Doughnut vendor Krispy Kreme (DNUT 1.87%) used to be hot. Now it's a cautionary tale. As of Aug. 20, the stock has dropped 73% from its yearly peak. It trades at 0.4 times trailing sales and 0.9 times the company's book value.
These ratios are typical of companies in deep financial trouble. But how did Krispy Kreme get to this desperate situation?
It turns out that a potentially awesome partnership backfired. Even the final act of shutting down that deal left Krispy Kreme scrambling to fight the massive infrastructure costs that came along with it. At this point, Krispy Kreme investors might wish the company had never agreed to that costly McDonald's (MCD 0.41%) contract.
What happened to the McDonald's deal?
Krispy Kreme started shipping doughnuts to McDonald's restaurants in October, 2022. The limited test run in Louisville, Kentucky, saw decent results, inspiring a larger-scale implementation in 2024.
But the nationwide rollout was never completed, as Krispy Kreme pulled the plug on this project in the second quarter of 2025. Management noted that the doughnut delivery program was too expensive on a networkwide scale. Furthermore, it will take several quarters to unwind the attempts to build an effective production and delivery network in support of the McDonald's deal.
Combining donuts and burgers wasn't a great idea. Image source: Getty Images.
What's next for Krispy Kreme?
As a result, Krispy Kreme is reviewing its entire logistics setup in search of more cost-effective solutions. The company is ending hundreds of underperforming delivery contracts, though more than half of the shuttered deals will be replaced with higher-volume routes by the end of 2025.
That may sound like an empty promise, but the partners for these new routes include giant household names such as Walmart, Costco, and Kroger. As long as Krispy Kreme can focus these operations on the most profitable delivery routes, the company might be poised for a long-term turnaround.
But that's a pretty speculative forecast. For now, Krispy Kreme investors are simply disappointed in the failed McDonald's experiment and its financial aftermath.
