Krispy Kreme, Inc. [DNUT] Conference call transcript for 2022 q1
2022-05-11 12:20:03
Fiscal: 2022 q1
Operator: Good day, and thank you for standing by. Welcome to the Krispy Kreme First Quarter 2022 Earnings Call. . I would now like to hand the conference over to your speaker today, Rob Ballew, Vice President of Investor Relations. Please go ahead.
Rob Ballew: Good morning, and welcome to Krispy Kreme's First Quarter 2022 Earnings Call. Thank you for joining us today. Our first quarter earnings release and an accompanying earnings presentation deck are available on the Investor Relations portion of our website at investors.krispykreme.com. Joining me on the call this morning is Mike Tattersfield, President and Chief Executive Officer; Josh Charlesworth, Chief Operating and Financial Officer; and Joey Pruitt, Chief Accounting Officer. After prepared remarks by Mike and Josh, there will be a question-and-answer session. Before we begin, I would like to remind you that this call contains forward-looking statements made 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 inherent risks and uncertainties, and we caution investors that these risks 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 company's registration statement on Form S-1. Forward-looking statements made today speak only as of today. The company assumes no obligation to publicly update or revise any forward-looking statement except as may be required by law. Additionally, today's call will include certain non-GAAP financial measures. A reconciliation between non-GAAP financial measures and their closest GAAP measures can be found in the company's first quarter earnings press release and our Form 10-Q, which will be furnished shortly to the SEC and available at investors.krispykreme.com. With that, I'll turn the call over to Mike.
Michael Tattersfield: Good morning, and thank you, everyone, for joining us today. We are pleased to share our first quarter 2022 results as we build on strong momentum established in 2021. I want to start today's call by thanking our amazing group of Krispy Kremers, our team members, for their continuing hard work to create moments of joy for our customers, especially while navigating significant uncertainty across the world. Our people continue to be at the forefront of delivering on our mission of becoming the world's most-loved sweet treat brand. We have accelerated investments in our talent to ensure we continue to attract, engage and retain our most vital asset, and we are already seeing improvements across the key people measures to start the year. The purpose of our company is to touch and enhance the lives of others through the joy that is Krispy Kreme. Last quarter, we discussed the strong positive impact Krispy Kremers have had on the community in 2021. We continued those efforts this year, including our blood donation campaign in conjunction with the Red Cross in January to help save lives. Another great example this year includes celebrating International Women's Day across the globe with our Hear From Her campaign, which put the spotlight on talented female illustrators globally and encouraged our customers to share their own voice as well as donating product and proceeds to women-based organizations. This campaign sparks social conversations across the world with a theme of celebrating the special women in each of our lives. Both of these campaigns perfectly highlight our key brand value of joy, generosity and connection with our consumers, which we know drives strong brand love. We are proud to be a global company operating in more than 30 countries, and campaigns like these highlight the good we can do and how we can really drive genuine consumer connections with our brand in an impactful way. Turning to our performance. The continued progress on our long-term strategy was well apparent in the first quarter with organic revenue of 15%, driven by strong performance across all 3 segments. Our Organic growth was led by fresh doughnuts through our omnichannel model. This growth was driven by engaging and buzz-worthy seasonal and limited-time offerings or LTOs such as our successful Twix doughnut campaign in the U.S. and a nearly 2,000 point increase in our points of access from a year prior. The increase in fresh points of access to 11,000 globally, including 600 new points in the first quarter alone, shows how we can leverage the economies of scale of our 415 production hubs to deliver fresh doughnuts every day. Our strong revenue growth in the quarter led to an increase in adjusted EBITDA over the prior year to $48.9 million, with consolidated margins in excess of 13% as we expanded margins in the U.S. and Canada and Market Development segments and excluding a onetime benefit in the previous year, our International segment as well. These results were in the face of macro issues such as supply chain disruption, Omicron, inflationary pressure and the war in Ukraine. In these troubling times for all of us, we are doing our part to help our communities with acts of joy, like Beat the Pump promotion in the U.S. To sell an original glazed doughnut for the price of a gallon of gas on Wednesdays, this promotion increased our transactions in the middle of week and generated several billion media impressions. We have and will continue to successfully navigate these challenges in what is a constantly changing environment through our omnichannel model and the dedication, agility and hard work of our Krispy Kremers. Our biggest growth opportunity is getting to more than 50,000 fresh global points of access, largely driven by low-capital Delivered Fresh Daily or DFD doors. I want to spend a little bit of time this morning doing a deeper dive on our DFD strategy. DFD is a delivery of fresh doughnuts to grocery and convenience stores from one of our production hubs and Krispy Kreme-branded merchandising units, allowing us to leverage the fixed cost of our production facilities and ensure our customers receive a fresh doughnut daily in a convenient location to them. We know that fresh matters. As our customers tell us, this is the most important attribute when purchasing a sweet treat. These points of access typically cost between $2,000 to $10,000 CapEx per merchandising unit, a capital-light way to increase accessibility to consumers. We've seen strong growth in DFD door count and a 27% increase in sales per DFD door in the U.S. and Canada over the last year, but we still have significant room to grow. We'll achieve higher sales per door by focusing on premiumizing our DFD options in the U.S., including adding LTOs this year and upgrading our merchandising units with more menu choices and better displays. These are improvements that will drive higher sales per door, increase the bottom line and improve margin. Similarly, as illustrated this quarter and all of 2021, we continue to make great progress in expanding our global points of access in a capital-efficient manner, both from our existing grocery and convenience customers as well as adding new customers. Likewise, we see significant opportunity for growth in both our existing markets and in markets we do not currently operate. We have strong visibility to our pipeline of DFD expansion globally over the next 3 years and remain highly confident that we can deliver at least 10% increase in points of access each year, primarily through highly profitable capital-light DFD doors. Supporting this expansion will be the addition of 10 to 15 new equity hubs added per year as well as 5 to 10 franchise hubs. Each will be located and designed to maximize the hub-and-spoke system with 50 to 80 additional points of access per hub over time. Each new hub investment has a goal of a 3-year total payback period. In the U.S. and Canada segment, our performance was driven by the strength of our fresh business and Insomnia Cookies. Organic revenue grew 9.7% in the first quarter while total revenue grew 13.8%. Our DFD business continue to gain momentum as we added over 200 points of access during the quarter, bringing us to nearly 6,000 locations in the U.S. and Canada, well on our way to exceeding 500 doors in 2022. The increase in our points of access and strong growth in revenue per DFD door allowed us to expand adjusted EBITDA margins by 90 basis points in the first quarter to 13.3%, even in this inflationary environment. Insomnia Cookies had another strong quarter, growing double-digit organic growth revenue and adjusted EBITDA. We added 7 new cookie shops during the quarter. And with a strong pipeline, we are confident that we will add more than 30 shops this year and deliver unit growth in the mid-teens each year moving forward. Finally, in our Branded Sweet Treats business, quality packaged shelf-stable doughnut bites and mini crullers, we continue our plans to expand points of distribution, growing to 18,000 points in the first quarter. We continue to invest in this great opportunity to drive future growth. Our International segment delivered another quarter of strong performance. Organic growth for the quarter was 36%, with sales per hub up nearly 50% from a year ago with the same number of hubs, showcasing our ability to increase revenue in a very capital-efficient manner. We saw strong performance across all of our international units, including 42% organic growth in Mexico from the prior year, and we continue to see significant runway for growth across the entirety of our International segment. Our Market Development segment also had a great start of the year with organic growth of 10% and margins expanding nearly 200 basis points to 35%. This was led by a robust performance in our franchise business as well as our equity-owned Japan market, where we are implementing our omnichannel model with the expansion of e-commerce and the launch of Delivered Fresh Daily. Krispy Kreme is truly a loved global brand. Roughly half of our systemwide sales and adjusted EBITDA are outside the U.S. As you know, our goal is to open at least 3 new countries per year going forward. Last quarter, we announced signed agreements in Switzerland and Chile, and we're pleased to announce 2 additional signed agreements to bring Krispy Kreme to Costa Rica and Jordan. On average, we expect each new market will -- entry will provide 400 to 500 additional points of access. With a proven model, we are building a very strong pipeline for new market entries for both existing and new franchise partners as well as looking at equity stakes in strategic markets. We expect to be able to announce further country entries later this year as we continue our journey to become the most loved sweet treat brand in the world. Turning to a few other drivers of our growth. Ecommerce is a core pillar of our omnichannel strategy. In the first quarter, 17.4% of our retail sales came from ecommerce, up from less than 10% pre pandemic and 17.2% for the full year 2021, with a goal to achieve ecommerce penetration of over 25% globally long term. We continue to strengthen our capabilities with our app in order to improve the user experience, enhancing our customer targeting of more than 10 million loyalty members, including Be Sweet weekends and double-dozen promotions, and we continue to expand accessibility with additional third-party partners. In addition to ecommerce, innovation, branding and marketing are key capabilities that drive our business segments and keep us relevant across all the consumer touch points in our omnichannel model. Innovation remains a significant driver of frequency as we create and introduce premium, fresh and buzz-worthy offerings to customers across our points of access. We had highly successful seasonal activations across the globe during the quarter, including our Lunar New Year and Valentine's Day campaigns. We've continued our momentum on innovation and branding into the second quarter, including our successful hand-cut, hand-rolled cinnamon rolls on Sunday and the introduction of our new Cinnamon Toast Crunch doughnuts. The product, packaging, the emotional storyline connection really matter for our customers. All these initiatives, driven by innovation and premiumization, give us real pricing power, sometimes up to 50% more per individual item than our Original Glazed doughnut, and continue to be scalable opportunities for our business and provide a notable offset to current inflationary pressures. These also hit right in the sweet spot of gifting and purchasing still affordable treats in larger quantities for sharing and celebrating as evidenced by the 13% increase in doughnuts sold this quarter compared to a year ago. To wrap up, I want to once again state how enthusiastic we are about the long-term growth in our business. Our ability to execute our omnichannel model and ultimately expand to more than 50,000 points of access globally in a very capital-efficient manner. Leveraging our innovation and brand connection with expanding points of access in our existing markets and opening 15 to 25 new hubs across the global system each year gives us strong confidence that we can achieve double-digit organic revenue growth in '22 and beyond. I'll now turn it over to Josh to walk you through the Q1 financials and our 2022 outlook. Josh?
Joshua Charlesworth: Thanks, Mike, and good morning, everyone. In the first quarter, our Krispy Kremers have once again shown that our beloved brand and our omnichannel approach is not only resilient in this turbulent macro environment but continues to thrive, with net revenue growing 15.8% year-over-year to $373 million, organic revenue growing 15.0% and adjusted EBITDA increasing 5.4% to $48.9 million or a margin of 13.1%. This performance reflects the effectiveness of our strategy to maximize sales from our production hubs, selling more fresh doughnuts through our shops via ecommerce and into local grocery and convenience stores. This also helped us work through the disruption from Omicron back in January, with fresh doughnuts always available even if we lost a few operating hours when Krispy Kremers fell sick. During the quarter, we added 600 of these points of access across the world, mostly in the form of capital-light DFD doors. We now have more than 11,000 points of access, an increase of nearly 2,000 from a year ago. Along with our successful brand activation initiatives around the world, this directly resulted in double-digit sales per hub increases across all our business segments. The resulting operating leverage explains the 90 basis point increase in first quarter U.S. and Canada segment EBITDA margin year-over-year. Total company adjusted EBITDA margin was 130 basis points lower than the same quarter last year due to the impact of public company costs, and we also lapped the receipt of a business interruption insurance payment in the U.K. 1 year ago of $3.5 million. Nevertheless, a margin of 13.1% is higher than we saw across the second half of 2021 and shows how the efficiencies of expanding our hub-and-spoke model plus the pricing we took during the course of 2021 were enough to cover inflation. In the first quarter, GAAP net income was $6.5 million or $0.02 diluted EPS compared to a GAAP net loss of $400,000 or negative $0.03 diluted EPS in the same period a year ago. Adjusted net income for the quarter was $16.1 million, and adjusted diluted EPS in the first quarter was $0.08, a drop of $0.03 largely due to the increased share count from the IPO. Net leverage was 3.6x on a trailing 12-month basis at the end of the quarter, a significant decrease from a year ago. In the U.S. and Canada business segment, total revenue increased 13.8% in the first quarter to $253 million and organic growth was 9.7%. We saw growth across all channels, and for the first time, we were able to activate Valentine's Day and St. Patrick's Day across all our fresh doughnut channels in the U.S. This meant fresh specialty doughnuts were available during these weeks simultaneously at our doughnut shops, via ecommerce and at local grocery and convenience stores, adding to the overall success story this year of these seasonal events. This contributed to a 27% year-over-year increase in sales per DFD door. We also added 207 DFD doors in the first quarter, taking the total to 5,411, representing a 15% increase year-over-year. We expect to add at least 500 DFD doors in the U.S. and Canada for the full year of 2022. Also in the first quarter, we brought the unique LTO experience of Krispy Kreme doughnuts made, topped and stuffed with Twix bars as well as the return of our beloved cinnamon roll with Cinnamon Roll Sundays. These are important to our performance not just because of the additional excitement they bring to the brand but because these specialty doughnuts, they are priced at a significant premium to our Original Glazed. Ecommerce revenue in the U.S. and Canada grew to 18.6% of retail sales in the quarter, reflecting the benefits of integrating third-party aggregators which now work alongside our own ecommerce platform. All these factors combined to increase revenue per hub in the U.S. and Canada to $4.3 million on a trailing 12-month basis in the first quarter compared to $4.0 million for 2021 and $3.6 million a year ago. Hub and spoke in the U.S. and Canada was flat at 125. In previous earnings calls, I've showcased former franchise city markets, which, following our acquisition, have seen profitability gains, following the introduction of the fresh hub-and-spoke model. This time, I wanted to give the example of a long-time company-owned market in Nashville. There, we converted from the legacy wholesale business in late 2020 to Delivered Fresh Daily, which led to a 1,200 basis point increase in local EBITDA margins to 24% in the first quarter. Adjusted EBITDA for the total U.S. and Canada segment in the first quarter increased 22% to $34 million, with margins expanding 90 basis points to 13.3%. The increase in EBITDA and margins was driven by strong revenue growth in our fresh doughnuts business as reflected in sales per hub growing 19% year-over-year. Pricing, taken during the course of 2021, offset wage and commodity inflation in the quarter. We did not take further pricing on fresh doughnuts in the first quarter. Our digital-first Insomnia Cookies business overcame disruption early in the quarter from both Omicron and weather events in the Northeast to deliver double-digit revenue growth with margins again in line with the average for the U.S. and Canada segment. We opened 7 new cookie shops in the first quarter, reaching 217 in total across the U.S. We remain excited about the long-term potential of this rapidly growing brand with plans to double the number of cookie shops in the next 5 years just in the U.S., and we're also developing plans for international expansion in the coming years. As Mike indicated, we continue to grow our presence with our start-up Branded Sweet Treats. Additionally, we are improving our manufacturing and distribution capabilities and have solved our service level issues from last year, delivering a fulfillment rate of 98% by the end of the first quarter. Branded Sweet Treats remains on track to be profitable by the middle of this year. Moving on to our International segment. Net revenue grew 31% in the first quarter to $87 million, and organic revenue increased 36%. Revenue growth was strong across all the International segment countries, with Valentine's specialty doughnuts resonating across the world. We had the launch of our first vegan doughnut in the U.K. and have several successful brand partnerships, including a Hershey's doughnut in Australia and Nestle's Rolo doughnut in the U.K. It's worth noting that foreign currency exchange did have a negative 4.4% revenue impact on our International growth during the quarter, so our results would have been even stronger. International points of access expanded by more than 300 in the first quarter alone as we were able to pull forward some points into the first quarter and by more than 500 new points over the last year. The increase allowed us to leverage our 37 international hubs to grow international sales per hub to $9.7 million, up from $9.1 million at the end of 2021 and $6.5 million a year ago. International-adjusted EBITDA for the first quarter grew 12.4% to $17 million, led by a 55% increase in Mexico. Margins declined to 19.8%, down 330 basis points compared to a year ago. But excluding the previously mentioned business interruption reimbursement payment from last year, International margins would have expanded by 180 basis points in the quarter. Now to our third business segment, Market Development, which is made up of our franchise business around the world and the equity-owned Japan market. Total revenues in the first quarter decreased 1.9% to $32 million due to franchise acquisitions as well as a negative 3.5% impact from foreign currency exchange. Organic revenue growth for Market Development was plus 9.5%. Adjusted EBITDA in the first quarter for Market Development increased 3.6% to $11.3 million, with margins expanding 190 basis points to 35%. Overall, we continue to be very optimistic about our growth potential, which is reflected by our reaffirmed 2022 outlook. As a reminder, in 2022, we expect revenue growth between 11% and 13% and organic growth between 10% and 12% with over 1,000 more points of access than last year. We expect all 3 reporting segments to contribute to this growth. And after the strong start to the year, we now expect to be at the top end of this range. We continue to expect adjusted EBITDA to grow faster than sales, up 12% to 16%, to between $210 million and $218 million. We are pleased to be able to maintain this guidance range despite an estimated $3 million incremental impact from foreign exchange rates for the full year compared to our earlier estimates even at a time of elevated inflation. While the environment has changed, we're still highly confident in our guidance. We have seen significant inflation on our key ingredients and input costs but have contracts and rates already locked in on nearly all of them for the remainder of the year and have now also started securing positions into 2023, plus more than 70% of our debt has a fixed interest rate. As I mentioned last quarter, the earnings growth in the second half of the year will be higher than earlier in the year, and we expect adjusted EBITDA for each quarter sequentially will be higher than the preceding quarter. The operating leverage from our fresh hub-and-spoke model is proven, and our pricing actions have been successful. We will take further pricing as needed while selectively using discounts and promotions with our over 10 million loyalty customers. Still, 90% of doughnuts sales are made at the full menu price. We continue to expect an income tax rate between 23% and 25%; and adjusted net income diluted of $65 million to $69 million, an increase of 18% to 24%; with adjusted diluted EPS of $0.38 to $0.41. Excluding share count impact from the IPO, adjusted EPS growth will be similar to adjusted net income diluted growth. After spending $29.5 million on CapEx in the first quarter for the full year, we still expect to spend between $115 million and $120 million or less than 8% of revenue, including investing in approximately 15 production hubs and more than 30 Insomnia Cookie shops. Over time, we expect CapEx as a percentage of revenue to reduce to 6%, and we expect our rolling 3-year return on invested capital to be over 20% by the end of 2025, a key priority for Krispy Kreme. We continue to be well on our way towards our long-term goal of approximately 2x net leverage, and we continue to expect free cash flow conversion for 2022 over 20%. Lastly, we remain confident in our long-term growth algorithm of 9% to 11% annual organic revenue growth, 12% to 14% annual adjusted EBITDA growth and 18% to 22% annual adjusted diluted net income growth. Operator, we can open the call up now to Q&A, please.
Operator: . Our first question is from Sara Senatore with Bank of America.
Katherine Griffin: This is Katherine Griffin on for Sara. So first, I just wanted to -- Mike, I appreciate kind of the down-low on the DFD door strategy, but I wanted to just kind of drill down specifically into first quarter. There was pretty significant year-over-year growth in sales per access point there. So is that the kind of growth we should expect going forward? Or were there -- was there anything unique in the kind of doors that you opened this quarter that would suggest maybe the year-over-year growth is not apples to apples? I think any color there would be helpful.
Michael Tattersfield: Yes. I think -- so thank you for the question. If you look about the growth that we had in the first quarter of 600 doors and then, again, the 27% growth that we had, you'll see a mix of that from either the new door growth and then the existing door growth that's coming in. So it's just as we add new customers, as we expand more routes not just in the U.S. but also in International, you'll see the mix. In terms of the number of growth, if you think about quarter by quarter, some of that, you get front loaded a little bit from the last -- if you think about Q4. There is some pruning of doors that tends to happen at the back end of the year so then it gets a little bit front loaded in the first quarter. So you anticipate -- again, the 10% that we said year-over-year is what we still target for the back end of the year.
Katherine Griffin: Great. And then just I wanted to follow up on the LTOs. So I think the last time we spoke back in March, we heard a little bit about some of the innovation being done on digital such that you can direct customers through geolocation to the closest either DFD door or access point where you can get those premium products. So I'm curious if there's anything that's been helping drive the LTO success in terms of like the digital side or whether it's app, whether it's loyalty. I understand like it's definitely innovation and premiumization that's driving that, but I'm curious if there is sort of keys on digital or loyalty that you can couple to sort of optimize growth there.
Michael Tattersfield: Yes. So I'll break it down into a couple of things. There's a lot of questions that you kind of posed there. So one of the first things that we try to do in innovation when we come up with something pretty unique and differentiated is the social media strategy that we really push, right? So you get these impressions that you get out and you get the brand awareness. And remember, we don't spend -- or not a heavy spend on the marketing side, right? So we use the power of the brand and its uniqueness of products, whether it's the Twix bar that was in the middle of the doughnut. Or even -- as you just saw today, we launched in the U.S. a Honey Bee line, right, where you're trying to get something pretty unique from a new flavor profile. Social media and how we play that is really where you get the expansion. From ecommerce and pieces, what you'll see is we connect that either through the delivery app where you can link on innovation and then make sure that there's an opportunity for everybody to see that. I think you were referencing geofencing or something like that, where we're talking about the dark shops, which allows us to add a location that then launches a delivery zone into a market. So that gives you more access to customers. So that's how you can see the expansion of that, and that's how innovation can get to customers. The number one challenge that we have in Krispy Kreme, we really like our 415 hubs that produce for our doughnut shops. It's about getting access to the customers and using the DFD methodology as well as unlocking ecommerce.
Joshua Charlesworth: And Mike, the only thing I'll add to that is on the LTOs, specifically using loyalty. We do communicate to our loyalty customers, and they're given the opportunity to get a free LTO when they come in with a code and what have you into the store. So that's one way that we leverage the loyalty program to make sure that the LTOs are top of mind and bring them in just one more time.
Operator: Our next question comes from John Ivankoe with JPMorgan.
John Ivankoe: Just looking at -- in the U.S., I think it was 5,411 DFD points of distribution. I mean it got me thinking. As you talk about expanding 10 to 15 equity stores, I think that was in the U.S. Where do you expect those stores to be? Meaning will they be in completely greenfield markets, for example, like New England or Minneapolis, 2 that I guess like pop into memory? Or do you have an opportunity to locate those stores where the DFD market will be completely new; in other words, the DFD outlets that those new stores would serve would be truly incremental to Krispy Kreme versus those that are necessarily pulled out of existing outlets?
Michael Tattersfield: John, I think the way that we've thought about this, when we took control of the system, we finally took control of some of the largest markets. So when we're doing 10 to 15 new equity hubs, right? So equity hubs that we're talking about, that would be equity plus, the international markets where we're equity owners as well as the U.S. The prioritization that we'll continue to look for those hubs will be in those new markets potentially where you would have incremental on new DFD doors, right? So you will be expanding in the U.S. You'll start to get to that 50 to 75 points of access as you open up the hub, and then in due time, it starts to get its points of access. But you continue to look at the base of hubs today, and you continue to fine-tune and add more hubs. As we think that the route becomes more interesting, you can see dark shops will add onto the existing base. And you can look at -- continue to look at either fresh shops, another piece that will drive the business deeper. So it's about leveraging. So always, there'll be more new growth on the DFD as we open up hubs, but also continue to really leverage our existing hubs to see how we can continue to drive more points of access.
John Ivankoe: Understood. And the DFD strategy, I mean, it's really just a couple of years old, and you obviously made that transition very quickly and broadly across the U.S. How has, I guess, the intelligence of measuring profitability on the DFD door changed or improved? And as you think about the overall DFD opportunity now in the U.S., there are probably some locations where you didn't expect to be profitable and you are, maybe other locations you thought would be good and aren't yet. I mean how is, I guess, the overall intelligence of mapping out DFD in the U.S. changing now that you have a decent body of, I guess, experience with you, which, I guess, on a post-COVID world is actually pretty short amount of experience, as you think about mapping out the future?
Joshua Charlesworth: Sure. John, this is Josh. So yes, you're right, 85-year-old system that we're transforming here. And over the last recent times, we've, of course, been acquiring franchise shops in all sorts of different situations in key cities but not always set up for this strategy. So a lot of the focus has been converting and adjusting those shops and then engaging the local customers in the new DFD program. We have, during the course of that, learned that it's important to have grocery stores and convenience stores that are high traffic, that are locally located. It's important for us to then manage the routes so that drivers can really efficiently get to them. This is all expertise we've been building. We've been adding route management software. We've been adding demand planning capabilities and labor management capabilities in our hubs to not only make sure that the drive-thru is working well, that the ecommerce integration is working well, but indeed that we get the doughnuts out quickly and efficiently. So all of that is a learning journey. And definitely, we're finding some of the older stores need adjustment, need remodeling and even need the space adjusting to make sure that it works effectively and efficiently. We're seeing a whole range of performance, but overall, 300 to 400 basis point increase in margins when we've deployed the DFD program. And we now have cities, as I mentioned in today's call, Nashville, previously Tampa, Albuquerque and others, where we're already over 20% local EBITDA margin and rivaling those international ones. So we'll continue to deploy all these operational best practices we learned from the international folks, and then we learn as we go, as you say.
Michael Tattersfield: I think one thing that is important, John, is if you take the base that you talked about, instead of just pruning doors, right, there's still an opportunity to start to get into the single-serve. If you imagine in the COVID world, right, you got pretty selective of what you could do. As you get into merchandising in a different way, it completely takes your base and moves you to a different way of how the consumer is going to actually engage with your brand. So getting into that single usage becomes an opportunity to capture. So there's a lot that's still to do in the existing base beyond just opening up the new DFD doors. You have 2 strategies that you're actually doing and exactly what Josh talked about. How do you maximize the profitability as you're going through this? A, you get more occasions as you start to get into the single base. It opens up different platforms, different customer base, et cetera.
John Ivankoe: Yes, definitely. I think the smallest one I've seen in my local store is 6. And to your point, they're meant to be daily. That's not always -- not for every day a single-use occasion. Maybe some days it is, but that's another topic. But I guess how -- as you -- hopefully, you got that joke. So as you talk about kind of like the potential of DFD, again, that 5,411, I mean, are you prepared to talk about what that white space is in the U.S.? Again, I mean, is it fewer, more profitable doors? Is it more doors? I mean I'm just really trying to just push about what you're kind of thinking in this post-COVID world, as you now have the experience set, how that number may be evolving in terms of your ultimate target.
Joshua Charlesworth: Yes. We believe that there's a 10,000 DFD -- or point-of-access opportunity, largely DFD, in North America, opportunity versus the 5,500 DFD doors we have today. We have mapped out both the U.S. and now Canada, which we control as well, city by major city, customer by customer, the opportunity based on either where we have hubs today or where we see hub opportunity. And it's actually pretty even, when you look at going from that 5,500 to the 10,000, where that opportunity is. About half of it is in new cities versus cities that we're already distributing DFD in. About half of it is new customers versus existing customers. So right now, we are continuously adding largely with the existing hubs that we have, adjusting those to maximize the capacity we have. But indeed, as Mike mentioned, we'll be adding 7 to 10 hubs in North America a year over the next few years to go after the Minneapolises and Bostons of this world. Most recently, we opened up for the first time Colorado Springs, Tucson. So we are bringing these doughnuts and indeed, DFD swiftly through across the system. So yes, we have a clear line of sight to that. And our confidence obviously is high given the momentum we've had over the last, call it, 2 years in transforming from the old legacy wholesale business.
Operator: . Our next question comes from Bill Chappell with Truist Securities.
Stephen Lengel: This is Stephen Lengel on for Bill Chappell. I wanted to circle back to labor. I was wondering if you guys could provide us some additional color on the labor market as you expand your distribution points. Given the backdrop of the consumer environment, have you seen more or less improvements in access to label -- labor, sorry? Any color there would be great.
Michael Tattersfield: Yes. So from a labor perspective, we still continue to be able to -- what we really like about the brand culture is we're still able to attract plenty of labor to come into our business. We're averaging about -- we can bring in about 1,500 new Krispy Kremers into the business in the U.S. to give you an example. And we don't see -- we haven't seen any material challenge to labor. It could be little pockets somewhere in the United States where there might be some opportunity. But it's really about the culture, that they want to come into the business. We are a growth system. So people continue to look for growth and opportunities. So they see what's happening with the logistics opportunities. You start to get into the delivery system, to the DFD doors, et cetera. From a driver standpoint, everybody is really concerned about that. But it's -- on average, we're talking about 4 to 6 drivers per shop a month. So that's not an overwhelming number for us to do. We continue to be competitive in every market that we're going to be. We will do that against making sure that that's not the barrier. And the benefits -- and actually, it's really about helping our Krispy Kremers hit their dreams and goals and growth as a differentiated company.
Operator: And I'm currently showing no further questions. I'd like to turn the call back over to Mike Tattersfield for closing remarks.
Michael Tattersfield: Yes. So thank you, everybody, for being on the call. I can't say enough about what our Krispy Kremers do on a daily basis to make this brand amazing and be able to accomplish that. The purpose of the company is to touch and enhance lives of others through the joy that's Krispy Kreme. They live that every single day. When we can do that really well and drive our culture, we can become the most loved sweet treat brand in the world and deliver the type of performance that we lay out in front of us. So thank you for participating in the call today, and we look forward to continued chats and growth in Krispy Kreme.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
