Krispy Kreme Stock Crashes 68% as McDonald's Partnership Falters and Fraud Investigations Mount

Krispy Kreme's Meltdown: The Unraveling of a Donut Empire

In the fluorescent glow of fast-food counters across America, Krispy Kreme's signature glazed donuts were supposed to represent a sweet new chapter of growth. Instead, they've become symbols of a corporate crisis that has sent investors scrambling and attorneys circling.

Since February, Krispy Kreme's stock has plummeted nearly 70% following two devastating earnings reports and the unraveling of its high-profile McDonald's partnership. The collapse has triggered multiple securities fraud investigations as shareholders question whether the company concealed warning signs of trouble.

"What we're witnessing isn't just a temporary setback—it's potentially an existential crisis for a beloved brand," noted one veteran food industry analyst who spoke on condition of anonymity. "The pace of deterioration suggests structural problems that management may have downplayed."

A Tale of Two Disclosures

The crisis unfolded in dramatic fashion over two financial releases that shocked investors.

On February 25, Krispy Kreme reported fourth-quarter 2024 results showing net revenue of $404 million—a 10.4% decline—with sales per door weakening due to what the company vaguely described as "changing customer mix." The news sent shares plunging 21.9% to $7.13.

Then came the true bombshell. On May 8, the company revealed even more alarming first-quarter 2025 figures: revenue had fallen 15.3% to $375.2 million, while net losses ballooned to $33.4 million from $6.7 million the previous year. Most critically, the company announced it was "reassessing [its] deployment schedule together with McDonald's" and withdrew its full-year financial guidance.

Investors fled, driving shares down another 24.7% to $3.26—a catastrophic descent for a stock that had surged 39% just a year earlier when the McDonald's nationwide expansion was first announced.

The McDonald's Mirage

At the heart of Krispy Kreme's troubles lies its faltering partnership with McDonald's—once heralded as transformational for both companies.

The collaboration, which had reached approximately 2,400 McDonald's locations by March 2025, was originally slated for nationwide rollout by the end of 2026. Now, that timeline is in jeopardy as Krispy Kreme admitted it needs to "achieve a profitable business model for all parties."

Market observers familiar with the partnership's economics pointed to elevated delivery costs—reportedly exceeding $550 per door weekly against a $300 target—that made the arrangement increasingly untenable as consumer spending softened.

"The hub-and-spoke distribution model that worked for standalone Krispy Kreme shops simply couldn't scale efficiently across thousands of McDonald's locations," explained a supply chain consultant who has worked with multiple quick-service restaurant chains. "The math just doesn't work when you factor in fuel costs, labor shortages, and the operational complexities."

A Balance Sheet Under Siege

Behind the operational challenges looms a precarious financial structure that amplifies the stakes. Krispy Kreme carries approximately $935 million in debt against deteriorating performance metrics—creating what financial analysts describe as a potential "death spiral" scenario.

The company's debt-to-equity ratio stands at 1.19, while its Altman Z-Score of 0.54 places it firmly in what financial professionals call the "distress zone." Some bankruptcy probability models now place the likelihood of financial failure above 50%.

Making matters worse, the company has eliminated dividends to preserve cash while its credit profile deteriorates. Financial experts predict a potential downgrade to its term loan could trigger higher interest costs—adding approximately $10 million in annual cash drain when the company can least afford it.

The Legal Onslaught

Where financial distress appears, litigation often follows. No fewer than five prominent law firms—including Glancy Prongay & Murray LLP, The Law Offices of Frank R. Cruz, Kirby McInerney LLP, Pomerantz LLP, and Faruqi & Faruqi, LLP—have launched investigations into potential securities law violations.

The inquiries focus on several key questions: Did management adequately disclose risks related to the McDonald's partnership? Did the company downplay customer retention issues? Were warnings about partnership challenges improperly withheld? Were revenue projections manipulated to artificially support stock prices?

For shareholders who have watched their investments evaporate, these investigations represent a slim hope of recovery through class-action litigation—though such cases typically return pennies on the dollar even when successful.

Multiple Headwinds Converge

Krispy Kreme's struggles reflect more than just partnership difficulties. The company cited "consumer softness leading to a decline in doughnut shop transaction volume," alongside macroeconomic challenges, inflationary pressures, and unfavorable weather conditions.

Some industry watchers also point to the rising impact of GLP-1 weight loss medications, which may be suppressing consumer demand for high-calorie treats. While the company hasn't specifically blamed this factor, analysts note that treat frequency has declined in high-single-digits across the category.

Environmental, social, and governance considerations represent another emerging challenge. As health-conscious investing gains momentum, brands heavily associated with high-sugar, high-carbohydrate products could face "sin-stock" funding premiums similar to tobacco companies—potentially widening their cost of capital gap compared to healthier alternatives.

Scenarios for Survival

With shares now hovering around $3.13—near the 52-week low of $3.02—market speculation has turned to Krispy Kreme's options for survival.

Financial experts outline several potential paths forward: an amend-and-extend agreement with lenders coupled with an equity raise; a take-private transaction by JAB (Krispy Kreme's former owner) at $6-8 per share; a Chapter 11 reorganization where creditors receive the majority of equity; strategic sale of international franchises; or a full turnaround if the McDonald's partnership can be quickly salvaged.

For McDonald's, the situation creates both challenges and opportunities. While losing its dessert offering creates near-term menu gaps, some believe the fast-food giant could ultimately acquire Krispy Kreme's production assets at distressed prices if the situation deteriorates further.

Ripple Effects Beyond the Counter

The crisis has implications reaching far beyond Krispy Kreme itself. Industry observers note that comparable quick-service restaurant stocks with franchise-heavy models could face valuation pressures if investors begin questioning the viability of "asset-light" business structures.

Meanwhile, suppliers who depend on Krispy Kreme's business face their own risks. Ingredient vendors may need to tighten payment terms or demand factoring arrangements, potentially creating cascading liquidity pressures throughout the supply chain.

With second-quarter 2025 revenue projected between $370-385 million and adjusted EBITDA of $30-35 million, the immediate outlook remains challenging. For a company once synonymous with warm, fresh donuts bringing joy to customers, the path back to financial sweetness appears increasingly complex and uncertain.

As one restructuring advisor put it: "When a brand this recognizable faces this magnitude of financial distress this quickly, no outcome can be ruled out. The next 12 to 24 months will determine whether Krispy Kreme can rise again or becomes another cautionary tale of overexpansion and misaligned partnerships."