Krispy Kreme: A Sweet Deal in the Making?

Investors, buckle up! Krispy Kreme (KKD) has been through the wringer lately—cybersecurity nightmares, a major asset sale, and a revenue stumble—but here’s why this doughnut juggernaut could be primed for a comeback. Let’s dig into the numbers and see why the upside potential here is sweeter than a dozen original glazed.

The Doughnut of Distress: Cybersecurity and Strategic Shifts

Let’s start with the bad news first. Krispy Kreme’s Q4 2024 results were a mixed bag. Net revenue fell 10.4% to $404 million, driven by the sale of Insomnia Cookies (a $101 million headwind) and a $11 million revenue hit from the 2024 cybersecurity breach. The breach also shaved $10 million off Adjusted EBITDA, pushing margins down to 11.4%. Ouch!

But here’s the kicker: organic revenue grew 1.8%, and global Points of Access (POAs) skyrocketed 24.1% to 17,557. That expansion includes delivering to over 1,900 McDonald’s locations via their Direct From Doughnut (DFD) model—a smart move to leverage existing foot traffic without the capital outlay of new stores.

The Playbook for Recovery: Franchising, Logistics, and International Expansion

CEO Josh Charlesworth isn’t just licking his wounds—he’s pivoting aggressively. The key plays?
1. Franchise First: The U.S. segment faces headwinds (down 1.2% organically due to cybersecurity fallout), but the company is doubling down on franchising in international markets. The International segment grew 7.8% organically, fueled by a 14% POA expansion and “premiumization” (selling higher-margin treats like filled doughnuts).
2. Outsourcing Logistics: Krispy Kreme is outsourcing U.S. logistics to cut costs and free up capital. This should help reduce the 280 basis point margin hit from the cybersecurity incident.
3. DFD Dominance: The DFD model—selling doughnuts through third-party locations—is a cash cow. McDonald’s partnerships alone added 1,900 doors, and management aims to expand further.

2025 Guidance: The Numbers That Matter

The 2025 outlook is cautiously optimistic. Management forecasts:
- Organic revenue growth of 5–7%, a solid rebound from 2024’s 1.8%.
- Adjusted EBITDA of $180–$200 million, which, while down from 2024’s $193.5 million, factors in one-time cybersecurity costs and lower Insomnia contributions.
- A leverage ratio target of 4.0x by year-end, a critical move to reduce debt after the $22.2 million Q4 net loss.

The real upside? International markets. With 70% of Krispy Kreme’s 17,557 POAs now outside the U.S., and franchisees hungry for expansion in Asia and Europe, this could be the growth engine that lifts margins.

Risks? Sure. But the Rewards Could Be Doughnut-Sized

Let’s not sugarcoat the risks. The cybersecurity incident’s lingering costs (early 2025 operational inefficiencies and expert fees) and inflationary pressures on ingredients are real. Plus, the stock price has been battered—down 30% over the past year.

But here’s why I’m bullish:
1. Balance Sheet Improvements: While cash fell to $29 million, operating cash flow was $45.8 million in 2024, and the DFD model generates cash without heavy capital investment.
2. Margin Recovery: Outsourcing logistics and refranchising should slash costs. The U.S. segment’s DFD average sales per door ($631) hint at scalability.
3. Undervalued?: At a current P/E of ~15 (based on 2024’s $0.11 EPS), the stock looks cheap if organic growth hits the high end of 2025’s 5–7% target.

Bottom Line: Buy the Dip, Bake the Upside

Krispy Kreme isn’t a “set it and forget it” investment, but for those with a taste for turnaround stories, this could be a steal. The cybersecurity issues are behind us (or at least insured), and the strategic shifts—franchising, DFD expansion, and logistics outsourcing—are all aimed at boosting margins and freeing up capital.

If management can hit the 5–7% organic growth target and reduce leverage to 4.0x, this stock could be a glaze-covered gift. Don’t let the short-term pain distract you from the long-term sweetness.

Action Plan: Dip your toes in at these levels, and watch for Q2 2025 results. If margins start rebounding, this could be a frosting-covered winner.

---

Disclosure: This analysis is for informational purposes only. Always do your own research before investing.