DNUT Q3 Deep Dive: Turnaround Plan Drives Margin Expansion Amid U.S. Store Optimization

Doughnut chain Krispy Kreme (NASDAQ:DNUT) missed Wall Street’s revenue expectations in Q3 CY2025, with sales falling 1.2% year on year to $375.3 million. Its non-GAAP profit of $0.01 per share was significantly above analysts’ consensus estimates.

Is now the time to buy DNUT? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Krispy Kreme’s third quarter was marked by a positive market reaction as the company showed early progress on its turnaround plan. Management attributed improved profitability to a strategic exit from underperforming U.S. locations, the end of its McDonald’s partnership, and ongoing cost-saving efforts. CEO Josh Charlesworth described the period as a “turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth,” while noting that operational changes and targeted store closures led to higher average sales per location. The company also benefited from digital channel growth and successful limited-time product campaigns, which helped offset broader revenue declines.

Looking forward, Krispy Kreme’s leadership emphasized capital-light expansion, a focus on franchise development, and further outsourcing of logistics as key pillars for continued margin improvement. CFO Raphael Duvivier stated the company plans to “reduce CapEx investment compared to 2025” and expects sequential EBITDA growth in the coming quarters. Management believes international momentum, especially in markets like Japan and Mexico, expansion with high-traffic U.S. retail partners, and a refreshed product lineup will be critical to sustaining profitability as the brand continues to optimize its network and invest in cost discipline.

Key Insights from Management’s Remarks

Management believes the third quarter’s results reflect deliberate actions to optimize the U.S. store base, enhance operational efficiency, and support international momentum, while the refranchising strategy and digital sales growth contributed to improved profitability.

• U.S. store optimization: The company intentionally exited around 600 unprofitable U.S. doors and ended its McDonald’s partnership, focusing on high-traffic, high-margin locations with strategic retail partners like Walmart, Target, and Costco. This led to an 18% sequential increase in average weekly sales per door.
• Operational efficiency initiatives: Efforts to simplify operations included optimizing production processes, improving labor management, and outsourcing delivery. Over half of U.S. logistics are now handled by third-party partners, a move expected to fully roll out in 2026 and result in more predictable, potentially lower, delivery costs.
• Refranchising and capital-light strategy: Management is actively pursuing refranchising in select international markets and restructuring its Western U.S. joint venture, aiming to accelerate unit growth and reduce capital intensity. Proceeds from these actions are being used to lower net debt and support financial flexibility.
• International momentum: Markets like Japan and Mexico delivered organic growth, while new openings in Spain and upcoming entries into Uzbekistan and Brazil demonstrate ongoing geographic expansion. The collaboration with KFC in the UAE, now in over 200 outlets, highlights the scalability of the hub-and-spoke delivery model internationally.
• Product and digital innovation: Limited-time offerings (such as Harry Potter collections) and a refreshed core doughnut menu, combined with a 17% increase in U.S. digital sales, drove engagement and supported higher-margin growth. Digital now accounts for over 20% of U.S. retail sales, reinforcing its strategic importance.

Drivers of Future Performance

Management expects continued progress in margin expansion and cash flow, driven by refranchising, digital channel growth, and disciplined capital allocation, while monitoring U.S. consumer demand and international expansion.

• Capital-light expansion and refranchising: The company anticipates ongoing refranchising in international markets and reduced ownership in the Western U.S. joint venture, resulting in lower capital requirements and increased focus on strategic, high-performing locations.
• Full logistics outsourcing: Plans to outsource all U.S. delivery by 2026 are expected to create a more variable cost structure and reduce operational risk, with management citing improved predictability and long-term cost benefits from third-party logistics expertise.
• Consumer and product initiatives: A refreshed doughnut menu, expanded digital engagement, and partnerships with major U.S. retailers are positioned to support sustainable growth, though leadership remains cautious about broader consumer spending trends and competitive pressures.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) successful execution of the refranchising and capital-light initiatives, (2) the impact of full logistics outsourcing on cost structure and profitability, and (3) sustained momentum in international markets, especially as new geographies come online. Additional attention will be paid to digital channel expansion and the performance of new product offerings as indicators of brand engagement and market share resilience.

Krispy Kreme currently trades at $3.94, up from $3.79 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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