Krispy Kreme CEO Mike Tattersfield joins Yahoo Finance Live to discuss the company's fourth quarter earnings, price increases as inflation rises, and plans for expansion and innovation.

Video Transcript

BRIAN SOZZI: Krispy Kreme saw a double digit sales growth in the fourth quarter in the US and Canada and overseas. Margins also rose 290 basis points in the US and Canadian segment. The company did serve up a full year profit outlook for this year that was slightly below some analyst estimates. Joining us now is Krispy Kreme CEO Mike Tattersfield. Mike, good market response to the earnings report today. And I would say part of it is just the sales gains you guys have put forward. Where are you seeing some of these sales gains the strongest right now?

MIKE TATTERSFIELD: If you think about the business transformation that we've done, Brian, has been pretty phenomenal, right? It took a slow growth business, which is capital intensive, primarily a legacy franchise business in the US. We flipped it around to a high growth, top line and bottom line focused, very capital efficient as we really run a global omnichannel model. And what that means is we really leverage our hot light shops and then get fresh donuts out in the hub and spoke about daily.

And when you can combine that with the seasonal aspect of our brand, this is not a daily ritual where people are coming in and having a donut every day. We really absolutely maximize the opportunities when it's around Halloween, when it's around the holiday season, when it's around Valentine's Day-- it's actually our number one day in the world-- where people use our brand for those celebratory occasions.

And in fact, you know, Halloween and holiday season were tremendous. So you saw that in our performance. We delivered 12 and 1/2% organic growth and 30% EBITDA for the year. But it's about capturing that opportunity and then making sure the assortment matches. And there's pricing power when you end up really thinking about the product, packaging, et cetera.

BRIAN SOZZI: And Mike, just given how competitive the environment is, do you-- are you surprised that a Krispy Kreme has pricing power in this environment? You mentioned on the release that you did raise prices in September and November. But it doesn't look like you saw much resistance, right?

MIKE TATTERSFIELD: We did it. Again, we're an infrequent brand, right? So the average user visits a Krispy Kreme 2 and 1/2 times a year. Right? So when they're going to use this, it's about a celebration. And it's about a shared experience. So pricing is not the number one feature that someone's walking into Krispy Kreme to order the dozens.

What they're looking for particularly when they're looking at those occasions is, does the product match their expectations, whether it's the glazed hot light donut or new premium donuts that we can come out, our seasonal Halloween, and we just did our Valentine's Day donuts. So we're very successful, right? So that's where you can see the pricing power coming in.

But more importantly, when we really do this hub and spoke-- because we only have 400 hot light shops in the world, and it's getting to 10,000 points of access, right? So it's how do we do that fresh every day? And that's the number one attribute the customers continue to look for.

Because the number one complaint we've always had for Krispy Kreme's history is, how do I get to you? So figuring out a model that we did, which is use points of access-- grocers and convenience shops where we can deliver on a daily basis-- you get the point of access that way as long as you can continue to make it fresh and exception. Pricing happens when you deliver against that.

JULIE HYMAN: Hey, Mike. It's Julie here. What you're talking about, of course, to our point about pricing costs, right, you've got to get people into those stores. You've got to get the real estate, right, secure the real estate, construction, et cetera, et cetera. So you guys are doing this expansion, but you're also talking about expanding margins. So talk to me-- is all of that coming through price increases that you're going to get that margin expansion?

MIKE TATTERSFIELD: So the majority of what you're seeing, so we call these points of access, right, where we laid out 10,000 points. And actually, we even introduced that we see 50,000 points of access. We're not building that many shops. So it's those incremental drops that we actually drive from our hubs to the-- what we call a deliver fresh daily, to a grocer in a cabinet or in a tower. That's where you see this incrementality. That each spoke, which is what we call-- if you're in one grocer, you have one spoke attached to that. You could have 10 grocers. That would be 10 spokes.

That efficiency of each additional spoke on top of our production or our hubs is where you see the margins come through. You can take price, but we're very disciplined about price. You know, we do plan for price increases this year, but it's pretty much around what we think inflation might be. And then we can get the premiumization of the business. And so you'll see that benefits of those hub and spoke model, the efficiency of that when you deal with also the pricing power we have. You can see that we can really generate margins.

BRIAN SOZZI: Mike, I've started to navigate outside my home, and I stumbled upon your new Times Square location. It's pretty grand. How many more of those locations do you want to open up?

MIKE TATTERSFIELD: You know, the first one we opened up in New York is pretty amazing. If you get a chance to do it in New York, a visit, you'll get an idea of the power of the brand that were so vibrant today in what we see. We see a couple more opportunities on a global basis, but not significant.

But again, it's that aspect of a hub that also really demonstrates the hot light ability, the vibrancy of the brand that really showcases our glazing innovations that we can do, and even unique donuts just even for that site. So the one in New York, which is incredible with its video display, everybody in Times Square knows it's there.

JULIE HYMAN: Yeah, most definitely. Sozzi, it really-- it made an impression on him. Also making an impression, you talked about how these are sort of special occasion donuts, and you talked about some of the limited edition ones. I know you're really pumped about the Twix donut, which sounds like a lot, to be honest. I mean, that's like a treat on top of a treat. So what do you think is going to be the excitement? And how do you think this is going to do?

MIKE TATTERSFIELD: So we do-- I mean, we know right away, right? So when you're a merchant, you can see it in your-- either you're putting it to the delivery, you can put it through your shops, you can take it to the DFD channel. So you can see the velocity and the demand today. Today we can't kee-- there's a lot of pent-up demand to try to get a product like this. Power partnerships is a platform that really matters.

And it really comes to life when the partner that you choose for, that you're partnering with, actually, their product is really well represented, not just crumbled up on top of a donut, but you're really getting the caramel, the Twix cookie, or you're actually doing a full Twix cookie inside of a long john donut. That opportunity just showcases both brands and the power. We'll continue to use that type of innovation with other brands along the way, as well as our own versions of our own donuts.

But we see that as a platform that has a lot of life, not just in the US, but around the world. It's been done already with Reese's. It's been done with Hershey's and other things. Last year, we had an amazing Oreo cookie with a big Oreo cookie on top of the donut, which was fantastic.

If you can get that merchant touch, it's got to deliver the taste, and then the storyline and packaging really bring it to life. And then both brands tend to be incredibly happy because when we do it, we can sometimes generate billions of impressions, right? So a partner brand really appreciates that because we're not spending the dollars in marketing.

BRIAN SOZZI: Mike, how do you-- do you try all these new products you guys test? How do you-- you can't eat donuts around the clock.

MIKE TATTERSFIELD: We don't. I do try them. I tried-- I immediately yesterday, I was trying the long john Twix donut. And, you know, a father came by and says I'm taking one for my son. I go, you better take two because you're going to have a little battle there. And he's like, oh, they'll be nice. But I do try. I try-- they bring unique donuts to me. I'll give them comments on glazing and this. You take a bite, you enjoy it. But yeah, there's-- I still am a huge fan of just the original glazed donut that's hot. It's incredible.

BRIAN SOZZI: Fair enough. All right, Krispy Kreme CEO Mike Tattersfield, always good to see you. Have a great rest of the week.