Krispy Kreme (DNUT +3.44%) is one of those rare brands that sparks instant recognition. For decades, the warm glow of its "Hot Now" sign has drawn customers eager for a taste of nostalgia. But for investors, the story has been more complicated.
After years of uneven results, a failed partnership with McDonald's, and multiple attempts at reinvention, Krispy Kreme is once again trying to turn things around. The company is cutting costs, improving efficiency, and focusing on profitability rather than sheer scale.
While the turnaround is far from completed, the bulls believe this time might be different.
Here are three factors that could help the iconic doughnut maker finally regain its sweetness -- not just in brand appeal but in business performance.
Image source: Getty Images.
Margin expansion is real and still early on
Krispy Kreme's most recent results show the early signs of operational progress. The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin increased to 10.8%, up from 9.1% the previous year. Free cash flow turned positive, and digital sales grew nearly two percentage points to 17.4% of total shop sales.
These are small but meaningful improvements, especially for a company that's been weighed down by high costs and uneven execution. Management's decision to close nearly 1,000 low-performing "points of access" (essentially, store and retail locations) in the last year signals a new focus on profitability over volume.
The strategy is working. By prioritizing high-traffic, high-margin channels and trimming weak spots, Krispy Kreme is building a leaner, more resilient business. If it can sustain this trajectory -- say, moving toward a 12% to 15% EBITDA margin -- the company could generate consistent free cash flow for the first time in years.
For investors, that's a signal that the underlying economics are finally moving in the right direction.
NASDAQ: DNUT
Key Data Points
A more innovative and capital-light growth model
One of Krispy Kreme's biggest historical challenges has been its capital intensity. The company has long operated its own stores, hubs, and delivery networks, which has been an expensive model that limits scalability.
This time, management appears determined to rectify that. The new plan centers on refranchising, outsourcing logistics, and focusing on "high-volume, profitable doors." This approach not only reduces capital requirements but also aligns Krispy Kreme with other successful consumer brands that have embraced asset-light strategies -- think Domino's or McDonald's.
What's particularly promising is how this shift could reshape the company's financial profile. Every percentage point of improvement in asset turnover or capital efficiency can compound over time, lifting return on invested capital (ROIC).
If the strategy is successful, Krispy Kreme could eventually transition from being a low-return operator to a high-return franchisor, capable of growing profitably without requiring constant reinvestment. That's the path to becoming a true consumer compounder.
A brand with untapped potential
No turnaround can succeed without customer loyalty -- and Krispy Kreme has that in spades. Few brands can match its mix of nostalgia, emotional connection, and broad global recognition.
Even as revenue growth has stalled, the brand itself remains incredibly strong. In many international markets, Krispy Kreme is still viewed as a premium indulgence rather than a mass-market treat. This gives it significant room to expand globally, particularly in underpenetrated regions such as Asia and Latin America.
Meanwhile, the company is updating its menu to stay relevant. The recent expansion from 10 to 16 everyday flavors, coupled with growing digital engagement, shows a willingness to evolve without losing its identity. Digital sales growth, in particular, suggests that the company is building a modern foundation for direct-to-consumer marketing, loyalty programs, and data-driven promotions.
That combination of heritage and innovation gives Krispy Kreme something rare: a timeless brand that's still flexible enough to adapt.
What does it mean for investors?
Every turnaround begins with doubt, and Krispy Kreme has plenty to overcome: low margins, a complex distribution model, and the overhang of past failures. But investors shouldn't overlook what's quietly changing beneath the surface.
Management has shifted its mindset from grow fast to grow smart. Margins are improving, cash flow is stabilizing, and the company is building a structure that could support profitable expansion rather than reckless growth.
If those trends continue, Krispy Kreme might finally break free from its average business label and begin compounding value over the long term.
The bulls are keeping a close watch on the stock. So should you.
