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Krispy Kreme (DNUT, Financials) shares tumbled 24% Thursday after the company suspended its nationwide rollout with McDonald's (MCD, Financials) and withdrew its full-year forecast due to falling sales and broader economic uncertainty.
The doughnut chain reported a net loss of $33 million for the quarter ended March 30. The company has now posted three straight quarters of losses. Krispy Kreme paused further McDonald's store launches in the second quarter and said it is reevaluating the pace of the rollout.
Shares have lost over 70% in the past 12 months, reducing Krispy Kreme's market value to below $600 million. Truist downgraded the stock from buy to hold, citing diminished confidence in management's execution. We are shocked by the speed at which the story fell apart, analyst Bill Chappell wrote in a note.
As of March 30, more than 2,400 McDonald's outlets carried Krispy Kreme products. The two companies previously planned to reach all U.S. stores by the end of 2026, but that timeline is now uncertain.
CEO Josh Charlesworth said demand slowed after the initial launch and that both companies are working together to cut costs and stimulate demand. He added that Krispy Kreme would reassess its deployment schedule and prune unprofitable locations, potentially closing up to 10% of its U.S. network.
The company had been ramping up production capacity to serve the fast-food chain using its hub and spoke model, but the rapid investment weighed on margins. The broader pullback in consumer restaurant spending also hurt momentum.
Investors will be watching closely for updates on the revised rollout plan and any signs of recovery in demand through 2025.
This article first appeared on GuruFocus.