Beware Of Krispy Kreme Stock and More
Krispy Kreme (DNUT) faces significant challenges as its stock plummeted over 35% last week due to weak consumer demand and a shift away from unhealthy foods. The company reported a loss of $0.05 per share and a decline in adjusted EBITDA margin to 6.4%. CEO Josh Charlesworth announced a dividend suspension to preserve cash for debt reduction. Wendy’s (WEN) also struggles with a 2.1% revenue drop and negative sales outlook. Investors are advised to consider alternatives like McDonald’s (MCD) amid these trends.
When Pepsi (PEP) shares continued their downtrend in the last week, it suggested a shift in consumer behavior. Krispy Kreme Donuts (DNUT) and Wendy’s Company (WEN) are at the highest risk as inflation and tariffs hurt consumer spending.
In the first quarter, Wendy’s posted a 2.1% Y/Y drop in revenue, to $523.5 million. It required opening 68 net new restaurants to target a full-year net unit growth of 2% to 3%. For the year, Wendy’s expects global sales of between negative 2.0% and no growth (0%).
Krispy Kreme fared poorly, losing over 35% of its value last week. The company reported weak traffic as consumers shifted their discretionary spending away from unhealthy, sweet foods. In the quarter, the firm lost $0.05 a share. Adjusted EBITDA margin fell to 6.4%, down by 670 basis points from last year.
CEO Josh Charlesworth said that the dividend suspension, which previously yielded over 5%, enables Krispy Kreme to preserve its cash. It will pay down its debt and deleverage its balance sheet.
Shareholders sold the stock while bears held a 13.6% short interest against DNUT stock.
Krispy Kreme has an urgency to eliminate its unproductive stores. It cannot open more stores, exposing its supply to a shrinking customer base. Investors may consider McDonald’s (MCD) instead. Watch Starbucks (SBUX) and Chipotle (CMG) as shares trade lower.