By Nate Wolf

After years of struggles and setbacks, Krispy Kreme stock looks set to keep declining, analysts at J.P. Morgan say.

A team led by Rahul Krotthapalli downgraded the donut maker's shares to Underweight from Neutral in a research note Wednesday. The demise of the company's ill-fated partnership with McDonald's has left it in "survivor mode," J.P. Morgan argues, and its turnaround plan is laden with risks.

Krispy Kreme stock was falling 6.8% to $3.48 on Wednesday. It is down 65% this year and off more than 80% from its all-time closing high of $21, on July 1, 2021.

Delivery and distribution have been a challenge for the company. As part of its effort to expand "Delivered Fresh Daily" coverage to various distribution points, the company joined with McDonald's last year to deliver doughnuts to Golden Arches locations across the U.S.

But the duo pulled the plug on their collaboration in June because it proved to be unprofitable for Krispy Kreme, whose gross margin plummeted to 10.7% in the quarter ended June 29, down from 19.1% the prior year.

"Ultimately, efforts to bring our costs in line with unit demand were unsuccessful, making the partnership unsustainable for us," said CEO Josh Charlesworth in a statement announcing the decision.

Finding a reliable off-premise sales model is tough due in part to the product itself, J.P. Morgan argued. "Our team has life-long experience with the Krispy Kreme brand," wrote Krotthapalli. "The reality is this donut has nearly all of its appeal when eaten freshly fried & glazed within minutes of being made."

Krispy Kreme's plan to overcome this challenge and revamp the business after the botched McDonald's partnership involves -- among other tactics -- refranchising some international assets, closing unprofitable delivery locations, and outsourcing some delivery logistics to third parties.

J.P. Morgan is skeptical of these efforts. To start, international refranchising will cause the company to take on more debt when it is already highly leveraged: Its $939 million in net debt exceeds its $639 million market capitalization.

As for daily distribution, any logistics model Krispy Kreme chooses comes with significant last-mile delivery costs, J.P. Morgan argues. Even with third-party logistics partners, "managing profitability per drop is not easy to scale," Krotthapalli said.

The bottom line isn't the only place Krispy Kreme is having problems. Second-quarter organic revenue in the U.S. declined 3.1% from the year prior, a sign that the company's U.S. business is deteriorating, J.P. Morgan says.

Krispy Kreme didn't immediately reply to a request for comment.

Write to Nate Wolf at nate.wolf@barrons.com

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August 27, 2025 14:09 ET (18:09 GMT)

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