JPMorgan lowered its rating on Krispy Kreme (NASDAQ:DNUT) to Underweight from Neutral, citing uncertainty around the company’s turnaround plan and weakening U.S. business trends.
In a note, the analysts said they continue “to not publish a price target,” emphasizing that the stock has dropped from its July 2021 IPO price of $17 to roughly $3.73 as of August 26, with major insider holdings concentrated among five investors, including the former take-private backer JAB.
JPMorgan highlighted that recent profitability was hit by costs linked to a now-cancelled direct-to-door (DFD) rollout supporting McDonald’s and other national accounts. “This disruption led to the company being in survivor mode, including the sale of various store assets around the world and an attempted shift to 3P delivery to reduce costs and operational complexity,” the analysts explained.
Execution risks remain elevated, particularly regarding refranchising international assets, while U.S. organic revenue continues to decline amid pricing pressures and increasing competition. JPMorgan also noted that “the underlying Ebitda profile for the company remains at risk of decline in addition to these non-recurring charges that roll off over time.”
Operational challenges with fresh product delivery were also flagged: “Delivered fresh daily comes with a significant daily last-mile delivery cost…average frequency of fresh doughnut consumption remains at 2-2.5x and 4-6x for loyal/heavy users annually,” JPMorgan said.
The report suggested that Krispy Kreme could benefit from a strategic owner to unlock value and enhance balance sheet flexibility, potentially through longer shelf-stable products supporting a capital-light licensing strategy.
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