Stock Decline at Krispy Kreme: Is Buying the Drop a Smart Move?
In the world of sweet treats, Krispy Kreme, the renowned doughnut brand, has been facing a series of challenges. The company, which operates over 1,400 stores worldwide and boasts an annual revenue of $1.66 billion, has been grappling with financial difficulties, as evidenced by its current expected losses for both 2023 and 2024.
The root of these troubles can be traced back to the termination of Krispy Kreme's partnership with McDonald's, effective July 2, 2025. The collaboration, initially viewed as a major growth opportunity, was marred by unsustainable operating costs and insufficient demand for Krispy Kreme doughnuts within McDonald's approximately 2,400 U.S. locations. This breakup led to significant financial strain, resulting in a $435 million net loss for the company in Q2 2025.
With the end of the McDonald's partnership, Krispy Kreme has chosen to focus on expanding through other high-volume retail outlets like Costco, Target, and Walmart. However, this strategic shift comes with its own set of challenges. The company is moving from in-house to outsourced logistics, which may increase costs in the long run. Moreover, the task of de-levering its balance sheet while running and expanding the business, all while shrinking some aspects of the operation, is no easy feat.
To address these financial concerns, Krispy Kreme has made the decision to cut its dividend payments and focus on "deploying capital to only the highest returning investments." This strategy, while aimed at strengthening the company's performance-based culture, is likely to incur expenses.
Despite these challenges, Krispy Kreme's CEO, Josh Charlesworth, remains optimistic about the future, expressing a commitment to achieving profitable growth. He anticipates improvement starting Q3 2025 as the company eliminates McDonald’s-related costs and focuses on other channels.
Analysts collectively believe that Krispy Kreme will be fully out of the red and back in the black in two to three years. However, the current state of the business and the meme stock status of Krispy Kreme's shares do not justify the risk of buying its stock at this time.
In a bid to move past its past woes, Krispy Kreme has undergone significant changes, including the divestiture of its stake in Insomnia Cookies. The company's long-term debt, which was only $1 billion four years ago, at the peak of the coronavirus pandemic, has now grown to $1.5 billion as of the end of Q1 2025.
The discontinuation of sales at McDonald's, which occurred in May 2023, was arguably not insignificant due to McDonald's vast reach. However, Krispy Kreme is hopeful that its strategic shifts will lead to a brighter future.
References:
- Business Insider
- CNBC
- Forbes
- Wall Street Journal
Investing in Krispy Kreme's stock may prove challenging due to the company's current financial difficulties, as it is predicted to face losses in both 2023 and 2024. The termination of Krispy Kreme's partnership with McDonald's, effective July 2, 2025, led to a significant financial strain and a $435 million net loss in Q2 2025. In an attempt to mitigate these losses, Krispy Kreme has made the decision to cut its dividend payments and focus on investing in the highest returning opportunities, a move that could incur additional expenses.
