Doughnut chain Krispy Kreme (NASDAQ: DNUT) announced better-than-expected revenue in Q2 CY2025, but sales fell by 13.5% year on year to $379.8 million. Its non-GAAP loss of $0.15 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Krispy Kreme's second-quarter results were met with a negative market reaction, as the company reported a significant year-over-year sales decline and a non-GAAP loss that fell short of Wall Street’s expectations. Management attributed the underperformance primarily to higher-than-expected losses from the discontinued McDonald’s USA partnership and increased insurance costs related to in-house delivery operations. CEO Josh Charlesworth acknowledged these challenges, noting the company is “quickly removing our costs related to the McDonald’s partnership and expect to begin recouping profitability in the third quarter.”

Looking forward, management believes Krispy Kreme’s turnaround plan will be driven by a transition to a capital-light international franchise model, aggressive cost control, and a renewed focus on its core product—the Original Glazed doughnut. The company expects to benefit from refranchising select markets, reducing G&A expenses, and expanding profitable high-volume delivery doors. CFO Raphael Duvivier stated, “as we move our international refranchise efforts, you should start seeing CapEx as a percentage of revenue going down even in the second half of this year,” signaling a shift toward more predictable and sustainable growth.

Key Insights from Management’s Remarks

Management pointed to the exit from unprofitable partnerships and a shift toward franchising as key themes shaping recent and future performance.

• McDonald's partnership exit: The termination of the McDonald’s USA partnership weighed heavily on profitability, with losses exceeding initial projections. Management is rapidly eliminating associated costs and expects improved results in upcoming quarters.
• Refranchising international operations: Krispy Kreme accelerated its plan to refranchise company-owned stores in markets such as Australia, New Zealand, Japan, Mexico, the U.K., and Ireland, targeting a more capital-light structure and increased returns on invested capital.
• U.S. footprint optimization: The company identified and began closing 1,500 underperforming U.S. delivery doors, with plans to replace them with 1,100 higher-volume, more profitable locations. Over half of these new doors are already operational.
• Logistics transition: By outsourcing 40% of U.S. fresh doughnut deliveries to third-party partners, Krispy Kreme aims to achieve more predictable logistics costs and redirect internal resources to core production capabilities.
• Leadership and operational changes: The appointment of a new Chief Operating Officer and the promotion of key executives are intended to strengthen U.S. operations, improve demand planning, and streamline manufacturing processes.

Drivers of Future Performance

Krispy Kreme’s guidance is anchored in executing its turnaround plan, with an emphasis on refranchising, cost containment, and U.S. operational improvements.

• Franchise-driven model: Management expects the international refranchising strategy to reduce capital expenditures, improve cash flow, and create a more predictable, higher-margin business. The company is targeting one to two refranchising deals this year.
• Margin recovery efforts: The company is focused on expanding margins through cost reductions, optimizing its U.S. delivery footprint, and leveraging third-party logistics for greater efficiency. Management expects positive cash flow and higher adjusted EBITDA in the second half of the year.
• Core product and channel focus: Emphasizing the Original Glazed doughnut and growing high-volume sales through major retail partners like Walmart, Costco, and Sam’s Club, management sees these initiatives as critical to driving U.S. growth and stabilizing performance.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) progress in refranchising international markets and how quickly proceeds are used to reduce debt, (2) evidence of margin recovery as underperforming U.S. delivery doors are replaced by higher-volume outlets and logistics outsourcing continues, and (3) the impact of marketing efforts focused on the Original Glazed doughnut and expansion with large retail partners. Execution of these operational shifts and the pace of digital channel growth will also be critical indicators.

Krispy Kreme currently trades at $3.20, down from $3.42 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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