Krispy Kreme is selling most of its stake in a large joint-venture partnership in the Western U.S. to its partner, WKS Restaurant Group, for $90 million, the company said this week.
WKS, based in Cypress, California, will increase its stake from 45% to 80%. In addition, another 23 company-operated Krispy Kreme locations in California and Hawaii will be added to the joint-venture organization.
As part of the agreement, WKS will pay $50 million in cash when the deal closes, with the remainder to be paid over time.
Krispy Kreme plans to use the proceeds to reduce debt. The company has shifted its strategy over the past year to a more “asset-light” model, particularly outside the U.S. Earlier this month, for instance, Unison Capital acquired Krispy Kreme’s operations in Japan for $70 million, which the company used to pay down debt.
The company has more than $900 million in long-term debt. It has also been struggling with weak profitability. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, declined nearly 30% last year.
Krispy Kreme makes doughnuts at its shops and a selection of doughnut factories and delivers them daily to retailers like Target and Walmart, which it calls “DFD doors.” The company has been shifting to locations where its doughnut sales are more profitable. And it is also starting to use third-party logistics companies to deliver those doughnuts.
The company believes the combination should improve profitability and pave the way for more growth.
Roland Spongberg, CEO of WKS, said its decision to acquire a majority stake in the joint venture reinforces the company’s “confidence in the brand” and said the deal positions the business to accelerate development across the Western U.S.
The joint-venture partnership will now have 73 shops in the Western U.S. and about 1,000 of the delivery locations.
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