Krispy Kreme’s Dork Rally Crashes

Core Viewpoint - Krispy Kreme is facing significant financial challenges, including declining revenue and profitability, high expenses, and a weak balance sheet, leading to a bearish outlook on its stock valuation [5][10][24]. Financial Performance - Krispy Kreme's revenue fell from a peak of $1.7 billion in 2023 to $1.5 billion in the trailing twelve months (TTM) ended 2Q25, indicating a year-over-year decline [10]. - The company's net operating profit after tax (NOPAT) decreased from $117 million in 2022 to $36 million in the TTM, with NOPAT margin dropping from 9% in 2019 to 2% in the TTM [10][11]. - Core Earnings fell from $47 million in 2022 to -$34 million in the TTM, highlighting a troubling trend in profitability [11]. Expense Management - Total operating expenses as a percentage of revenue increased from 96% in 2019 to 105% in the TTM ended 2Q25, indicating rising costs that outpace revenue [13]. - The company's high expenses are attributed to product and distribution costs, operating expenses, and marketing expenses [12][13]. Market Position and Valuation - Krispy Kreme's stock is considered significantly overvalued, with current price expectations implying unrealistic future profitability [5][25]. - To justify its current stock price of $3/share, Krispy Kreme would need to achieve $4.3 billion in revenue by 2034, nearly three times its TTM revenue [25]. Strategic Challenges - The company has struggled to maintain growth, evidenced by the termination of its partnership with McDonald's due to unsustainable cost structures [23][24]. - Krispy Kreme has also sold off assets, including its majority stake in Insomnia Cookies, to manage its balance sheet, which raises concerns about long-term sustainability [23][24][16]. Shareholder Impact - The number of shares outstanding has increased from 148 million in 2021 to 170 million in 2Q25, indicating potential dilution for existing shareholders [19]. - The company's total debt rose from $1.4 billion in 2021 to $1.8 billion in the TTM, contributing to a poor credit rating and financial instability [20][33].