Initially, the company provided a service to grill doughnuts and deliver them right away under the motto of “Selling Fresh Everyday,” but amid the increased cost burden, consumers’ loss increased significantly due to the spread of low-carb diet trends.
According to CNBC on the 27th (local time), JPMorgan analyst Rahul Crotafali said he would downgrade his investment in Krispy Kreme shares from neutral. He did not offer a target stock price, evaluating that the company’s announced rehabilitation plan would not deviate from the current survival management mode.
Krispy Kreme stock was listed at $17 per share in July 2021, but has been suffering from a slump, falling 62% this year alone. The company posted revenue of $379.8 million in the second quarter of this year, down 13.5% from a year earlier. Net loss was $441.1 million, mainly attributed to a loss of $406.9 million in non-cash asset impairment.
Crotafali analyst believes the decline in Krispy Kreme’s profitability was triggered by the end of the partnership with McDonald’s. Krispy Kreme sold doughnuts at McDonald’s earlier this year in partnership with 2,400 McDonald’s stores to ease the burden of fixed costs, but the service ended in less than a year due to lower-than-expected demand and higher operating costs. “This confusion put the company into a survival management mode, and we tried to sell stores and switch to third-party delivery to solve this problem, but the effect was negligible,” Krotafali, an analyst, added. Krispy Kreme is attractive only when it is freshly fried and glazed, but the introduction of an external delivery model was a defeat.
Krispy Kreme has come up with various self-rescue measures, including expanding its high-profit customer base in the U.S., strengthening its international franchise model, logistics outsourcing, and selling non-core assets, but the effect is expected to be insignificant. This is because more and more consumers are looking for low-carb food as health-oriented consumption trends spread. Another variable is that business trends in the U.S. market are deteriorating. With the emergence of various franchise brands, price hikes and intensifying competition are putting a brake on the company’s growth.
SAM KIM
US ASIA JOURNAL
