Krispy Kreme: Why Consumer Turnarounds are Won in the Market, Not Just on the Balance Sheet
August 21st, 2025
Disclaimer: I am a Krispy Kreme (NASDAQ: DNUT) Shareholder. This is not investment advice.
Krispy Kreme’s latest 2Q25 results make one thing clear: the brand is under financial pressure. Revenue is down, adjusted EBITDA margins have fallen off a cliff from double digits to mid-single digits (McDonald’s impairment related, mostly), and net leverage sits at a level that limits optionality. I understand why management is focused on refranchising, paying down debt (very important), and outsourcing costs - all essential steps to stabilize the business.
But in my opinion (yes, I know; opinions are like BLANK, everyone has one), balance sheet repair alone won’t solve the problem. The real unlock comes from execution: operational discipline, brand clarity, and a deep connection with the consumer. Time and time again, I see how overlooked these measures are, especially in the public markets where balance sheet priorities reign supreme for obvious reasons, like a cratering stock price in Krispy Kreme’s case.
Why Marketing & Execution Matter More than Ever
The brand still resonates, but its relevance has faded for many U.S. consumers - just ask your friends. Although “nostalgia” is somewhat saturated in marketing these days, it’s arguably the companies most powerful asset. The emotional pull of the ‘Original Glazed’ is unmatched, yet it hasn’t been harnessed effectively. Many lapsed customers (me) simply need to be reminded of what they miss. Sampling campaigns, retail theater and strategic promotions could reignite that connection and turn nostalgia into traffic, and traffic to sales. Much needed sales.
But nostalgia alone is not enough. Management needs sharper insight into today’s consumer. That means actively screening and listening - understanding how customers perceive the brand, what keeps them coming back, what the gaps are. Without a pulse on consumer sentiment, marketing risks being scattershot rather than surgical.
Growth Without Overreach
Although I was bullish on this in the beginning, the prior partnership with McDonald’s showed what happens when scale is pursued without discipline: high costs, limited demand, and margin erosion. By contrast, placing the products in Costco, Walmart, Target, and Sam’s Club provides scale where consumers already shop. These placements are capital-light, high-volume, and can be supported by brand-building campaigns that focus on the hero product.
To complement this, Krispy Kreme could explore alternative product formats, but I digress. Marketing dollars should not be viewed as discretionary. In a turnaround, like the case here, they are investments that drive the top line. The key is to ensure every dollar converts into traffic and trial. Banking on brand amplification and reinforcement are not going to cut it at this stage. Marketing investments need to lead to conversions. Back to the basics.
The Balance Sheet
I’m no wiz in the sheets (the excel sheets, of course), but I know enough to know impairments and leverage matter. A lot. Equity has been cut nearly in half, net leverage is above 7x, and cash flow has swung negative. Whomp whomp. These pressures demand immediate attention. Management’s response - refranchising, asset sales and reduced capex all reflect a necessary pivot.
Selling non-core assets, like the remaining stake in Insomnia Cookies, shows how liquidity can be unlocked without undermining the brand’s core. Refranchising international markets like Japan, Mexico, the U.K., and Australia/NZ is equally important. These are, what appear to be, strong businesses that can thrive under local ownership, while delivering the benefits of upfront cash proceeds and recurring royalties to pay down debt. Each move supports a more capital-light strategy, shifting the mix from company-operated stores (bad) toward franchise royalties and distribution partnerships (good). Hell, if these stores spit out profit, they better be tellin’ people about it. They need to attract franchisees.
Debt reduction must go hand in hand with driving top line growth. I know that’s obvious. Assets sales and refranchising may stabilize the balance sheet for now, but it is the expansion of retail distribution, margin improvement from outsourcing, and disciplined marketing investments that create sustainable, scalable cash flow. International franchising, in particular, offers a high-ROI, capital-light growth lever that strengthens the long-term story.
So, Now What?
I recognize, and give full credit to the much needed financial priorities, but I believe the real determinant of success will be execution in the market. Brand’s aren’t only revived in the spreadsheets - they’re revived in consumers’ hearts and habits. For Krispy Kreme, that could mean nostalgia, consumer insight, sampling, smart distribution, and product formats that drive trial and frequency - all supported by operational discipline.
The Path Forward
What do I know. But, I do know listening to customers is the easiest way to figure out why sales ain’t growing.
Reignite Nostalgia to win back lapsed customers. Sampling and experiential marketing remind people why they fell in love with the brand in the first place.
Screen and listen to customers to better understand perceptions and refine positioning.
Expand distribution intelligently - focus on retail partners that balance scale with profitability.
Innovate with alternative formats that create new usage occasions without diluting the hero product.
Sell non-core assets to raise cash - continue to monetize holdings that don’t directly strengthen the brand, using proceeds to create liquidity and deleverage.
Push toward international capital-light franchising - unlock cash proceeds, shift to recurring royalty streams, and let well capitalized local operators do their thing. Laissez faire.
Balance sheet repair creates time, but only consumer-focused execution creates lasting value.
The Downside Risk
If our beloved Donut kings and queens fail to execute on refranchising, asset sales, and consumer-driven growth, the options narrow quickly - of which would greatly dilute the value of my investment.
Equity Raise (Dilution City): The stock is already trading at borderline distressed levels and issuing new equity would be highly dilutive. A capital injection from JAB is possible I suppose, but I’m not sure they have the appetite to consolidate control. Who’s to say.
Debt Restructuring: Lenders could push for stricter terms, higher interest rates, or even a debt-to-equity swap if leverage remains unstable. Which, I suppose is unlikely, but possible.
Fire Sales: Without proactive franchising, the company could be forced into selling international units or even brand rights at dumpy prices, destroying long-term value.
Go-Private: A PE buyer could take Krispy Kreme private, restructure off-market and re-list it later. Shareholders likely won’t see much upside if that’s the case given the debt load.
Shrink-to-Sruvive: Deeper U.S. store closures could reduce burn but at the expense of brand visibility and long-term consumer relevance.
The message is clear: proactive execution now avoids reactive, value-destructive moves later. Management has most of the tools to stabilize and reignite the business- but delay or half-measures will force Krispy Kreme into a corner where options are dictated by creditors or controlling shareholders, not by a growth agenda.
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Disclaimer: The views expressed here are for informational and strategic discussion purposes only and do not constitute investment advice or a recommendation to buy or sell securities.