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Updated: 25-Feb-25 14:02 ET
Krispy Kreme shares getting creamed as cybersecurity incident hits Q4 results and outlook (DNUT)
Krispy Kreme (DNUT) is getting creamed and is trading at all-time lows after the donut maker fell short of Q4 top and bottom-line estimates and guided FY25 EPS and revenue well below expectations as the company continues to recover from a destructive cybersecurity incident. That incident, which struck at a critical time in late November when DNUT was launching new holiday-themed donuts, shaved about $11.0 mln off of the company's Q4 sales and about $10.0 mln off adjusted EBITDA. While DNUT's systems have since been fully restored, the impact from the event is not yet in the rearview mirror as it expects to incur more costs in FY25 due to operational inefficiencies and fees for cybersecurity experts.
Making matters worse, sluggish consumer spending trends are persisting and are also weighing on DNUT's outlook. The company is still expecting to generate positive revenue growth in FY25, bolstered by the expansion of its DFD (delivered fresh daily) network, especially at national partners like McDonald's (MCD), Target (TGT), and Kroger (KR). The issue, though, is that it won't be profitable growth as DNUT anticipates margin compression in 1H25 resulting from the cybersecurity incident and long-term business investments
Making matters worse, sluggish consumer spending trends are persisting and are also weighing on DNUT's outlook. The company is still expecting to generate positive revenue growth in FY25, bolstered by the expansion of its DFD (delivered fresh daily) network, especially at national partners like McDonald's (MCD), Target (TGT), and Kroger (KR). The issue, though, is that it won't be profitable growth as DNUT anticipates margin compression in 1H25 resulting from the cybersecurity incident and long-term business investments
- For the quarter, organic revenue grew by 1.8% despite a 280-bps headwind from lost revenue associated with the cybersecurity incident, which caused disruptions to online ordering systems in parts of the U.S. That growth was driven by a 24.1% increase in Global Points of Access to 17,557, boosted by DNUT's expanding partnership with MCD. Specifically, in Q4, approximately 1,900 MCD restaurants offered DNUT's donuts and just today DNUT launched daily deliveries to about 500 more MCD location in the New York City area.
- Expanding its Global Points of Access is a key pillar of the company's growth strategy. By the end of next year, DNUT plans to deliver to 12,000 MCD restaurants, and it also just completed a pilot program with Costco (COST). To support its network expansion strategy, DNUT also announced this morning that its looking into outsourcing U.S. logistics and that it has met with some national and regional carriers.
- Turning to the international business, organic revenue growth was stronger at 7.8% compared to a 1.2% decline for the U.S., fueled by DNUT's premiumization efforts and a 14% jump in points of access to 648. However, adjusted EBITDA still decreased by nearly 8% to $25.7 mln due to lower volume in the U.K., leading to deleveraging. The company disclosed that it's considering refranchising opportunities in certain international markets as it looks to improve results overseas.
The main takeaway is that the severity of the cybersecurity incident caught investors off-guard, further souring sentiment on a stock that was already weighed down by concerns revolving around soft consumer spending trends.
