Krispy Kreme recorded a bigger loss in the second quarter after writing down multiple operating segments, along with lower sales https://t.co/42OXg4wIhw ...

Core Insights - Krispy Kreme reported a revenue of $379.77 million for the quarter ended June 2025, reflecting a year-over-year decline of 13.5% and an EPS of -$0.15 compared to $0.05 a year ago [1] - The revenue exceeded the Zacks Consensus Estimate of $376.41 million by 0.89%, while the EPS fell short of the consensus estimate of -$0.04 by 275% [1] Financial Performance - The company’s shares have returned +4.3% over the past month, outperforming the Zacks S&P 500 composite's +1.2% change, and currently holds a Zacks Rank 3 (Hold) [3] - Geographic revenue breakdown shows U.S. revenue at $230.1 million, down 20.5% year-over-year, while International revenue was $132.76 million, up 6% year-over-year [4] Access Points and Estimates - Total Global Points of Access stood at 18,113, slightly below the average estimate of 18,447 [4] - Specific access points in the U.S. included 6 Doughnut Factories, 68 Fresh Shops, and 9,869 DFD Doors, with most figures aligning closely with analyst estimates [4]

Financial Data and Key Metrics Changes - Net revenue for the second quarter was $379.8 million, reflecting a decrease of $64.2 million due to the divestiture of Insomnia Cookies and an organic revenue decline of 0.8% driven by lower transactions related to consumer softness [19] - Adjusted EBITDA was $20.1 million, down from $54.7 million last year, impacted by the divestiture and losses from the ended McDonald's USA partnership [19][14] - The bank leverage ratio was 4.5 at the end of the quarter, below the five leverage ratio limit in the credit facility [24] Business Line Data and Key Metrics Changes - In the U.S. segment, retail transactions improved sequentially, but there was a 3.1% organic revenue decline due to expected consumer softness and strategic closures of underperforming doors [20] - Adjusted EBITDA for the U.S. segment was $9.9 million, down from $32.7 million last year, affected by the McDonald's partnership and retail transaction decline [20] - Within international equity markets, organic revenue grew by 5.9%, driven by growth in Canada, Mexico, and Japan, despite 177 strategic door closures [21] Market Data and Key Metrics Changes - The market development segment saw an organic revenue decline of 14.2%, with growth in new markets like Brazil offset by timing of product and equipment sales [22] - Adjusted EBITDA for the market development segment was $8.9 million, with a margin rate roughly flat year over year at 52.9% [22] Company Strategy and Development Direction - The company is focused on profitable U.S. expansion and capital-light international franchise growth, implementing a comprehensive turnaround plan to deleverage the balance sheet [5][26] - The strategy includes refranchising select international markets and improving returns on capital while expanding margins [5][6] - The marketing focus has shifted to the Original Glazed Doughnut, with a new multimedia campaign launched to drive sales [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in recent quarters but expressed confidence in the turnaround plan and the strength of the leadership team [16][12] - The company expects to see benefits from the turnaround plan within the year, with improved EBITDA and positive cash flow anticipated in the second half [39] Other Important Information - The company has halted the quarterly cash dividend and completed the sale of its remaining interest in Insomnia Cookies to pay down debt [5] - A 15% reduction in G&A roles in the support center has been implemented to reduce costs [9] Q&A Session Summary Question: On DFD doors and profitability management - Management emphasized the importance of high traffic and visibility for sustainable sales and mentioned the shift to third-party logistics for predictable costs [29] Question: Productivity in high-cost retail areas - Management acknowledged opportunities for optimizing efficiency in production hubs and improving the DFD footprint [31] Question: Duration risk in refranchising - Management is targeting one to two deals this year in Japan, Mexico, UK, and Australia to deleverage and pay down debt [33] Question: Simultaneous implementation of turnaround components - Management confirmed that all components of the turnaround plan are already underway and expect benefits within the year [38] Question: Rationalizing DFD doors - Management identified 1,500 underperforming doors for closure and plans to replace them with higher sales doors, expecting a small churn of about 5% annually [41] Question: CapEx and capital-light approach - Management indicated that CapEx as a percentage of revenue is expected to decrease as the company moves to a capital-light model [47] Question: Long-term structure of Krispy Kreme - Management reiterated that Krispy Kreme is primarily a growth story, focusing on maximizing shareholder value through franchising and multichannel opportunities [48]

Company Performance - Krispy Kreme reported a quarterly loss of $0.15 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.04, and compared to earnings of $0.05 per share a year ago, indicating an earnings surprise of -275.00% [1] - The company posted revenues of $379.77 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.89%, but down from $438.81 million in the same quarter last year [2] - Over the last four quarters, Krispy Kreme has surpassed consensus EPS estimates just once and topped consensus revenue estimates two times [2] Stock Performance - Krispy Kreme shares have lost approximately 65.6% since the beginning of the year, while the S&P 500 has gained 7.9% [3] - The current consensus EPS estimate for the coming quarter is -$0.04 on revenues of $381.23 million, and for the current fiscal year, it is -$0.16 on revenues of $1.55 billion [7] Industry Outlook - The Consumer Products - Staples industry, to which Krispy Kreme belongs, is currently in the bottom 26% of over 250 Zacks industries, indicating a challenging environment [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Krispy Kreme's stock performance [5]

Financial Performance - Krispy Kreme's net revenue for Q2 2025 was $3798 million[18] - The company experienced an organic revenue decline of 08% in Q2 2025[18] - GAAP net loss was $4411 million, including $4069 million in non-cash impairment charges[18] - Adjusted EBITDA for Q2 2025 was $201 million[18] - Cash used for operating activities amounted to $325 million[18] Growth and Expansion - Global Points of Access (POA) increased by 2,260, a 143% rise, reaching 18,113[18] - U S organic revenue declined by 31%[38] - International organic revenue grew by 59%[38] - Market Development organic revenue declined by 142%[38] Strategic Initiatives - Krispy Kreme is implementing a turnaround plan focused on profitable U S expansion and capital-light international franchise growth[18] - The company aims to deleverage the balance sheet through refranchising international markets and restructuring the JV in the Western U S [19] - Actions include outsourcing U S logistics and expanding with high-return U S DFD customers[21]

[Executive Summary & Turnaround Plan](index=1&type=section&id=Executive%20Summary%20%26%20Turnaround%20Plan) [Second Quarter 2025 Highlights](index=1&type=section&id=Second%20Quarter%202025%20Highlights) Krispy Kreme reported a significant GAAP net loss in Q2 2025, primarily due to a large impairment charge and the terminated McDonald's partnership | Metric | Q2 2025 Value | Note | | :--- | :--- | :--- | | Net Revenue | $379.8 million | - | | Organic Revenue Decline | 0.8% | YoY | | GAAP Net Loss | $441.1 million | Includes $406.9M in impairment charges | | Adjusted EBITDA | $20.1 million | - | | Global Points of Access (POA) | 18,113 | +14.3% YoY | - The company's Q2 results were primarily impacted by **unsustainable operating costs** related to the McDonald's USA partnership, which ended on July 2, 2025[2](index=2&type=chunk) [Turnaround Plan](index=1&type=section&id=Turnaround%20Plan) The company launched a four-part turnaround plan to deleverage, improve capital returns, expand margins, and drive profitable growth - The turnaround plan is built on four key pillars: * **Refranchising:** Improving financial flexibility by refranchising international markets and restructuring a U.S. joint venture * **Driving Return on Invested Capital:** Reducing capital intensity by leveraging existing assets and focusing on franchisee development * **Expanding Margins:** Increasing operational efficiency, including outsourcing U.S. logistics * **Driving Sustainable, Profitable Growth:** Focusing on profitable revenue streams in the U.S. market[4](index=4&type=chunk) [Financial Performance](index=2&type=section&id=Financial%20Performance) [Consolidated Financial Results (Q2 2025)](index=2&type=section&id=Consolidated%20Financial%20Results%20(Q2%202025)) Consolidated net revenue decreased by **13.5%** in Q2 2025, resulting in a **$441.1 million GAAP Net Loss** primarily from impairment and the McDonald's partnership impact | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $379.8M | $438.8M | (13.5)% | | Organic Revenue | $371.7M | $374.6M | (0.8)% | | GAAP Net Loss | $(441.1)M | $(4.9)M | nm | | GAAP Diluted EPS | $(2.55) | $(0.03) | $(2.52) | | Adjusted EBITDA | $20.1M | $54.7M | (63.3)% | | Adjusted EBITDA Margin | 5.3% | 12.5% | (720) bps | | Adjusted Diluted EPS | $(0.15) | $0.05 | $(0.20) | - The **$59.0 million decline** in net revenue was primarily caused by a **$64.2 million reduction** associated with the sale of a majority stake in Insomnia Cookies in Q3 2024[6](index=6&type=chunk) - A non-cash goodwill and other asset impairment charge totaling **$406.9 million** was the main driver of the significant GAAP Net Loss[7](index=7&type=chunk) [Segment Performance (Q2 2025)](index=2&type=section&id=Segment%20Performance%20(Q2%202025)) Segment performance in Q2 2025 was mixed, with U.S. declines from divestiture and partnership termination, and International organic growth [U.S. Segment](index=2&type=section&id=U.S.%20Segment) - Net revenue declined by **20.5%** (**$59.2 million**), primarily due to the **$64.2 million impact** from the sale of Insomnia Cookies[9](index=9&type=chunk) - Organic revenue declined by **3.1%** (**$6.9 million**) due to consumer softness and strategic door closures[9](index=9&type=chunk) - U.S. Adjusted EBITDA decreased by **69.6%** (**$22.7 million**), driven by the Insomnia Cookies sale, the terminated McDonald's partnership, and lower transaction volumes[10](index=10&type=chunk) [International Segment](index=3&type=section&id=International%20Segment) - Organic revenue grew by **5.9%** (**$7.4 million**), led by strong performance in Canada, Japan, and Mexico[11](index=11&type=chunk) - Adjusted EBITDA declined by **15.9%** (**$3.4 million**), with margins falling **360 basis points** to **13.7%**, primarily due to the ongoing turnaround in the U.K[12](index=12&type=chunk) [Market Development Segment](index=3&type=section&id=Market%20Development%20Segment) - Net revenue declined by **30.2%** (**$7.3 million**), and organic revenue declined by **14.2%**, as growth in new markets was offset by the timing of product and equipment sales to franchisees[13](index=13&type=chunk) - Adjusted EBITDA decreased by **30.5%** (**$3.9 million**), with a slight margin decline of **20 basis points** to **52.9%**[13](index=13&type=chunk) [Financial Position and Capital Management](index=3&type=section&id=Financial%20Position%20and%20Capital%20Management) [Balance Sheet and Liquidity](index=3&type=section&id=Balance%20Sheet%20and%20Liquidity) Krispy Kreme maintained **$243.8 million** in total available liquidity as of June 29, 2025, and amended its credit agreement while remaining compliant with covenants - Total available liquidity stood at **$243.8 million**, composed of **$21.3 million** in cash and **$222.5 million** in undrawn credit capacity[16](index=16&type=chunk) - The company amended its credit agreement, adding **$125.0 million** in term loans to pay down its revolving credit facility[15](index=15&type=chunk) | Metric | As of June 29, 2025 | | :--- | :--- | | Net Debt | $939.4 million | | Net Leverage Ratio | 7.5x | [Capital Allocation and Expenditures](index=3&type=section&id=Capital%20Allocation%20and%20Expenditures) The company is actively managing capital by halting dividends, selling Insomnia Cookies for **$75 million** to reduce debt, and pursuing refranchising - The quarterly cash dividend has been halted to preserve capital[17](index=17&type=chunk) - The remaining ownership stake in Insomnia Cookies was sold, generating **$75 million** in cash proceeds used for debt reduction[17](index=17&type=chunk) - The company is actively pursuing refranchising of markets including Australia, New Zealand, Japan, Mexico, and the U.K. to enhance financial flexibility and pay down debt[18](index=18&type=chunk) - Capital expenditures for the first half of 2025 totaled **$54.1 million** (**7.2% of net revenue**), but future investment in new capacity will be curtailed[14](index=14&type=chunk) [Key Business Developments](index=3&type=section&id=Key%20Business%20Developments) [McDonald's USA Partnership Termination](index=3&type=section&id=McDonald's%20USA%20Partnership%20Termination) Krispy Kreme and McDonald's USA mutually terminated their partnership effective July 2, 2025, due to misaligned operating costs - The partnership was terminated effective July 2, 2025, by mutual agreement[19](index=19&type=chunk) - The primary reason for termination was the failure to align Krispy Kreme's operating costs with the unit demand from McDonald's locations[19](index=19&type=chunk) [Goodwill and Other Asset Impairments](index=3&type=section&id=Goodwill%20and%20Other%20Asset%20Impairments) The company recognized **$406.9 million** in non-cash impairment charges in Q2 2025, triggered by stock price decline and revised forecasts - A cumulative, non-cash partial goodwill impairment charge of **$356.0 million** was recognized in Q2 2025[20](index=20&type=chunk) - Impairment indicators included a significant and sustained decline in stock price and market capitalization, and downward revisions to internal forecasts[20](index=20&type=chunk) - Additional non-cash charges of **$22.1 million** for long-lived assets and **$28.9 million** for lease impairment and termination costs were recorded, partly due to the termination of the McDonald's agreement[21](index=21&type=chunk) - The impairment charges do not impact the company's compliance with its debt covenants[22](index=22&type=chunk) [Key Operating Metrics](index=2&type=section&id=Key%20Operating%20Metrics) [Global Points of Access and Hubs](index=2&type=section&id=Global%20Points%20of%20Access%20and%20Hubs) Global Points of Access grew **14.3%** to **18,113** in Q2 2025, including McDonald's locations subsequently closed, and total production hubs increased | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Global Points of Access | 18,113 | 15,853 | +14.3% | | Total Hubs | 430 | 419 | +2.6% | - The Q2 2025 Global Points of Access count includes approximately **2,400 McDonald's doors** that were exited in Q3 2025[49](index=49&type=chunk) [Sales per Hub and Digital Sales](index=2&type=section&id=Sales%20per%20Hub%20and%20Digital%20Sales) Sales per Hub declined slightly in both U.S. and International segments, while digital sales as a percentage of doughnut shop sales increased to **18.0%** | Metric (Trailing Four Quarters) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Sales per Hub (U.S.) | $4.9M | $5.0M | (2.0)% | | Sales per Hub (International) | $9.8M | $9.9M | (1.0)% | | Digital Sales % of Doughnut Shop Sales | 18.0% | 16.4% | +160 bps | [Financial Statements (Unaudited)](index=6&type=section&id=Financial%20Statements%20(Unaudited)) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section provides the unaudited consolidated statement of operations for the 13 and 26 weeks ended June 29, 2025, detailing revenues, costs, expenses, and net loss [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited consolidated balance sheet as of June 29, 2025, outlining the company's assets, liabilities, and shareholders' equity [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the unaudited consolidated cash flows from operating, investing, and financing activities for the 26 weeks ended June 29, 2025 [Reconciliation of Non-GAAP Financial Measures](index=9&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) [Reconciliation of Adjusted EBITDA and Adjusted EBIT](index=9&type=section&id=Reconciliation%20of%20Adjusted%20EBITDA%20and%20Adjusted%20EBIT) This section provides a detailed reconciliation from GAAP Net Loss to non-GAAP Adjusted EBIT and Adjusted EBITDA, detailing key adjustments including goodwill impairment - Adjusted EBITDA is reconciled from Net Loss by adding back interest, taxes, D&A, and other items such as share-based compensation, strategic initiative costs, and impairment charges[36](index=36&type=chunk)[40](index=40&type=chunk) [Reconciliation of Adjusted Net (Loss)/Income](index=11&type=section&id=Reconciliation%20of%20Adjusted%20Net%20(Loss)%2FIncome) This section reconciles GAAP Net Loss to non-GAAP Adjusted Net (Loss)/Income and Adjusted EPS, detailing adjustments for goodwill impairment and strategic initiatives - Adjusted Net (Loss)/Income is reconciled from Net Loss by adjusting for items such as share-based compensation, goodwill impairment, strategic initiatives, and the tax impact of these adjustments[38](index=38&type=chunk)[42](index=42&type=chunk) [Reconciliation of Organic Revenue](index=14&type=section&id=Reconciliation%20of%20Organic%20Revenue) This section reconciles total net revenue growth to organic revenue growth by segment, excluding impacts from divestitures, acquisitions, and foreign currency - Organic revenue growth is calculated by excluding the impacts of acquisitions, divestitures (like Insomnia Cookies), and foreign currency translation from total net revenue growth[45](index=45&type=chunk)

Group 1 - A significant short squeeze is occurring in U.S. equity markets, indicated by a surge in speculative buying and options data [1][8] - The five-day moving average of net call volumes for the most shorted stocks reached approximately 4.2 million contracts, marking the second-highest level ever recorded [1][4] - Call volume for heavily shorted U.S. stocks has quadrupled in recent weeks, reflecting a rush by short sellers to cover positions as prices increase [4][5] Group 2 - The current spike in call volume approaches the euphoric highs seen during the 2021 meme stock mania, particularly reminiscent of the GameStop rally [2][5] - The broader market is also experiencing increased call activity, with the five-day moving average of net call volumes for all other stocks doubling to around 10 million contracts, the highest level in four years [4][5] - Retail traders have contributed to sudden rallies in stocks like Krispy Kreme, GoPro, and Opendoor, driven by renewed interest in speculative investments [6] Group 3 - Investor optimism is at a peak, with margin debt on the NYSE reaching an all-time high, surpassing levels seen during the tech bubble [8] - Despite the optimism, there are signs of strain as the latest meme stock rally has quickly fizzled and Bitcoin has retreated from recent highs [8]

Group 1 - The article discusses the emergence of a new class of meme stocks, including Kohl's, GoPro, and Krispy Kreme, which have experienced volatile trading reminiscent of the GameStop and AMC rallies in 2021 [1] - Meme stocks are characterized by sharp price swings not based on their underlying fundamentals, and they are typically considered cheap, with Kohl's share price down approximately 40% over the past year [1] - Recognition of these companies plays a crucial role in the spread of the meme narrative, making it easier for traders to rally around well-known brands compared to lesser-known stocks [2] Group 2 - A significant portion of the outstanding shares of these meme stocks are sold short, with approximately 47% of Kohl's, 28% of Krispy Kreme, and 9% of GoPro's shares being shorted [3] - The process of shorting involves investors borrowing shares and selling them, hoping to buy them back at a lower price to profit from the difference [3] - When the price of a heavily shorted stock rises, short sellers are forced to buy back shares to limit their losses, creating a feedback loop that can inflate the stock price [4][5]

Core Viewpoint - Krispy Kreme's stock is experiencing a significant decline as the momentum from its recent meme stock status fades, with investors awaiting key macroeconomic news regarding interest rates [1][3][4] Group 1: Stock Performance - Krispy Kreme's share price fell by 8.8% during trading, with a peak decline of 10% earlier in the day [1][3] - Despite the recent pullback, Krispy Kreme's stock is still up approximately 41.5% over the last month, primarily driven by meme stock trading [4] Group 2: Market Sentiment - The decline in Krispy Kreme's valuation is not due to any specific business news but follows substantial valuation gains that were disconnected from the company's fundamentals [2] - Investors are currently betting that the Federal Reserve will maintain interest rates, which contrasts with earlier expectations of rate cuts, impacting the stock's performance [3] Group 3: Future Outlook - If the Federal Reserve decides not to cut interest rates in its upcoming meeting, Krispy Kreme's share price may experience further significant declines [4] - The potential for a resurgence in meme stock momentum exists, but the stock is considered too risky for most investors at this time [4]

Core Viewpoint - The DORKs, an acronym for stocks of Krispy Kreme, Opendoor Technologies, Rocket Companies, and Kohl's, represent a new investment fad that investors should approach with caution due to the inherent risks and the historical tendency of such fads to end poorly [1][2][4]. Group 1: Definition and Characteristics of DORKs - The DORKs acronym refers to the stocks of Krispy Kreme (DNUT), Opendoor Technologies (OPEN), Rocket Companies (RKT), and Kohl's (KSS), which have experienced significant price fluctuations despite facing substantial business challenges [2]. - The DORKs phenomenon resembles previous trends known as meme stocks, indicating a pattern of speculative trading rather than sound investment principles [2]. Group 2: Reasons to Avoid DORKs - Wall Street often promotes catchy investment ideas like the DORKs, which can lead to increased trading volume and profits for financial firms, rather than benefiting individual investors [5][8]. - Investment fads, including the DORKs, are typically short-lived, and even well-performing stocks cannot sustain continuous price increases indefinitely [9][11]. - The allure of fads can create a false sense of urgency, leading investors to buy at inflated prices without a clear exit strategy, increasing the risk of financial loss [12][13]. Group 3: Long-term Investment Perspective - Successful long-term investing requires a focus on fundamentally sound companies rather than chasing trends, as evidenced by the investment philosophy of Warren Buffett and Berkshire Hathaway [10][16]. - The emotional toll of participating in investment fads can deter investors from engaging with the market in a thoughtful manner, potentially hindering their financial growth [15].