What Happened?
Shares of doughnut chain Krispy Kreme (NASDAQ: DNUT) fell 6.6% in the morning session after JPMorgan downgraded the stock to 'Underweight' from 'Neutral', citing significant risks in its turnaround plan. The investment bank expressed concerns about high execution risks, declining U.S. business trends, and challenges associated with refranchising multiple international assets. JPMorgan also highlighted Krispy Kreme's substantial debt, with over $1 billion in net debt compared to its equity market capitalization of roughly $650 million. The downgrade follows the company's recent wider-than-expected quarterly loss and the announcement of a new turnaround strategy. According to the brokerage, these underlying issues limit the visibility of the proposed plan's success.
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What Is The Market Telling Us
Krispy Kreme’s shares are extremely volatile and have had 30 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 1 day ago when the stock gained 3.4% as investors reacted positively to news that its UK division has initiated a multi-year turnaround plan to drive sustainable, profitable growth.
The move follows a challenging financial year for the UK arm, which reported a loss after tax of £6.2 million for 2024, a significant shift from the profits recorded in the three preceding years. The company attributed the loss to the impact of the cost-of-living crisis on consumer spending, coupled with higher input costs. Under new management, the turnaround strategy includes reviewing retail locations to better align with customer presence, redeveloping its customer rewards platform to boost loyalty, and taking measures to control costs by locking in contracts for input price stability.
Krispy Kreme is down 64.3% since the beginning of the year, and at $3.48 per share, it is trading 72% below its 52-week high of $12.42 from November 2024. Investors who bought $1,000 worth of Krispy Kreme’s shares at the IPO in June 2021 would now be looking at an investment worth $165.48.
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