Krispy Kreme's Turnaround Plan Under Scrutiny After JPMorgan Downgrade: Assessing the Feasibility Amid Declining Trends and Debt Challenges

Krispy Kreme’s recent financial performance has painted a grim picture for investors. The company reported a 13.5% year-over-year revenue decline in Q2 2025, with net revenue falling to $379.8 million, driven by the termination of its McDonald’s USA partnership and the closure of underperforming locations [1]. A $441.1 million GAAP net loss—largely from non-cash impairment charges—further underscored its struggles, while adjusted EBITDA plummeted 63.3% to $20.1 million [1]. These results prompted JPMorgan to downgrade the stock to “underweight,” citing “execution risks” tied to the company’s turnaround plan and deteriorating business trends [2].

The core of Krispy Kreme’s strategy hinges on refranchising international markets, reducing capital intensity, and pursuing U.S. expansion. However, the feasibility of these initiatives remains questionable. Refranchising efforts, such as exiting Australia, Japan, and the U.K., aim to shift to a capital-light model but risk diluting brand control and operational consistency [1]. Meanwhile, the company’s pivot to third-party delivery—a key component of its off-premise model—faces skepticism due to the perishable nature of its products, which could erode margins and customer satisfaction [2].

Debt levels compound the challenges. With total debt at $1.46 billion and a current ratio of 0.35, liquidity constraints loom large [3]. While Krispy Kreme has taken steps to deleverage—selling its stake in Insomnia Cookies for $75 million and restructuring credit facilities—these measures may not be sufficient to stabilize its balance sheet [1]. Analysts warn that the company’s aggressive refranchising could lead to short-term cash flows at the expense of long-term brand equity [2].

The QSR sector offers mixed precedents. Brands like Taco Bell and Cava have succeeded through operational efficiency and menu innovation, but Krispy Kreme’s reliance on refranchising diverges from these models [5]. For instance, MOOYAH Burgers’ success with standardized kitchen equipment and employee training highlights the importance of maintaining operational rigor—a challenge for Krispy Kreme as it cedes control to franchisees [3].

JPMorgan’s downgrade reflects broader concerns about the company’s ability to execute its plan. The termination of the McDonald’s partnership, which added 2,400 distribution points, has left a void in transaction volumes, and U.S. organic growth remains stagnant [1]. Pricing pressures and competition from rivals like Dunkin’ and Starbucks further threaten its market position [2].

Despite these risks, management remains optimistic. The company plans to replace 1,500 underperforming locations with 1,100 high-volume outlets by year-end and has refocused marketing on its iconic Original Glazed doughnut [1]. Yet, with shares down over 60% in 2025, investors are demanding clearer evidence of sustainable growth [2].

In conclusion, Krispy Kreme’s turnaround plan is ambitious but fraught with execution risks. While refranchising and cost-cutting may provide short-term relief, the company’s high debt, operational fragility, and competitive pressures cast doubt on its long-term viability. For the strategy to succeed, it must demonstrate not only financial discipline but also a coherent vision for revitalizing its brand in a crowded market.

Source:
[1] Krispy Kreme Reports Second Quarter 2025 Financial Results and Announces Turnaround Plan [https://investors.krispykreme.com/news/news-releases/news-details/2025/Krispy-Kreme-Reports-Second-Quarter-2025-Financial-Results-and-Announces-Turnaround-Plan/default.aspx]
[2] JPMorgan downgrades Krispy Kreme to underweight [https://www.cnbc.com/2025/08/27/jpmorgan-downgrades-krispy-kreme-to-underweight-doubts-proposed-turnaround-plan.html]
[3] Krispy Kreme Earnings Call Transcript [https://www.investing.com/news/transcripts/earnings-call-transcript-krispy-kreme-q2-2025-shows-eps-miss-stock-drops-93CH-4177701]
[4] The Strategy a Franchise with 80+ Locations is Using to [https://www.qsrmagazine.com/sponsored_content/data-shows-training-investments-are-critical-to-franchise-growth-in-2025/]