First, refranchising enables us to more profitably drive system-wide sales growth and accelerate unit development through our capital-light franchise model. We are already working toward refranchising certain international markets as we look for experienced long-term potential partners to operate and expand our iconic brand around the world.

We also plan to restructure our joint venture in the Western U.S. with the WKS Restaurant Group, which today represents approximately 15% of our U.S. revenues. Restructuring is expected to reduce our ownership to a minority stake.

We are happy with the strength of our operations in the WKS joint venture and look forward to future capital-light expansion across 10 Western U.S. states. Proceeds from international refranchising and the WKS restructuring are expected to be used to reduce net debt.

Second, our focus on improving returns on capital involves reducing capital intensity by leveraging existing assets and focusing on franchise development. As part of this approach, we have lowered our CapEx spending for the back half of 2025 compared to the first half of the year. And in aggregate, annual CapEx will be significantly below 2024 levels.

In the U.S. next week, we will open our Hot Light Theater Shop and production hub in Minneapolis, bringing Krispy Kreme to an area where fans have been eagerly anticipating our arrival. Overall, though, we have reduced investment in building new hubs, preferring to leverage existing excess capacity for growth where available.

Looking ahead to 2026, we plan to reduce CapEx investment compared to 2025. We also expect our international franchise pipeline to continue to be a source of capital-light growth in the years ahead. For example, through our franchisees and minority joint ventures, we recently opened our first Hot Light Theater Shop in Madrid, Spain. We'll soon enter Uzbekistan and have announced further expansion in Brazil.

Future international growth is expected to come not just from new shop openings with franchisees, but also through fresh delivery door expansion in grocery, convenience, club wholesalers and quick service restaurants.

For example, our collaboration with KFC in the UAE has now expanded to more than 200 KFC restaurants offering Krispy Kreme doughnuts. This reflects the success of the model and the potential for future growth.

Third, to expand margins through greater operational efficiency, the business model is being simplified. U.S. operations have been strengthened under the leadership of Chief Operating Officer, Nicola Steele, and costs across the P&L are being reduced.

First, doughnuts are being made more efficiently by optimizing production, streamlining hub activities, and improving labor productivity. These initiatives are expected to maximize capacity, enhance operations and guest experience and increase profitability through better labor management.

Second, doughnuts are being delivered more efficiently by improving route management and demand planning and by testing adjusted production and delivery schedules to support cost-effective expansion.

These efforts are further strengthened by the capabilities of our third-party logistics partners whose expertise in fleet management, delivery technology and safety now supports approximately 54% of our U.S. network.

Outsourcing has already resulted in more predictable logistics costs, and we expect to fully outsource U.S. delivery in 2026. And third, the benefits of reduced headcount and costs that we previously announced are decreasing both operating expenses and SG&A.

Finally, to drive sustainable, profitable growth in the U.S., we are focused on strategic customers with high volume and high-margin doors, ensuring that we have the right product variety in the right amount, in the right place and at the right time.

We continue to grow with strong existing customers. During the third quarter, more than 200 profitable doors were added with strategic partners, including Target, Costco, Sam's Club, Kroger and Publix. In total, approximately 1,000 profitable doors have been added year-to-date, and these doors are delivering weekly sales well above the system average.

At Walmart, we are seeing the benefit of additional shelf space combined with our current merchandising towers and cabinets as well as placement on Walmart's website. Early results demonstrate higher sales at current stores while supporting incremental distribution and new stores.

So far, we only serve about 30% of Walmart's total domestic footprint. So there is a considerable opportunity ahead of us. Our marketing continues to emphasize the original glaze donut, our most iconic, most affordable, and most profitable product, while leveraging digital channels to engage consumers and further amplify sales.

The excitement around our signature core product is coupled with innovative limited time offerings that are culturally relevant and tied to buzzworthy events. Third quarter examples include our Harry Potter and Passport to Italy collections as well as our collaboration with Crocs.

In the fourth quarter, we are also pleased with our successful Halloween campaign. These limited time offerings performed particularly well in our digital channel. In the third quarter, U.S. digital sales increased 17% year-over-year and represented more than 20% of U.S. retail sales.

Our heightened traction in this channel reinforces digital as a key driver of profitable growth and a highly valued means for connecting with U.S. consumers.

In addition, we recently announced a refresh of our everyday doughnut menu, featuring trending flavors, fan favorites requested on social media and returning popular doughnuts. Our updated offerings provide more variety for consumers while reinforcing the strength of our core menu.

Our turnaround plan to drive sustainable, profitable growth and reduce debt leverage is showing progress, and I'm confident that we can deliver on our objectives and achieve compelling results. Our long-term success will be built upon the strength of our leadership and field teams whose talent and commitment to operational excellence continue to inspire confidence.

I'm especially encouraged by how our new CFO has seamlessly taken off his role, providing strategic financial leadership that complements the operational expertise of our teams. With that, Raphael will now review our third quarter financials.

Thank you, Josh. Through our comprehensive turnaround plan, we have pivoted to better position ourselves for sustainable, profitable growth.

As I mentioned in August, my immediate focus as CFO is deleveraging the balance sheet, improving profitability in the U.S. during the second half of this year and leading our refranchising efforts to evolve Krispy Kreme to a more capital-light franchise model.

The third quarter provided us with an encouraging start as we grew adjusted EBITDA 17% year-over-year or 20% if you exclude the sale of our majority stake in Insomnia Cookies in the third quarter of 2024. Adjusted EBITDA was $40.6 million in the third quarter, more than double what we saw in the second quarter.

We also delivered positive free cash flow of $15.5 million. These results reflect the early progress we are making on our turnaround plan, reducing our net leverage by 20 basis points compared to second quarter.

We have excess liquidity of over $200 million as of the third quarter, which I believe provide us with the flexibility to meet both short-term obligations and long-term investments as we continue to implement our turnaround plan.

Net revenue for the quarter was $375.3 million with 0.6% organic revenue growth driven by the International segment, offset by the strategic closure of underperforming doors, primarily in the U.S. Total net revenue declined by 1.2% compared to last year, largely due to the sale of a majority stake of Insomnia Cookies.

Adjusted EBITDA was $40.6 million, up from $34.7 million last year. We generated nearly as much adjusted EBITDA in the third quarter as we delivered in the first half of 2025.

These results were positively impacted by productivity initiatives, SG&A savings, and the removal of costs from the now ended McDonald's USA partnership, combined with recoveries from business interruption insurance related to the 2024 cybersecurity incident.

Turning to the U.S. segment. Organic revenue growth declined 2.2%, in part due to the exit of approximately 600 unprofitable doors. During the third quarter, we also exited approximately 2,400 doors connected to the now ended McDonald's USA partnership.

As Josh mentioned, we also have added doors to deliver substantially higher average weekly sales. Sequentially, this store optimization has resulted in an 18% increase in average weekly sales to $617 per door, demonstrating the traction we have when our products are in the right place with the right partner.

Adjusted EBITDA was $21 million in the quarter, up from $13.9 million in the third quarter of last year. We benefit from cost savings related to operational efficiencies at our retail shops and our logistic outsourcing initiatives in addition to cyber-related insurance recoveries of $9.3 million.

Excluding those cyber-related insurance recoveries, U.S. adjusted EBITDA increased sequentially $1.8 million despite approximately $3 million of lagging costs early in the quarter related to the now ended McDonald's USA partnership.

This demonstrates solid improvement resulting from our turnaround planned initiatives. Within our company-owned international markets, organic revenue grew 6.2%, driven by growth in Canada, Japan, and Mexico. These markets continue to see the benefit of strategically rolling out our hub-and-spoke model.

International segment adjusted EBITDA increased by $0.4 million or 1.7% to $23.2 million, driven by Japan and Mexico. This is the first time, in the last 4 quarters, we saw year-over-year adjusted EBITDA growth in this segment.

The margin decline of 90 basis points to 16.5% was due to the ongoing turnaround in the U.K., where we saw a strong sequential improvement in adjusted EBITDA as the U.K. leadership team continues to make progress.

In the Market Development segment, organic revenue declined 5.3% as growth in royalty revenues from international markets was more than offset by lower product sales and limited equipment sales in the quarter. Adjusted EBITDA was $12 million with a margin rate of 63.5%, up 930 basis points year-over-year.

Shifting back to our consolidated results, adjusted EBITDA and working capital management strengthened cash flow. We generated $42.3 million in operating cash flow during the third quarter and $15.5 million in free cash flow following 2 quarters of cash outflows in the first half.

Our bank leverage ratio was 4.5x at the end of the quarter, which is below the 5x leverage ratio limit in our credit facility. Our net leverage ratio, which reflects our net debt divided by trailing 4 quarters adjusted EBITDA was 7.3x, down from 7.5x as of last quarter, positively impacted by the adjusted EBITDA improvement.

Josh outlined several steps we are taking to increase profitability. We have already started to see the benefit of an estimated $12 million to $15 million of annualized SG&A cost savings along with productivity improvements at retail shops and efficiencies through third-party logistics. All of these items are already having a tangible impact on our financial condition.

Sequentially, we saw working capital improvement across our balance sheet, including accounts receivable, accounts payable and inventories. While we're encouraged by this progress, we are mindful of continued consumer softness in the marketplace and are managing through these conditions with discipline.

We must remain focused on deleveraging the balance sheet as we move towards our capital-light franchise model. With that, I'll turn it over to Josh for his closing remarks.

Thanks, Raphael. In summary, we are making progress on our comprehensive turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth. We are focused on refranchising, improving returns on capital, expanding margins, and driving sustainable, profitable U.S. growth.

I am confident in our ability to capitalize on the significant growth opportunity ahead and share the joy of Krispy Kreme with more people in more places around the world. Operator, let's now open it up for Q&A, please.

[Operator Instructions] Your first question comes from the line of Daniel Guglielmo of Capital One Securities.

You all mentioned great momentum in the International segment, and we have seen international strength versus the U.S. for other global brands this earnings season. Are you seeing continued strong trends in those markets for 4Q? I think you mentioned Japan and Mexico adjusted EBITDA growth this year -- this quarter.

This is Raphael. I can take the question. Thank you for the question. Yes, we did see, and as you can see from the results in international, we saw year-over-year growth, but also more important, a growth in the quarter, which we have not seen in the past quarters. We continue to see good momentum.

You mentioned Mexico and Japan, they continue to deliver, but also the markets that we don't own, the international franchise markets, we continue to see growth in places like Brazil, where we've just opened and the places that we're actually planning to open. So we continue to see strong momentum there.

Okay. Great. I appreciate that. And then I think in the commentary, it seemed like there is going to be some DFD expansion in some of the international markets.

Can you just talk about some learnings that you've taken away from the U.S. expansion that you're going to kind of think about as you're doing this expansion in international? It would just be helpful to understand.

Yes, it's a great question. Look, we learned a lot with DFD over the years. And as we expand internationally, we have the hub and spoke in mind.

So as we go in places where we already have the DFD in place internationally, think about U.K., think about Mexico, Japan, but also the places we're expanding now, once again, new countries like Brazil or France, we are taking all those learnings.

We know better and better what works. And it's interesting. When the brand is in the right place with the right partner, we see how DFD and the hub and spoke can operate very well.

Your next question comes from the line of Brian Harbour of Morgan Stanley.

I guess maybe can you just comment on sort of the U.S. demand environment as you saw in 3Q and kind of what's important here?

Yes, I'll take that. Q3 was very interesting for us because the results reflect the progress on our turnaround plan. Think about it, we intentionally exited from McDonald's restaurants and another 600 poor performing doors. So overall, that contributed to a small revenue decline, but a significant improvement in EBITDA and positive cash flow.

So it was clearly the outcome of our actions, the rationalization program, though on U.S. doors is over. So instead, we continue to focus on high-volume, profitable doors going forward with strategic partners.

We've actually added 1,000 of those year-to-date with people like Walmart, Target and Costco. And that's resulted in average weekly sales jumping back up over $600. So that is about the future.

We intended to have that reduction in growth in the third quarter to drive the turnaround plan. Underlying all that, we're actually seeing U.S. trends improving.

The consumer response, in particular to our specialty doughnut campaigns, we had Harry Potter in the late summer and just saw a successful Halloween means that my confidence in Krispy Kreme's long-term sustainable profitable growth is high.

Okay. What -- I guess, what additional cost things should we expect here just since the end of the year? And I know you're not guiding, right, but do you think that -- do you want to make any comments about where you think EBITDA could be in the fourth quarter?

Yes, I can take this. This is Raphael. Look, we saw a sequential improvement in EBITDA in Q3 as we saw in Q2 and are happy with the progress we made. The turnaround plan is working. And we continue to believe that as we enter Q4, we'll see sequential EBITDA improvement.

As I said, we're not providing guidance, but we do expect Q4 EBITDA to be higher and to still be able to generate a positive cash flow in Q4.

The next question comes from the line of Sara Senatore of Bank of America.

Isaiah Austin on for Sara. My first question is around the comment on fully outsourcing U.S. delivery in 2026. Do you guys mind talking through the P&L implications? Does that create a lower cost per delivery or just a more like variable cost structure so that you don't need as much volume to lever expenses? And then I have a quick follow-up.

Yes, sure. This is an important program for us through our turnaround. You're right, we're now -- 54% of the network is outsourced to third-party providers, and we expect that to be the whole network in 2026. What we see is very high service levels. We're very pleased with the partners as we roll this program out.

For now, on your P&L question, it's ensuring we have more predictable costs but interestingly, we see it as, in the long term, providing us a tailwind. If you recall, earlier in 2025, late '24, we were seeing the impact of casualty losses, and that exposure is reduced going forward.

We also expect with the expertise of these partners who are focused every day on moving our doughnuts as logistics experts as opposed to us ourselves being the producers of the doughnuts, we expect operational improvements over time.

They've already been identifying and sharing with us ideas around how they can use their technology and expertise to improve route management, for example. So a long-term tailwind for us.

But for now, the impact on the P&L is more just ensuring we have predictable costs without any of the surprises of those casualty losses.

Excellent. And then just as a follow-up, just thinking about the recently announced expanded core menu lineup, just want to know like what prompted that change? And how do you all think about balancing variety versus complexity?

Yes. I mean it reflects -- we talk about long-term sustainable, profitable growth. That's seen us really focus on our core business. And there's nothing more core than our fresh doughnuts board at our doughnut shops across America.

And we've been highlighting the original glazed itself, adding flavored glazes like chocolate glaze, strawberry glaze. But we also saw that we haven't refreshed and updated our assorted doughnut menu for many years.

And we get a lot of input from consumers, social media, in particular, pointing out that there are favorite doughnuts from the past or even favorite ideas that they have that they would love to see. So we've been listening to the consumer.

You'll see we've brought out with this new refreshed range, OREO Cookies with Kreme and New York Cheesecake, my favorite, the Biscoff Cookie Butter. And that's a response to consumer demand.

Now we also think -- we've also done that. We've been really thoughtful about making sure that consumers have a good amount of choice and get a really awesome experience when they come to the Krispy Kreme Doughnut shop, all in the context of our turnaround plan, focusing on what we do best, making awesome doughnuts. And we're really looking forward to the impact of that.

[Operator Instructions] Your next question comes from the line of Rahul Krotthapalli of JPMorgan.

Josh, you have a large brand presence or brand equity that is probably even bigger than the company as many would say today. I mean discuss the growing supply or competition in the segment as we see a number of cake and cookie and other sweet treat brands in the market.

And at the same time, many consumers are also being more mindful of spending generally and then also more conscious around the segment. Any thoughts you could like to share there? And then I have a follow-up.

Yes. We're very proud of the strength of the brand, both in terms of awareness and also in terms of what it means to people, particularly in sharing occasions, gifting occasions, makes us quite unique compared to others. It's a relatively infrequent purchase, just 2 or 3 times a year. So we don't really get impacted by those things.

Instead, we find what's most important is making sure we really come with an awesome doughnut experience with our original glaze, most famously with the hot doughnut and continuously bringing news, as I just mentioned a moment ago, with innovation, specialty collections and being relevant at those important times of the year.

I mean we're in hot doughnut season right now. It's really important that we saw a good response to the brand at Halloween and the whole holiday period coming up is an important one for us. So that's where we are focused, bringing moments of joy that people can share and enjoy with us.

And the follow-up is on the retooling the distribution network. I know you are like taking a full look on the entire DFD touch points now. Is there any changes to the thought process on kind of brands and partnerships you want to focus on going forward?

Are we -- where are we in the journey there? And then also, is there any change in the kind of agreements or how you want to execute the drop-offs in this new model?

So we're continuously looking to improve our distribution network, looking at delivery timing, making sure that we are producing the doughnuts in close proximity to our customers, but also efficiently. So we really are doing a lot of work around that as part of our turnaround and continue to expect benefits from that.

The big initiative for us was to exit from low-traffic doors. We had -- over time, we identified there were about 1,400 doors in the U.S. where the traffic wasn't high enough, and therefore, the weekly sales were good enough. And so we intentionally exited from those this year, but that program is done.

So going forward, to your broader question, it is about expanding convenience and access to the brand. But only where the traffic is high enough and in-store visibility is really clear. That's when the conditions are right for us.

What's great is we have several customers that already qualify against that. And they have plenty of upside opportunity. It's only recently in the last year or so that we entered Target, and we're really just starting out with Costco as 2 clear examples of that. And even more recently just got going with Sam's Club.

So we have plenty of customers where we can go that are sort of proven with that high traffic. It's interesting and internationally that we see some other innovations such as the KFC we're seeing in the Middle East.

But really in the U.S., the focus is on these big high-traffic locations in which we have plenty of runway, and they can support our long-term sustainable profitable growth.

Your next question comes from the line of Alexandra Gaillard of BNP.

This is Jaafar Mestari from BNP. Just wanted to clarify one thing in terms of the outlook where you talk about the remainder of 2025, you expect to see further improvement in adjusted EBITDA. Does that mean a Q4 '25 EBITDA higher sequentially than Q3? Is that a Q4 '25 EBITDA higher year-on-year than Q4 last year? Or is there any other way we should look at this?

I can take this. This is Raphael. Yes, that's the way you should read this. We do expect to see improvement in Q4 versus Q3 and also positive cash flow in Q4 as we generated in Q3. And as to 2026, we're still not providing guidance, but you can expect sequential improvement in EBITDA.

And as I said, in Q2, we continue to focus on lowering CapEx spend. We will do this in the second half of this year, and we will lower CapEx for next year as well.

Thank you. There are no further questions. I'd now like to hand the call back to the CEO, Josh, for final remarks.

Well, thank you, everyone, for your interest in Krispy Kreme today. We saw we implemented a turnaround plan this summer to drive sustainable profitable growth and deleverage the balance sheet, and we are already seeing that turnaround underway.

It's thanks in large part to our great Krispy Kreme team all over the world. So I thank you as well. Thank you. Goodbye.

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