Shares of globally recognized doughnut chain Krispy Kreme (DNUT) are in a downward spiral on Wednesday morning following a downgrade by JPMorgan. The bank warns of potential hurdles in the company's recovery strategy, which led to this downgrade from a “neutral” stance with no price target to “underweight."
Previously, JPMorgan analysts expressed concern on the stock's incredibly underwhelming performance since Krispy Kreme $17 initial public offering in July 2021. Looking at the current trends, the doughnut enterprise's shares are over 60% down this year alone, slashing the value to $3.73 per share and displaying an 8% decrease in Wednesday morning's trading.
The scenario turns more challenging, considering the failure of the company's alliance with the fast-food giant McDonald's (MCD) launched a year earlier. Krispy Kreme announced this turnaround plan after ending this partnership because it could not profitably scale up.
The analysts pointed out the high-risk involved in its revamping plan, primarily due to the time risk associated with the refranchising of multiple international assets, while the fundamental business metrics continue on a descending path.
They also underlined the impact on Krispy Kreme’s profits due to the hefty costs associated with its venture with McDonald’s. The original plan envisioned a global rollout of Krispy Kreme doughnuts across all McDonald’s locations by 2026.
The disruption triggered by the failed partnership significantly impacted the company financially, forcing it into survival-mode. As a result, the company had to resort to selling various stores worldwide and even attempted to shift to third-party deliveries to cut costs and operational complexity. In a significant note, the analysts also shared that a significant portion of Krispy Kreme’s allure remained in the unique experience of consuming freshly made doughnuts.