KRISPY KREME, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year endedJanuary 2, 2022 , and in other reports filed subsequently with theSEC .
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. The words "believe," "may," "could," "will," "should," "anticipate," "estimate," "expect," "outlook," "guidance," or similar words, or the negative of these words, identify forward-looking statements. Such forward-looking statements are based on certain assumptions and estimates that we consider reasonable but are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial conditions, business, prospects, growth strategy and liquidity. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause actual results to differ from those expressed in forward-looking statements include, without limitation, the risks and uncertainties described under the headings "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in our Annual Report on Form 10-K for the year endedJanuary 2, 2022 , filed by us with theSEC and described in the other filings we make from time to time with theSEC . We believe that these factors include, but are not limited to, the impact of pandemics, changes in consumer preferences, the impact of inflation, and our ability to execute on our omni-channel business strategy. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statement to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Overview
Krispy Kreme is one of the most beloved and well-known sweet treat brands in the world. Our iconic Original Glazed® doughnut is universally recognized for its hot-off-the-line, melt-in-your-mouth experience.Krispy Kreme operates in over 30 countries through its unique network of freshDoughnut Shops , partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business. Our purpose of touching and enhancing lives through the joy that isKrispy Kreme guides how we operate every day and is reflected in the love we have for our people, our communities, and the planet. The following table presents a summary of our financial results for the periods presented: Quarter Ended Three Quarters Ended (in thousands except October 2, October 3, percentages) 2022 2021 % Change October 2, 2022 October 3, 2021 %
Change
Total Net Revenues$ 377,522 $ 342,799 10.1 %$ 1,125,299 $ 1,013,794 11.0 % Net Loss (11,840) (3,752) -215.6 % (7,790) (19,126) 59.3 % Adjusted Net Income 5,863 12,616 -53.5 % 36,592 50,711 -27.8 % Adjusted EBITDA 38,542 41,417 -6.9 % 134,810 140,213 -3.9 %
We generated 12.0% and 11.9% organic revenue growth for the quarter and three
quarters ended
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Significant Events and Transactions
Executing on our Omni-channel Strategy
We made strong progress on the execution of our omni-channel strategy in the third quarter of fiscal 2022, where we focus on being able to deliver fresh doughnuts and cookies to where our consumers are located. We continued to add quality Global Points of Access across our network as we convert markets into fully implemented Hub and Spoke models, including a net total of 294 new Global Points of Access in the third quarter of fiscal 2022 to surpass11,700 Global Points of Access. The primary driver of the increased Points of Access during the third quarter was the continued expansion of our low capital DFD network in alignment with our transformation strategy, as we added 254 DFD Doors globally, including 200 DFD Doors to theU.S. andCanada segment, five to the International segment, and 49 to the Market Development segment. As highlighted by the more developed model within the International segment, the capital-efficient Hub and Spoke distribution model increases accessibility to our consumers and drives higher profitability and increased margins. We expect DFD growth to continue to be one of our most significant drivers of earnings growth, through both increased door count and growth in average revenue per door per week ("APD"), which rose by 3.1% in theU.S. andCanada in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. During the third quarter, we also continued to reassess performance of DFD Doors globally, and took actions to reduce the number of lower growth doors while at the same time leveraging price increases in theU.S. andCanada towards the end of the quarter. At the beginning of the fourth quarter of fiscal 2022, we announced a partnership with McDonald's on a small-scale test to offer doughnuts at McDonald's restaurants inLouisville, Kentucky and the surrounding area, which beganOctober 26, 2022 . This is our first restaurant partnership as we continue to look for new ways to increase access to fresh doughnuts through our DFD network - a key element of our omni-channel strategy to attain50,000 Global Points of Access. Internationally, we added a net 29 franchisedDoughnut Shops during the third quarter of fiscal 2022. We also signed a new agreement for 33% equity ownership ofKrispy Kreme development rights inFrance , with shop openings expected in the future. The increase in Points of Access and the strong growth in APD in theU.S. andCanada allowed our trailing four quarters Sales per Hub to increase 18.4% from$3.8 million in the third quarter of fiscal 2021 to a record high$4.5 million in the third quarter of fiscal 2022. Our trailing four quarters International Sales per Hub also increased by 16.3% from$8.6 million to$10.0 million for the same periods. The increase in our Sales per Hub domestically and internationally led to 12.0% organic revenue growth in the third quarter compared to the same period in the prior year. Our goal is to continue to grow our Sales per Hub over time, which we believe will drive higher margins and higher return on invested capital. During the third quarter, the macroeconomic environment has continued to be challenging with supply chain disruption, inflationary pressures in commodities and labor costs, and inflationary pressures on consumer demand. These effects have been felt most heavily by our KKUK business. To protect margins, we increased prices in theU.K. and for Krispy KremeU.S. by mid to high single digits at the beginning of the third quarter in most channels, and increased prices for DFD in September. At the same time, we reduced the level of discounting for Krispy KremeU.S. andCanada towards the end of the quarter, seeing a beneficial impact on adjusted EBITDA margins in the latter part of the quarter. Additionally, during the third quarter of fiscal 2022, we continued to progress on portfolio optimization efforts for our legacy Krispy KremeU.S. andCanada business, with a focus on our Hubs without Spokes and overall efficiencies. Some of this optimization includes converting shop types to better leverage labor costs and to better facilitate the expansion of DFD, reviewing the overall cost structure, and other actions. We believe this will enable us to focus even more on capital-efficient expansion in key strategic markets and to improve overall margins. As part of these efforts, we decided to exit additionalDoughnut Shops in theU.S. during the third quarter of fiscal 2022, incremental to the Doughnut Shop exits determined during the second quarter. We will continue to assess the Krispy KremeU.S. andCanada portfolio through the end of fiscal 2022. 23
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Ecommerce, Brand, and Innovation
Ecommerce represented 18.5% of our Doughnut and Cookie Shop sales (excluding DFD) for the third quarter of fiscal 2022, up from less than 10% pre-pandemic and 17.2% for the full fiscal year 2021. We are also expanding the delivery radius in several key markets around the world through partnerships with third party aggregators and the addition ofDark Shops .
Innovation is a significant driver of frequency as we create and introduce
premium, fresh and buzz-worthy offerings to consumers across our Points of
Access. High profile initiatives during the third quarter included Pumpkin Spice
across all channels in the
[[Image Removed: dnut-20221002_g2.jpg]]Key Performance Indicators and Non-GAAP Measures
We monitor the key performance indicators and non-GAAP metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key performance indicators discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors. Throughout this Quarterly Report on Form 10-Q, we utilize "Global Points of Access" as a key performance indicator. Global Points of Access reflect all locations at which fresh doughnuts or cookies can be purchased. We define Global Points of Access to include allHot Light Theater Shops ,Fresh Shops , Carts, Food Trucks, and Other, DFD Doors,Cookie Shops , and other defined points at both Company-owned and franchise locations as of the end of the respective reporting period. We monitor Global Points of Access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments and by asset type. 24
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The following table presents our Global Points of Access, by segment and type,
as of the end of the third quarter of fiscal 2022, the third quarter of fiscal
2021, and fiscal 2021, respectively:
Global Points of Access (1)
Quarter Ended Fiscal Year Ended
October 2, 2022 October 3, 2021 January 2, 2022
U.S. and Canada : (2)
Hot Light Theater Shops 244 238 241
Fresh Shops 67 57 66
Cookie Shops 227 206 210
Carts, Food Trucks, and Other (3) 1 - 2
DFD Doors 5,720 5,220 5,204
Total 6,259 5,721 5,723
International:
Hot Light Theater Shops 35 30 32
Fresh Shops 384 363 370
Carts, Food Trucks, and Other (3) 12 1 1
DFD Doors 3,008 2,415 2,488
Total 3,439 2,809 2,891
Market Development: (4)
Hot Light Theater Shops 107 113 109
Fresh Shops 803 761 782
Carts, Food Trucks, and Other (3) 29 30 31
DFD Doors 1,066 607 891
Total 2,005 1,511 1,813
Total Global Points of Access (as defined) 11,703 10,041 10,427
Total Hot Light Theater Shops 386 381 382
Total Fresh Shops 1,254 1,181 1,218
Total Cookie Shops 227 206 210
Total Shops 1,867 1,768 1,810
Total Carts, Food Trucks, and Other 42 31 34
Total DFD Doors 9,794 8,242 8,583
Total Global Points of Access (as defined) 11,703 10,041 10,427
(1)Excludes Branded Sweet Treat Line distribution points.
(2)Includes Points of Access that were acquired from a franchisee in Canada
during the fourth quarter of fiscal 2021. These Points of Access were previously
included in the Market Development segment. See Note 2 , Acquisitions, to our
Condensed Consolidated Financial Statements for further information.
(3)Carts and Food Trucks are non-producing, mobile (typically on wheels)
facilities without walls or a door where product is received from a Hot Light
Theater Shop or Doughnut Factory . Other includes a vending machine as of
October 2, 2022 . Points of Access in this category are primarily found in
international locations, in airports, train stations, etc. Comparative data has
been included in all periods presented above.
(4)Includes locations in Japan , which are Company-owned. All remaining Points of
Access in the Market Development segment relate to our franchise business.
As of October 2, 2022 , we had 11,703 Global Points of Access, with 1,867 Krispy
Kreme and Insomnia Cookies branded shops, 42 Carts, Food Trucks, and Other, and
9,794 DFD Doors. During the third quarter of fiscal 2022 we added a net 30
additional shops globally, including 24 Fresh Shops and six Insomnia Cookie
Shops . In the quarter, Hot Light Theater Shops were added in locations such as
Tennessee and Staten Island, New York domestically, as well as Dublin, Ireland ,
Abu Dhabi, United Arab Emirates , and Penang, Malaysia , internationally. These
additions were offset by the strategic exit of Hot Light Theater Shops in the
U.S. discussed in "Significant Events and Transactions." We added a net 254 new
DFD Doors during the quarter as we continue to focus on the expansion of our Hub
and Spoke model. We plan to continue adding new locations and expanding our
Ecommerce and delivery platform in order to extend the availability of our
products.
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We also utilize "Hubs" as a key performance indicator. Our transformation is driven by the implementation of an omni-channel strategy to reach more consumers where they are and drive revenue growth, and this strategy is supported by a capital-efficient Hub and Spoke distribution model that provides a route to market and powers profitability. OurHot Light Theater shops and Doughnut Factories serve as centralized production facilities ("Hubs"). From these Hubs, we deliver doughnuts to ourFresh Shops , Carts, Food Trucks, and Other,Dark Shops , and DFD Doors ("Spokes") through an integrated network of company-operated delivery routes, ensuring quality and freshness. A Dark Shop is a non-consumer facing, non-producing facility where product is received from a Hub and stored until taken out for delivery, typically via Ecommerce channels. The following table presents our Hubs, by segment and type, as of the end of the third quarter of fiscal 2022, the third quarter of fiscal 2021, and fiscal 2021, respectively: Hubs Quarter Ended Fiscal Year Ended October 2, 2022 October 3, 2021 January 2, 2022U.S. andCanada : Hot Light Theater Shops (1) 241 234 238 Doughnut Factories 4 4 4 Total 245 238 242 Hubs with Spokes 129 121 126 International: Hot Light Theater Shops (1) 26 25 25 Doughnut Factories 11 10 11 Total 37 35 36 Hubs with Spokes 37 35 36 Market Development: Hot Light Theater Shops (1) 103 111 106 Doughnut Factories 26 26 27 Total 129 137 133 Total Hubs 411 410 411
(1)Includes only
Non-GAAP Measures
We report our financial results in accordance with generally accepted accounting principles inthe United States of America ("GAAP"); however, management evaluates our results of operations using, among other measures, organic revenue growth, adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), and Adjusted Net Income as we believe these non-GAAP measures are useful in evaluating our operating performance. These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than we do or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance under GAAP. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q.
Organic Revenue Growth
Organic revenue growth measures our revenue growth trends excluding the impact
of acquisitions and foreign currency, and we believe it is useful for investors
to understand the expansion of our global footprint through internal efforts. We
define organic revenue growth as the growth in revenues, excluding (i) acquired
shops owned by us for less than 12 months following their acquisition, (ii) the
impact of foreign currency exchange rate changes, and (iii) the impact of
revenues generated during the 53rd week for those fiscal years that have a 53rd
week based on our fiscal calendar defined in Note 1 , Description of Business
and Summary of Significant Accounting Policies. See "Results of Operations" for
our organic growth calculations for the periods presented.
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Adjusted EBITDA and Adjusted Net Income
We define "Adjusted EBITDA" as earnings before interest expense, net (including interest payable to related parties), income tax expense/(benefit), and depreciation and amortization, with further adjustments for share-based compensation, certain strategic initiatives, acquisition and integration expenses, and other certain non-recurring, infrequent or non-core income and expense items. Adjusted EBITDA enables operating performance to be reviewed across reporting periods on a consistent basis and is one of the principal measures used by management to evaluate and monitor our operating performance.
We define "Adjusted Net Income" as net loss adjusted for interest expense - related party, share-based compensation, certain strategic initiatives, acquisition and integration expenses, amortization of acquisition-related intangibles, the tax impact of adjustments and other certain non-recurring, infrequent or non-core income and expense items.
Adjusted EBITDA and Adjusted Net Income have certain limitations, including adjustments for income and expense items that are required by GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as share-based compensation. Our presentation of Adjusted EBITDA and Adjusted Net Income should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA and Adjusted Net Income supplementally.
The following tables present a reconciliation of net loss to Adjusted EBITDA and net loss to Adjusted Net Income for the periods presented:
Quarter Ended Three Quarters Ended
October 2, October 3, October 3,
(in thousands) 2022 2021 October 2, 2022 2021
Net loss $ (11,840) $
(3,752) $ (7,790)
8,871 7,186 23,808 25,228
Interest expense - related party(1) - - - 10,387
Income tax expense/(benefit) 294 (2,342) 5,668 8,266
Depreciation and amortization expense 28,127 25,663 83,782 74,258
Share-based compensation 2,825 6,315 13,318 16,973
Employer payroll taxes related to share-based
compensation 2 1,171 92 2,012
Other non-operating expense/(income), net(2) 1,648 732 2,083 (126)
Acquisition and integration expenses(3) 790 1,288 1,389 3,663
Shop closure expenses(4) 5,735 - 7,859 -
Restructuring and severance expenses(5) 2,328 57 2,804 1,393
IPO-related expenses(6) - 4,018 - 14,221
Gain on sale-leaseback (1,937) - (4,311) -
Other(7) 1,699 1,081 6,108 3,064
Adjusted EBITDA $ 38,542 $ 41,417 $ 134,810 $ 140,213
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Quarter Ended Three Quarters Ended
October 2, October 3, October 3,
(in thousands) 2022 2021 October 2, 2022 2021
Net loss $ (11,840) $
(3,752) $ (7,790)
- - - 10,387
Share-based compensation 2,825 6,315 13,318 16,973
Employer payroll taxes related to share-based
compensation 2 1,171 92 2,012
Other non-operating expense/(income), net(2) 1,648 732 2,083 (126)
Acquisition and integration expenses(3) 790 1,288 1,389 3,663
Shop closure expenses(4) 5,735 - 8,109 -
Restructuring and severance expenses(5) 2,328 57 2,804 1,393
IPO-related expenses(6) - 4,018 - 14,221
Gain on sale-leaseback (1,937) - (4,311) -
Other(7) 1,699 1,081 6,108 3,064
Amortization of acquisition related
intangibles(8) 7,083 7,497 21,307 22,573
KKI Term Loan Facility interest and debt
issuance costs(9) - 107 - 2,448
Tax impact of adjustments(10) (2,470) (5,784) (5,889) (10,604)
Tax specific adjustments(11) - (114) (628) 3,833
Adjusted net income $ 5,863 $ 12,616 $ 36,592 $ 50,711
(1)Consists of interest expense related to the Related Party Notes which were
paid off in full during the quarter ended July 4, 2021 .
(2)Primarily foreign translation gains and losses in each period.
(3)Consists of acquisition and integration-related costs in connection with the
Company's business and franchise acquisitions, including legal, due diligence,
consulting and advisory fees incurred in connection with acquisition and
integration-related activities for the applicable period.
(4)Includes lease termination costs, impairment charges, and loss on disposal of
property, plant and equipment. Shop closure expenses included in Adjusted Net
Income for the three quarters ended October 2, 2022 are inclusive of accelerated
depreciation related to replacing a point of sale system.
(5)The quarter and three quarters ended October 2, 2022 consist of costs
associated with restructuring of the global executive team. The quarter and
three quarters ended October 3, 2021 consist of severance and related benefits
costs associated with the Company's realignment of the Company shop
organizational structure to better support the DFD and Branded Sweet Treat Line
businesses.
(6)Includes consulting and advisory fees incurred in connection with preparation
for and execution of the Company's IPO.
(7)The quarter and three quarters ended October 2, 2022 and October 3, 2021
consist primarily of legal expenses incurred outside the ordinary course of
business, including the net settlement of approximately $3.3 million negotiated
with TSW Foods, LLC .
(8)Consists of amortization related to acquired intangible assets as reflected
within depreciation and amortization in the Condensed Consolidated Statements of
Operations.
(9)Includes interest expense and debt issuance costs incurred and recognized as
expenses in connection with the extinguishment of the KKI Term Loan Facility
within four business days of receipt of the net proceeds from the IPO.
(10)Tax impact of adjustments calculated applying the applicable statutory
rates. The three quarters ended October 2, 2022 also include the impact of
disallowed executive compensation expense and a discrete tax benefit related to
a legal accrual.
(11)The three quarters ended October 2, 2022 consist of the recognition of a
previously unrecognized tax benefit unrelated to ongoing operations. The three
quarters ended October 3, 2021 consist primarily of the effect of tax law
changes on existing temporary differences.
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Sales Per Hub
In order to measure the effectiveness of our Hub and Spoke model, we use "Sales per Hub" on a trailing four-quarter basis, which includes all revenue generated from a Hub and its associated Spokes. Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes during the period. Fresh Revenues include product sales generated from our Doughnut Shop business (including Ecommerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded SweetTreat Line . It also excludes all Insomnia Cookies revenues as the measure is focused on theKrispy Kreme business. The Average Hub with Spokes for a period is calculated as the average of the number of Hubs with Spokes at the end of the five most recent quarters. The Sales per Hub performance measure allows us and investors to measure our effectiveness at leveraging the Hubs in the Hub and Spoke model to distribute product and generate cost efficiencies and profitability. Sales per Hub was as follows for each of the trailing four quarters periods below: Trailing Four Quarters Ended Fiscal Year Ended January 2, January 3, (in thousands, unless otherwise stated) October 2, 2022 2022 2021U.S. andCanada : Revenues$ 1,005,414 $ 928,413 $ 782,717 Non-Fresh Revenues (1) (39,148) (37,311) (128,619)
Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2)
(402,544) (415,768) (323,079)
Sales from Hubs with Spokes 563,722 475,334 331,019
Sales per Hub (millions) 4.5 4.0 3.5
International:
Sales from Hubs with Spokes (3)$ 362,978 $ 332,995 $ 230,185 Sales per Hub (millions) 10.0 9.1 6.4 (1)Includes legacy wholesale business revenues and Branded SweetTreat Line revenues. (2)Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes. (3)Total International net revenues is equal to Fresh Revenues from Hubs with Spokes for that business segment. In our International segment, where the Hub and Spoke model is most developed, Sales per Hub reached$10.0 million , up from$9.1 million in the full fiscal year 2021 and$6.4 million in the full fiscal year 2020. The International segment illustrates the benefits of leveraging our Hub and Spoke model in the most efficient way to grow the business, as shown by the its quick recovery from the impacts of the COVID-19 pandemic and growth in profit margins. In theU.S. andCanada segment, we reached Sales per Hub of$4.5 million , up from$4.0 million in the full fiscal year 2021 and$3.5 million in the full fiscal year 2020.U.S. andCanada growth was driven by our efforts to increase the number of DFD Doors served by our Hubs and to increase APD for the DFD Door portfolio, as the segment makes progress toward optimizing the model to look more like International. As we further extend the Hub and Spoke model into existing and new markets around the world, increase innovation, and selectively take pricing actions, we expect to see this measure continue to grow. 29
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Results of Operations
The following comparisons are historical results and are not indicative of future results which could differ materially from the historical financial information presented.
Quarter ended
The following table presents our unaudited condensed consolidated results of operations for the quarter endedOctober 2, 2022 and the quarter endedOctober 3, 2021 : Quarter Ended October 2, 2022 October 3, 2021 Change (in thousands except percentages) Amount % of Revenue Amount % of Revenue $ % Net revenues Product sales$ 370,216 98.1 %$ 334,324 97.5 %$ 35,892 10.7 % Royalties and other revenues 7,306 1.9 % 8,475 2.5 % (1,169) -13.8 % Total net revenues 377,522 100.0 % 342,799 100.0 % 34,723 10.1 % Product and distribution costs 102,870 27.2 % 92,152 26.9 % 10,718 11.6 % Operating expenses 177,592 47.0 % 157,315 45.9 % 20,277 12.9 % Selling, general and administrative expense 54,801 14.5 % 52,950 15.4 % 1,851 3.5 % Marketing expenses 10,995 2.9 % 12,062 3.5 % (1,067) -8.8 % Pre-opening costs 1,200 0.3 % 1,192 0.3 % 8 0.7 % Other expenses/(income), net 2,964 0.8 % (359) -0.1 % 3,323 925.6 % Depreciation and amortization expense 28,127 7.5 % 25,663 7.5 % 2,464 9.6 % Operating (loss)/income (1,027) -0.3 % 1,824 0.5 % (2,851) -156.3 % Interest expense, net 8,871 2.3 % 7,186 2.1 % 1,685 23.4 % Other non-operating expense, net 1,648 0.4 % 732 0.2 % 916 125.1 % Loss before income taxes (11,546) -3.1 % (6,094) -1.8 % (5,452) -89.5 % Income tax expense/(benefit) 294 0.1 % (2,342) -0.7 % 2,636 112.6 % Net loss (11,840) -3.1 % (3,752) -1.1 % (8,088) -215.6 % Net income attributable to noncontrolling interest 1,216 0.3 % 1,907 0.6 % (691) -36.2 % Net loss attributable toKrispy Kreme , Inc.$ (13,056) -3.5 %$ (5,659) -1.7 %$ (7,397) -130.7 % Product sales: Product sales increased$35.9 million , or 10.7%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022. Approximately$5.3 million of the increase in product sales was attributable to shops acquired from franchisees. However, product sales growth was partially offset by$11.5 million attributable to foreign currencies weakening against theU.S. dollar. Royalties and other revenues: Royalties and other revenues decreased$1.2 million , or 13.8%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, reflecting the impact of franchise acquisitions, including KKCanada in the fourth quarter of fiscal 2021 and aU.S. franchisee in the third quarter of fiscal 2022. 30
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The following table presents a further breakdown of total net revenue and
organic revenue growth by segment for the quarter ended
U.S. and Market Total
(in thousands except percentages) Canada International Development Company
Total net revenues in third quarter of
fiscal 2022 $ 252,609 $ 91,934 $ 32,979 $ 377,522
Total net revenues in third quarter of
fiscal 2021 225,807 87,262 29,730 342,799
Total Net Revenues Growth 26,802 4,672 3,249 34,723
Total Net Revenues Growth % 11.9 % 5.4 % 10.9 % 10.1 %
Impact of acquisitions (6,809) - 1,917 (4,892)
Impact of foreign currency translation - 8,890 2,564 11,454
Organic Revenue Growth $ 19,993 $ 13,562 $ 7,730 $ 41,285
Organic Revenue Growth % 8.9 % 15.5 % 26.0 % 12.0 %
Total net revenue growth during the third quarter of fiscal 2022 of $34.7
million , or approximately 10.1%, and organic revenue growth of $41.3 million , or
approximately 12.0%, was driven by increasing availability through new Global
Points of Access, mostly capital-light DFD Doors, and via Ecommerce.
Additionally, pricing action was taken early in the third quarter of fiscal 2022
in the U.S. (with additional DFD pricing taken towards the end of the third
quarter) and the U.K. to offset labor and commodity inflation impacts.
U.S. and Canada segment net revenue growth was driven by a combination of
continued execution of our omni-channel strategy and franchise acquisitions,
including KK Canada and a U.S. franchisee. U.S. and Canada net revenue grew
$26.8 million , or approximately 11.9%, from the third quarter of fiscal 2021 to
the third quarter of fiscal 2022 while U.S. and Canada organic revenue increased
$20.0 million , or approximately 8.9%, from the third quarter of fiscal 2021 to
the third quarter of fiscal 2022. Organic growth was driven by successful
seasonal offerings, such as our Pumpkin Spice LTO, coupled with continued
expansion of fresh Points of Access, particularly low capital DFD Doors which
have increased by 500 (and with a 3.1% increase in APD) compared to the third
quarter of fiscal 2021. We also operated an additional 21 Insomnia Cookies shops
compared to the third quarter of fiscal 2021. Our organic growth has also been
supplemented by effective pricing increases taken in the second half of fiscal
2021 and again during the third quarter of fiscal 2022, leading to significant
increase in the average transaction size, but offset some by transaction
declines.
Our International segment net revenue grew $4.7 million , or approximately 5.4%,
from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, in
spite of foreign currency translation impacts of $8.9 million from a
strengthening U.S. dollar. International organic revenue grew $13.6 million , or
approximately 15.5%, from the third quarter of fiscal 2021 to the third quarter
of fiscal 2022, driven by the substantial expansion of DFD Doors and new shop
openings, with fresh Points of Access increasing by 630, or 22.4%, to 3,439
compared to the third quarter of fiscal 2021. Growth was strong in Mexico ,
Australia, and New Zealand . We still saw organic growth in the U.K. and Ireland
despite a challenging consumer environment, with inflationary pressures
contributing to a decline in consumer traffic in our shops.
Our Market Development segment net revenue increased $3.2 million , or
approximately 10.9%, from the third quarter of fiscal 2021 to the third quarter
of fiscal 2022, in spite of the impacts of franchise acquisitions such as KK
Canada and certain foreign currencies devaluing against the U.S. dollar. When
adjusted for the impacts of acquisitions and foreign currency, Market
Development organic revenue grew $7.7 million , or approximately 26.0%, from the
third quarter of fiscal 2021 to the third quarter of fiscal 2022, driven by
focused growth in our international franchise markets and Japan , including
benefits from DFD expansion.
Product and distribution costs (exclusive of depreciation and amortization):
Product and distribution costs increased $10.7 million , or 11.6%, from the third
quarter of fiscal 2021 to the third quarter of fiscal 2022, attributable to the
same factors as our revenue growth. Product and distribution costs as a
percentage of revenue increased by approximately 30 basis points from 26.9% in
the third quarter of fiscal 2021 to 27.2% in the third quarter of fiscal 2022.
This increase was primarily driven by inflationary pressures on commodities and
logistics costs in the third quarter of fiscal 2022, as well as increased
promotional activity in the U.S. and Canada . We significantly reduced the level
of discounting for Krispy Kreme U.S. and Canada towards the end of the third
quarter of fiscal 2022, which led to a reduction of product and distribution
costs as a percentage of revenue in September.
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Operating expenses: Operating expenses increased$20.3 million , or 12.9%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, driven mainly by labor cost inflation, as well as investments to support growth. Operating expenses as a percentage of revenue increased approximately 110 basis points, from 45.9% in the third quarter of fiscal 2021 to 47.0% in the third quarter of fiscal 2022, primarily due to the labor cost inflation, particularly internationally, coupled with transaction volume declines for KKUK. This has been partially offset by efficiency benefits from DFD expansion as we execute our Hub and Spoke transformation. Selling, general and administrative expense: Selling, general and administrative ("SG&A") expense increased$1.9 million , or 3.5%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022. As a percentage of revenue, SG&A expense decreased approximately 90 basis points, from 15.4% in the third quarter of fiscal 2021 to 14.5% in the third quarter of fiscal 2022, primarily due to lower share-based compensation expenses associated with forfeitures, as well as economies of scale from our top-line revenue growth. Other expenses/(income), net: Other expenses, net of$3.0 million in the third quarter of fiscal 2022 was primarily driven by impairment and lease termination costs, net of a gain from a sale-leaseback transaction. As part of our omni-channel transformation, we continued portfolio optimization efforts for Krispy KremeU.S. andCanada during the third quarter of fiscal 2022, which included deciding to exit additional lower margin shops in theU.S. We expect additional impairment and lease termination costs related to this project in the remainder of fiscal 2022. Depreciation and amortization expense: Depreciation and amortization expense increased$2.5 million , or 9.6%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily driven by increased capital spend and assets placed into service to support the Hub and Spoke model evolution. Income tax expense: The income tax expense of$0.3 million in the third quarter of fiscal 2022 was driven by disallowed executive compensation expense and the mix of income between theU.S. and foreign jurisdictions. Net income attributable to noncontrolling interest: Net income attributable to noncontrolling interest decreased$0.7 million or 36.2%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, driven by less earnings allocated to certain consolidated subsidiaries, particularly WKS Krispy Kreme.
Results of Operations by Segment - Quarter ended
The following table presents Adjusted EBITDA by segment for the periods
indicated:
Quarter Ended Change
October 2, October 3,
(in thousands except percentages) 2022 2021 $ %
Adjusted EBITDA
U.S. and Canada $ 21,896 $ 19,912 $ 1,984 10.0 %
International 18,254 21,655 (3,401) -15.7 %
Market Development 10,353 9,033 1,320 14.6 %
Corporate (11,961) (9,183) (2,778) -30.3 %
Total Adjusted EBITDA (1) $ 38,542 $ 41,417 $ (2,875) -6.9 %
(1)Refer to "Key Performance Indicators and Non-GAAP Measures" above for a reconciliation of Adjusted EBITDA to net income/(loss).
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U.S. and Canada Adjusted EBITDA increased$2.0 million , or 10.0%, with margin relatively flat at 8.7% in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. The adjusted EBITDA margin was driven by cost increases in labor and commodities. This has been partially offset by efficiency benefits from DFD expansion as we execute our Hub and Spoke transformation, an improvement in margin for our Branded SweetTreat Line , margin growth for Insomnia Cookies aided by better leverage of labor expenses, and the beneficial impact of pricing increases. At the same time, we reduced the level of discounting for Krispy KremeU.S. andCanada towards the end of the third quarter of fiscal 2022, seeing a beneficial impact on adjusted EBITDA margins in September. Additionally, we believe the legacyU.S. andCanada optimization efforts discussed in "Significant Events and Transactions" above will yield improvement to margins in fiscal 2023 and 2024. International Adjusted EBITDA decreased$3.4 million , or 15.7%, with margin decline of approximately 490 basis points to 19.9% from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, due to cycling record performance a year ago upon the re-opening from COVID-19, cost pressures from labor and commodities, adverse impacts from foreign currency translation, and a challenging consumer environment in theU.K. Market Development Adjusted EBITDA increased$1.3 million , or 14.6%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022 driven by top-line growth of our international franchise markets, which more than offset the impact of acquisitions and foreign currency fluctuations. Corporate expenses within Adjusted EBITDA increased$2.8 million , or 30.3%, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022 primarily due to an increase in costs associated with our operation as a public company.
Three Quarters ended
The following table presents our unaudited condensed consolidated results of operations for the three quarters endedOctober 2, 2022 and the three quarters endedOctober 3, 2021 : Three Quarters Ended October 2, 2022 October 3, 2021 Change (in thousands except percentages) Amount % of Revenue Amount % of Revenue $ % Net revenues Product sales$ 1,102,045 97.9 %$ 989,132 97.6 %$ 112,913 11.4 % Royalties and other revenues 23,254 2.1 % 24,662 2.4 % (1,408) -5.7 % Total net revenues 1,125,299 100.0 % 1,013,794 100.0 % 111,505 11.0 % Product and distribution costs 299,539 26.6 % 257,166 25.4 % 42,373 16.5 % Operating expenses 520,260 46.2 % 462,733 45.6 % 57,527 12.4 % Selling, general and administrative expense 160,266 14.2 % 163,417 16.1 % (3,151) -1.9 % Marketing expenses 32,369 2.9 % 31,621 3.1 % 748 2.4 % Pre-opening costs 3,514 0.3 % 4,335 0.4 % (821) -18.9 % Other expenses/(income), net 1,800 0.2 % (4,365) -0.4 % 6,165 141.2 % Depreciation and amortization expense 83,782 7.4 % 74,258 7.3 % 9,524 12.8 % Operating income 23,769 2.1 % 24,629 2.4 % (860) -3.5 % Interest expense, net 23,808 2.1 % 25,228 2.5 % (1,420) -5.6 % Interest expense - related party - - % 10,387 1.0 % (10,387) -100.0 % Other non-operating expense/(income), net 2,083 0.2 % (126) - % 2,209 1753.2 % Loss before income taxes (2,122) -0.2 % (10,860) -1.1 % 8,738 80.5 % Income tax expense 5,668 0.5 % 8,266 0.8 % (2,598) -31.4 % Net loss (7,790) -0.7 % (19,126) -1.9 % 11,336 59.3 % Net income attributable to noncontrolling interest 5,113 0.5 % 6,736 0.7 % (1,623) -24.1 % Net loss attributable toKrispy Kreme , Inc$ (12,903) -1.1 %$ (25,862) -2.6 %$ 12,959 50.1 % 33
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Product sales: Product sales increased$112.9 million , or 11.4%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022. Approximately$18.2 million of the increase in product sales was attributable to shops acquired from franchisees. However, product sales growth was partially offset by$24.6 million attributable to foreign currencies weakening against theU.S. dollar. Royalties and other revenues: Royalties and other revenues decreased 1.4 million, or 5.7%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, reflecting the impact of franchise acquisitions, including KK Canada in the fourth quarter of fiscal 2021 and aU.S. franchisee in the third quarter of fiscal 2022.
The following table presents a further breakdown of total net revenue and
organic revenue growth by segment for the three quarters ended
(in thousands except percentages) U.S. and Canada International Market DevelopmentTotal Company Total net revenues in first three quarters of fiscal 2022 $ 756,196 $ 272,988 $ 96,115 $ 1,125,299 Total net revenues in first three quarters of fiscal 2021 679,195 243,005 91,594 1,013,794 Total Net Revenues Growth 77,001 29,983 4,521 111,505 Total Net Revenues Growth % 11.3 % 12.3 % 4.9 % 11.0 % Impact of acquisitions (21,738) - 6,130 (15,608) Impact of foreign currency translation - 18,843 5,769 24,612 Organic Revenue Growth $ 55,263 $ 48,826 $ 16,420 $ 120,509 Organic Revenue Growth % 8.1 % 20.1 % 17.9 % 11.9 % Total net revenue growth of$111.5 million , or approximately 11.0%, and organic revenue growth of$120.5 million , or approximately 11.9%, was driven by the continued and successful execution of our growth strategy of deploying our omni-channel approach globally. We have continued to increase availability through new Global Points of Access and the omni-channel model, particularly the expansion of Spokes, including DFD Doors, for existing Hubs with Spokes during the first three quarters of fiscal 2022.U.S. andCanada net revenue grew$77.0 million , or approximately 11.3% from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, and was impacted byU.S. franchise acquisitions (17 shops in the first quarter of fiscal 2021 and six additional shops in the third quarter of fiscal 2022) and the acquisition of KK Canada.U.S. andCanada organic revenue grew$55.3 million , or approximately 8.1%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, driven by significant expansion of the DFD business in strategic markets, increased leverage of Ecommerce and delivery channels,Krispy Kreme and Insomnia Cookies new shop openings, and successful LTOs. Our International segment net revenue grew$30.0 million , or approximately 12.3%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, in spite of foreign currency translation impacts of$18.8 million from a strengtheningU.S. dollar. International organic revenue grew$48.8 million , or approximately 20.1%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, driven mainly by substantial expansion of DFD Doors, new shop openings, and successful LTOs. Our Market Development segment net revenue grew$4.5 million , or approximately 4.9%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, in spite of the impacts of franchise acquisitions and certain foreign currencies devaluing against theU.S. dollar. Market Development organic revenue grew$16.4 million , or approximately 17.9%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, driven by focused expansion inJapan and international franchise markets. Product and distribution costs (exclusive of depreciation and amortization): Product and distribution costs increased$42.4 million , or 16.5%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, largely in line with and attributable to the same factors as our revenue growth. Product and distribution costs as a percentage of revenue increased by approximately 120 basis points from 25.4% in the first three quarters of fiscal 2021 to 26.6% in the first three quarters of fiscal 2022. The increase was primarily driven by inflationary pressures on commodities and logistics costs in the first three quarters of fiscal 2022. 34
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Operating expenses: Operating expenses increased$57.5 million , or 12.4%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, driven mainly by franchise acquisitions, labor cost inflation, and labor investments to support growth. Franchise acquisitions, which result in additional operating expenses that are needed to run Company-owned operations versus franchises, contributed to the increase. Operating expenses as a percentage of revenue increased approximately 60 basis points, from 45.6% in the first three quarters of fiscal 2021 to 46.2% in the first three quarters of fiscal 2022 with decreased performance for Hubs without Spokes forKrispy Kreme U.S. andCanada coupled with transaction volume declines for KKUK. This has been partially offset by efficiency benefits from DFD expansion as we execute our Hub and Spoke transformation. Selling, general and administrative expense: SG&A expense decreased by$3.2 million , or 1.9%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022. As a percentage of revenue, SG&A expense decreased approximately 190 basis points, from 16.1% in the first three quarters of fiscal 2021 to 14.2% in the first three quarters of fiscal 2022. The decrease was driven by higher IPO costs recognized in the first three quarters of fiscal 2021, a decrease of our employee compensation accrual in the second quarter of fiscal 2022, as well as economies of scale from our top-line revenue growth. Other expenses/(income), net: Other expenses, net of$1.8 million in the first three quarters of fiscal 2022 was primarily driven by impairment and lease termination costs, partially offset by gains from sale-leaseback transactions. Other income, net of$4.4 million in the first three quarters of fiscal 2021 was primarily driven by one-time COVID-related business interruption insurance proceeds of approximately$3.5 million in theU.K. andIreland . Depreciation and amortization expense: Depreciation and amortization expense increased$9.5 million , or 12.8%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, primarily driven by increased assets placed into service to support the Hub and Spoke model evolution. Interest expense - related party: Interest expense with related parties decreased$10.4 million , or 100.0% from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, driven by paying off our Related Party Notes in full with KK GP during the second quarter of fiscal 2021. Income tax expense: Income tax expense of$5.7 million in the first three quarters of fiscal 2022 was driven by the mix of income between theU.S. and foreign jurisdictions, disallowed executive compensation expense, the recognition of previously unrecognized tax benefits, and a discrete tax benefit related to a legal settlement in the second quarter of fiscal 2022. Net income attributable to noncontrolling interest: Net income attributable to noncontrolling interest for the first three quarters of fiscal 2022 decreased$1.6 million , or 24.1%, from the first three quarters of fiscal 2021, driven by less earnings allocated to certain consolidated subsidiaries, particularly WKSKrispy Kreme . 35
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Results of Operations by Segment - Three Quarters ended
The following table presents Adjusted EBITDA by segment for the periods
indicated:
Three Quarters Ended Change
October 3,
(in thousands except percentages) October 2, 2022 2021 $ %
Adjusted EBITDA
U.S. and Canada $ 81,521 $ 75,760 $ 5,761 7.6 %
International 55,033 60,676 (5,643) -9.3 %
Market Development 32,135 29,782 2,353 7.9 %
Corporate (33,879) (26,005) (7,874) -30.3 %
Total Adjusted EBITDA (1) $ 134,810 $ 140,213 $ (5,403) -3.9 %
(1)Refer to "Key Performance Indicators and Non-GAAP Measures" above for a reconciliation of Adjusted EBITDA to net loss.
U.S. and Canada Adjusted EBITDA increased$5.8 million , or 7.6%, with margin decline of approximately 40 basis points to 10.8% from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022. This decrease in margin was driven by cost increases in labor and commodities and underperformance in our Hubs without Spokes, partially offset by the positive impacts from an increase in our Points of Access in our Hubs with Spokes and pricing increase in the third quarter of fiscal 2022. Additionally, we believe the legacyU.S. andCanada optimization efforts discussed in "Significant Events and Transactions" above will yield improvement to margins in fiscal 2023 and 2024. International Adjusted EBITDA decreased$5.6 million , or 9.3%, with margin decline of approximately 480 basis points to 20.2% from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, due primarily to an increase in labor and commodity costs compared to timing of price increases, adverse foreign currency translation impacts, as well as a challenging consumer environment in theU.K. Adjusted EBITDA in the first three quarters of fiscal 2021 was also impacted positively by$3.5 million business interruption insurance proceeds related to COVID-19 in theU.K. Despite these factors, we have seen positive impacts on Adjusted EBITDA margin from Points of Access expansion and efficiencies from our Hub and Spoke model evolution. Market Development Adjusted EBITDA increased$2.4 million , or 7.9%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022 driven by top-line growth of our international franchise markets andJapan . This growth more than offset the impact of acquisitions and foreign currency translation. Corporate expenses within Adjusted EBITDA increased$7.9 million , or 30.3%, from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022 driven by an increase in costs associated with our operation as a public company.
Capital Resources and Liquidity
Our principal sources of liquidity to date have included cash from operating activities, cash on hand, amounts available under our credit facility, and commercial trade financing including our "Supply Chain Financing Program" or the "SCF Program." Our primary use of liquidity is to fund the cash requirements of our business operations, including working capital needs, capital expenditures, acquisitions and other commitments. Our future obligations primarily consist of our debt and lease obligations, as well as commitments under ingredient and other forward purchase contracts. As ofJanuary 2, 2022 , we had the following future obligations:
•An aggregate principal amount of
•Non-cancellable future minimum operating lease payments totaling
•Non-cancellable future minimum finance lease payments totaling
•Purchase commitments under ingredient and other forward purchase contracts of
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As ofOctober 2, 2022 , our outstanding principal amount under the 2019 Facility was$750.5 million . The increase from the balance as ofJanuary 2, 2022 is due to a net draw of$80.5 million on the revolving credit facility, which was used in part to fund quarterly term loan repayments of$26.3 million . We had cash and cash equivalents of$38.6 million as ofJanuary 2, 2022 and$28.1 million as ofOctober 2, 2022 . We believe that our existing cash and cash equivalents and debt facilities will be sufficient to fund our operating and capital needs for at least the next twelve months. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depend on, many factors, including our growth rate, the timing and extent of spending to acquire franchises, the growth of our presence in new markets and the expansion of our omni-channel model in existing markets. We may enter into arrangements in the future to acquire or invest in complementary businesses, services and technologies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected.
Cash Flows
We generate significant cash from operations and have substantial credit
availability and capacity to fund operating and discretionary spending such as
capital expenditures and debt repayments. Our requirement for working capital is
not significant because our consumers pay us in cash or on debit or credit cards
at the time of the sale and we are able to sell many of our inventory items
before payment is due to the vendor of such items. The following table and
discussion present, for the periods indicated, a summary of our key cash flows
from operating, investing and financing activities:
Three Quarters Ended
(in thousands) October 2, 2022 October 3, 2021
Net cash provided by operating activities $ 70,730 $ 98,788
Net cash used for investing activities (87,701) (116,716)
Net cash provided by financing activities 14,245
27,360
Cash Flows Provided by Operating Activities
Cash provided by operations totaled$70.7 million for the first three quarters of fiscal 2022, a decrease of$28.1 million compared with the amount for the first three quarters of fiscal 2021. Cash provided by operations decreased due to a decline of$24.6 million from changes in operating assets and liabilities, largely as a result of increases in inventories and other current and noncurrent assets. These effects were also partially offset by operating results producing a smaller net loss in the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021. We have undertaken broad efforts to improve our working capital position and cash generation, in part by negotiating longer payment terms with vendors. We have an agreement with a third-party administrator which allows participating vendors to track our payments, and if voluntarily elected by the vendor, to sell payment obligations from us to financial institutions as part of our SCF Program. Our typical payment terms for trade payables range up to 180 days outside of the SCF Program, depending on the type of vendors and the nature of the supplies or services. For vendors under the SCF Program, we have established payable terms ranging up to, but not exceeding, 360 days. When participating vendors elect to sell one or more of our payment obligations, our rights and obligations to settle the payables on their contractual due date are not impacted. We have no economic or commercial interest in a vendor's decision to enter into these agreements and the financial institutions do not provide us with incentives such as rebates or profit sharing under the SCF Program. We agree on commercial terms with vendors for the goods and services procured, which are consistent with payment terms observed at other peer companies in the industry, and as the terms are not impacted by the SCF Program, such obligations are classified as trade payables. Our increased use of the SCF programs has continued through the quarter endedOctober 2, 2022 . 37
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Cash Flows Used for Investing Activities
Cash used for investing activities totaled$87.7 million for the first three quarters of fiscal 2022, a decrease in investment of$29.0 million compared with the first three quarters of fiscal 2021. The decrease is primarily due to$33.9 million cash used for acquisitions of franchised shops in the first three quarters of fiscal 2021 (compared to$17.3 million cash used for acquisitions completed in the first three quarters of fiscal 2022), in addition to$5.7 million of proceeds from sale-leaseback transactions completed in the first three quarters of fiscal 2022. We also decreased our cash paid for purchases of property and equipment as a percentage of net revenue in the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021, aided by capital-light DFD expansion.
Cash Flows Provided by Financing Activities
Cash provided by financing activities totaled$14.2 million for the first three quarters of fiscal 2022, a reduction in financing of$13.1 million compared with the first three quarters of fiscal 2021. The reduction in financing was primarily due to decreasing our reliance on equity financing in the first three quarters of fiscal 2022 compared to the first three quarters of fiscal 2021, in addition to our payment of$12.5 million of issuance costs in connection with the IPO during the first quarter of fiscal 2022. The reductions in financing were partially offset by$35.8 million of cash inflows related to structured payables programs (net proceeds on structured payables of$7.7 million in the three quarters endedOctober 2, 2022 compared to net payments on structured payables of$28.1 million in the three quarters endedOctober 3, 2021 ). We utilize various card products issued by financial institutions to facilitate purchases of goods and services. By using these products, we may receive differing levels of rebates based on timing of repayment. The payment obligations under these cards products are classified as structured payables on our Condensed Consolidated Balance Sheets and the associated cash flows are included in the financing section of our Condensed Consolidated Statement of Cash Flows.
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