Bear of the Day: Krispy Kreme (DNUT)

Krispy Kreme Donuts Overview

Zacks Rank #5 (Strong Sell) Krispy Kreme, Inc (DNUT) is adonut and sweet treat brand best-known for its signature Original Glazed doughnut. The company sells its products through brick-and-mortar locations. Additionally, Krispy Kreme sells through distribution outlets like grocery stores, gas stations, and major fast-food partners such as McDonald’s (MCD).

GLP-1 Use Surges

According to a recent Gallup poll, 11% of U.S. adults, or roughly 28 million people, are on GLP-1 weight-loss drugs such as Ozempic, Wegovy, and Mounjaro (up from 11% in 2024). Meanwhile, the Gallup poll does not include the many patients who have found alternative, cheaper paths to access unregulated versions of these drugs. GLP-1 drugs delay gastric emptying and signal fullness to the brain. According to Morgan Stanley, consumers remove confectionary, baked goods, and salty snacks from their diets. In fact, multiple studies suggest that sweet bakery purchases plunge nearly 10% once a patient starts these medications. Given that the majority of Krispy Kreme’s business relies on high calorie, sugary items, the rapid rise of GLP-1s is a significant long-term headwind for the company.

Krispy Kreme: Relative Weakness & Low Share Price

Krispy Kreme shares have chronically underperformed in both the short and long term. Over the past 5 years, DNUT shares have lost 78.8% of their value while the S&P 500 Index has gained 85.4%. With no end in sight to the bearish fundamentals, and little in the way of bullish catalysts, the persistent relative weakness should be a red flag for prospective investors.

Additionally, Krispy Kreme’s stock currently trades at ~$3 per share. Stocks that trade for less than $10 per share typically deter institutional investors because they raise liquidity, scalability, and regulatory concerns. Because institutional investors have the deepest pockets and drive long-term moves, share price action is another problem for Krispy Kreme.

Krispy Kreme Doughnuts: A Consistent Underperformer

Wall Street analysts continue to hold a bearish outlook on Krispy Kreme. Zacks Consensus Analyst Estimates suggest that the company will deliver negative revenue growth through 2027.

Meanwhile, the company’s earnings surprise history has been spotty. Krispy Kreme has missed Wall Street expectations in 8 of the past 19 quarters.

An Ugly Balance Sheet

On top of tepid growth, high CAPEX, thin operating margins, and a heavy debt load plague Krispy Kreme. Its debt-to-equity ratio has nearly tripled since 2022.

Bottom Line

Krispy Kreme faces severe long-term growth challenges as the rapid adoption of GLP-1 weight-loss medications directly impacts demand for sugary baked goods. Combined with chronic relative weakness, negative revenue growth, and soaring debt, DNUT shares remain an avoid.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research