Their stocks are slipping and a deal has been halted.
Krispy Kreme faced a significant setback in the stock market, with shares plummeting nearly 37% following disappointing quarterly results and a pause in its partnership with McDonald’s. The company reported a $0.05 loss per share on $375.2 million in revenue, missing revenue expectations but slightly exceeding profit forecasts. The decline in sales was primarily driven by a 20.1% drop in U.S. revenue, largely due to divesting a major portion of its Insomnia Cookies business. International sales also fell, partly affected by unfavorable currency exchange rates.
Despite the poor performance, company leadership emphasized ongoing efforts to improve financial health. CEO Josh Charlesworth noted that Krispy Kreme is taking measures to reduce debt, improve capital efficiency, and refocus on sustainable, profitable growth. The company is aiming for long-term expansion, especially within the U.S., by targeting high-traffic retail locations like Walmart, Target, and convenience stores, while moving away from less profitable sales channels. The decision to pause its McDonald’s collaboration was based on lower-than-expected customer demand following the initial rollout.
CFO Jeremiah Ishukian reiterated the company’s focus on strengthening its balance sheet and prioritizing initiatives that ensure positive cash flow and increased returns. However, current financial indicators suggest a weak return on invested capital, significantly underperforming the cost of capital. This shortfall indicates that Krispy Kreme’s current business approach may not yet be aligned with investor expectations or long-term value creation.
Compared to competitors like Dunkin’, Krispy Kreme’s business model has traditionally emphasized doughnuts over coffee. Dunkin’, by contrast, repositioned itself in the 1990s to focus on coffee, using it to attract customers and driving sales of both beverages and baked goods. This coffee-first strategy proved more successful in appealing to morning consumers, especially those concerned with health, who are less likely to seek out doughnuts on their own.
Krispy Kreme is now evolving its model, shifting from operating traditional factory stores to a more distributed strategy with points of sale across various retail locations. Despite these strategic shifts, investor confidence remains low, as reflected in the steep decline of its stock price—down more than 83% over the past five years, even as broader markets have performed strongly. Whether the company’s changes will eventually pay off remains uncertain.
