Krispy Kreme: The Turnaround Is Real, But Revenue Still Isn't Growing

The headline from Krispy Kreme's August report reads like a disaster: second-quarter revenue of $331 million, down 12.8% from a year earlier. For a stock that had rallied on a turnaround story, that is the kind of number that sends investors to the exits. The shares trade near $3.20, down about 20% in 2026. But the true surprise in the quarter was not that revenue fell — it was that the decline is mostly the company shrinking itself, not customers leaving. The more honest question is whether the piece of the business left standing can ever grow again.

The turnaround, on the profit side, is real and measurable. Adjusted EBITDA rose 43.2% to $28.8 million, and the margin expanded 340 basis points to 8.7%. On an "organic" basis that strips out the divestitures and closures, revenue fell just 0.3%, essentially flat. Net leverage dropped to 5.4x, and the company is guiding to positive free cash flow for the year. Management hit this by cutting capital spending about 70%, outsourcing U.S. logistics, and pruning losers. That is genuine operating progress, not a narrative.

So where does the 12.8% decline come from? Almost all of it is structural. Krispy Kreme terminated its McDonald's USA partnership, removing doughnuts from roughly 2,400 locations. It sold its Japan business and reduced its ownership of the western U.S. joint venture, pocketing around $120 million that went to pay down debt, and those sales also remove their revenue from the consolidated income statement. Total points of access — the number of doors selling doughnuts — fell 13.5% year over year. A reported drop of this size is what you get when a company deliberately makes itself smaller.

The problem underneath that is the organic number. Even on that basis, the best the company can manage is flat — a 0.3% decline this quarter, and a 2.6% decline last quarter. Systemwide sales across the whole franchise system grew just 1.1% in constant currency. And the strategy now being executed makes faster top-line growth harder, not easier: almost every new shop is franchised rather than company-owned, which lifts margins and royalty income but adds comparatively little revenue to the company's own income statement. The franchise share of systemwide sales has jumped from 25% to 42%, heading toward 50% next year. Krispy Kreme has essentially chosen asset-light shrinking over unit-driven growth. It is a reasonable trade for a company drowning in leverage, but investors should not mistake it for a growth story.

That distinction matters when the stock is priced. Krispy Kreme's market cap is about $557 million, but its enterprise value is roughly $1.4 billion because the balance sheet still carries heavy debt. The trailing EV/EBITDA multiple looks expensive at about 19x, but that is computed on a depressed earnings base. Against guided 2026 adjusted EBITDA of $140–150 million, the stock trades around 9–10x forward EBITDA — in the same neighborhood as casual-dining peers like Portillo's and Bloomin' Brands. The shares also pay a forward dividend of about 4.4%. That yield should be treated as support, not certainty: guided free cash flow of more than $15 million is thinner than the roughly $24 million the dividend costs, and leverage near 5.4x is still far above investment-grade territory.

The clean way to separate a good company from a good stock here: the turnaround is fixing the bottom of the income statement faster than the top, and the market has already cut the price for it. At roughly 10x forward EBITDA and under half of sales, the bad news — flat revenue, high leverage — looks substantially priced in. What is not priced in is a bet that the pruned, asset-light machine can actually grow. The burden of proof sits on revenue, not margins.

Over the next two to four quarters, the falsifiable test is whether systemwide sales inflect above the 2–4% constant-currency guidance, whether per-door productivity (already up sharply) holds, and whether free cash flow puts real distance between the dividend and the debt load. Weakening U.K. and Australia markets are a live risk. If revenue keeps grinding near 1% while adjusted EBITDA has already been optimized, this becomes a margin story with a capped engine — interesting, but not one worth paying up for. If systemwide sales start compounding again, the flat organic top line becomes the setup rather than the problem. The stock rewards the investor who waits for that proof, not the one who assumes it on the EBITDA line alone.