Krispy Kreme Outlines Plans to Automate Doughnut Production, Reduce Debt

As a private company, Krispy Kreme focused on improving the quality of donuts sold through third-party retailers such as supermarkets and convenience stores. The company uses what it describes as a hub-and-spoke model, using capacity in its retail locations. deliver fresh donuts to other nearby places. It also acquired several of its franchisees in the process, and repaid debt, which it is working to repay.

“Part of the opportunity now is to increase access through the door and sell products that are not donut theaters,” said Sarah Senatore, an equity analyst at Bank of America Corp. With the decline in the broader stock market.

The donut maker’s moves to cut debt come alongside improving revenue and profitability, as the economy faces a possible recession. Krispy Kreme is expected to generate $2.15 billion in revenue by the end of its 2026 fiscal year, up 41% from its projected revenue this year, including expansion into new markets. Josh Charlesworth, chief financial officer, said the company raised prices this year to offset inflation, and is also investing in automation to save labor costs in its Donut Theater shops.

Discussing donut production, Mr. Charlesworth, who also serves as global president and chief operating officer, said, “There’s a lot of human intervention behind the scenes.” For example, employees manually dip donuts into bowls of icing, he said.

Krispy Kreme has begun testing new technology in its stores that will cut down on repetitive labor, according to Mr. Charlesworth, and expects to automate about 18% of its total donut production over the next 18 months. The company expects the investment, which has cost $6 million to date, to generate $2 million in annual savings. Krispy Kreme’s capital expenditures totaled $23.5 million during the third quarter.

“We have to learn as we go,” Mr. Charlesworth said, referring to the automation push. The company remains committed to maintaining the quality of its donuts in the process, he said.

As it looks to boost revenue, the company has plans to enter international markets including France, Chile, Costa Rica and Switzerland in 2023. It currently operates in 31 countries.

The company reported a net loss of $13.1 million for the quarter ended October 2 and a net loss of $24.5 million for the fiscal year ended January 2. However, as a result, it is expected to report consistent annual profits through 2026. About its development plans, according to Mr. Charlesworth.

Krispy Kreme said it plans to achieve a total net leverage ratio of between 2 and 2.5 by the end of 2026 — which compares net debt to adjusted earnings before interest, taxes, depreciation and amortization. The figure was at 3.67 as the company expects. As of October 2, to come down to around 3.6 by the end of the financial year.

As Krispy Kreme works to reduce its leverage, interest rates on more than 75% of the company’s total debt are set until mid-2024, meaning they won’t rise as the Federal Reserve raises rates and Continues its campaign to fight inflation. To Mr. Charlesworth. Krispy Kreme’s net debt—which compares cash to total debt—was about $753.3 million as of October 2, up 11% from a year ago, according to the company.

companies industries and credit ratings are grappling with higher funding costs as a result of the Fed’s moves. “We are in a very good position on that score to lock in rates ahead of the recent increase,” Mr Charlesworth said.

write to Kristin Broughton at Kristin Broughton@wsj.com