Krispy Kreme's stock experienced a staggering 24% drop on Thursday morning following the doughnut chain's announcement regarding a reassessment of its partnership with McDonald's. This decision has led the company to retract its full-year outlook, attributing the shift partially to ongoing economic challenges. As a result, Krispy Kreme will not be expanding its presence in additional McDonald's locations during the second quarter, effectively halting a nationwide rollout.
As of March 30, over 2,400 McDonald's locations, out of approximately 13,500 in the U.S., featured Krispy Kreme doughnuts. Despite this initial success, Krispy Kreme’s CEO, Josh Charlesworth, expressed a need for collaboration with McDonald's to explore strategies that could enhance sales. “I remain confident in the long-term national opportunity, but we need to work together with them to identify levers to improve sales,” Charlesworth stated.
The company's stock has plummeted over 70% in the past year, diminishing its market value to less than $600 million. In light of these developments, Truist downgraded Krispy Kreme’s stock from buy to hold. Truist analyst Bill Chappell expressed concern, noting, “We are shocked by the speed at which the story fell apart. We no longer have high conviction in management's previously stated strategy and execution of these initiatives, and it will likely take several quarters before we or investors can regain confidence.”
Originally, the two companies had announced plans for Krispy Kreme doughnuts to be available in all U.S. McDonald's locations by the end of 2026. However, after six months of rollout, sales performance has fallen short of expectations, prompting Krispy Kreme executives to reassess the initiative. With consumers growing cautious amid economic uncertainty and fears of a potential recession, spending at restaurants has decreased. Notably, McDonald's reported a 3.6% decline in U.S. same-store sales for the first quarter, reflecting a broader trend where middle- and low-income diners are frequenting restaurants less often.
For Krispy Kreme, the pivotal reason behind the slowdown in the McDonald's rollout appears to be profitability. Charlesworth indicated that, after a promising marketing launch, demand for the doughnuts fell below expectations, necessitating intervention to establish sustainable, profitable growth. “We are partnering with McDonald's to increase sales by stimulating higher demand and cutting costs by simplifying operations,” he added.
At the same time, Krispy Kreme is reevaluating its deployment schedule in collaboration with McDonald's to achieve a profitable business model for all involved parties. The company reported a net loss of $33 million for the quarter ending March 30, largely due to the significant investments made to quickly expand capacity to supply all U.S. McDonald's locations.
In the last year, Krispy Kreme has faced three quarters of net losses, leading the company to consider pruning its unprofitable locations, which could impact up to 10% of its U.S. network. Additionally, the company has withdrawn its 2025 outlook, citing macroeconomic softness and uncertainty surrounding the timeline of the McDonald's partnership. As Krispy Kreme navigates these challenges, its strategic adjustments will be crucial for future growth and stability.
