Krispy Kreme CEOJosh Charlesworth Talks Turnaround

**SPEAKER_1** (0:00)
Speaking of expansions, doughnut maker Krispy Kreme is maintaining its full year outlook as margins improve, helping to offset lower revenue. CEO Josh Charlesworth says that the company is making continued significant progress on its turnaround, and so pleased to say that Josh joins us now. Josh, great to see you, and look, it's clear, this turnaround that you've been doing, focusing on having more franchise stores, it's working with your improved margins. How much more operational efficiency do you think you can squeeze out, or do you need to kind of refocus on getting that top line growth back?

**Josh Charlesworth** (0:34)
Yes, good morning, great to see you.
Yeah, the turnaround we announced a year ago is working. And you're right, we've seen margins improve this quarter 340 basis points. That's contributed also to our ability to pay down their leverage, down 1.3 turns on that. But perhaps most important for the future, and to your point, is we're also seeing good underlying growth. If you exclude the business we exited last year, distribution at McDonald's, we actually grew 4.4% in the second quarter, which is a really good sign. And so I see going forward that we'll be able to continuously improve the margins, like you say, but also at the same time grow the business, because people want our doughnuts.

**SPEAKER_3** (1:24)
Well, again, on the margin side, I'm wondering if you're having any impact from all of the inflation that we have seen that our people are worried about, and whether you feel you have any pricing power to make up for it.

**Josh Charlesworth** (1:37)
Well, we've made a lot of operational improvements over the last year. We have, for example, outsourced our logistics, that's the deliveries from our donut shops to our customers like Walmart, Target and the like. And outsourcing that has provided a lot of predictability and cost-efficiency opportunities. We've also made sure that all our revenues are profitable, shifting to distribution that is more profitable than before. For example, our fresh delivery channel, that's the delivery to those grocery and convenience stores.
The sales per location are up weekly sales by 30% year over year. So we're able not just to address those cost pressures, but improve the underlying profitability of the whole network.

**SPEAKER_1** (2:27)
Have you seen any changes in consumer behavior, Josh? I know when you talk about Krispy Kreme, you say, look, this is usually the treat that people go out for.
Are they maybe buying that treat less often? Are they changing exactly what they're ordering? Are they opting for maybe more of a basic or a smaller package? Has anything shifted in the consumer?

**Josh Charlesworth** (2:48)
It's interesting. In this dynamic consumer environment, we see that we are well positioned, as you say.
It's because you're right. It's a reasonably infrequent purchase, just on average two to three times a year. Yours usually bought for sharing occasions, special occasions and celebrations. And we're seeing that those fresh doughnuts are well positioned in this market. And that explains, I think, the underlying growth we're seeing.
People love our original glazed. It's our most popular and affordable product, usually bought in a dozen. And we're seeing even second dozen sales going up. And also we're bringing a ton of innovation that people get excited about. It's important for them to see our latest creations. It creates buzz and excitement for the brand, and we're seeing those perform well in our traditional channels, and increasingly in the digital channel as well. So there's a lot of engagement around the brand in this environment.

**SPEAKER_3** (3:43)
Have you felt any pressure to sort of match some of your competition and add products to your lineup?

**Josh Charlesworth** (3:51)
Well, you know, the number one reason why people say they may not purchase Krispy Kreme is, where do I get it? I want to get those amazing fresh donuts. And so our focus is more about taking those fresh donuts that we make in our donut shops from scratch.
You can actually literally see the dough being prepared and the donuts being decorated in our shops. How do we get them to people more conveniently? And that's why we've been partnering with the likes of Walmart and Target, Also, make them available online. And so, that's where we see the growth opportunity, really doing what we do best, make great fresh donuts.

**SPEAKER_1** (4:29)
But Josh, the space is so hyper competitive, both dessert and bakery, whether it's your big chain competitors, Dunkin, Starbucks, leaning into their breakfast and pastry offerings, or hyper local chains popping up, crumble coming up. So kind of like the sweets and dessert things, feel like they are kind of cyclical, that they have these moments, and now feels like one of those moments. Josh, how do you compete with the old stalwarts of, again, the Starbucks and the Dunkins of the world, trying to compete more of it, and new competitors seemingly pop up every day?