Krispy Kreme Inc. (NASDAQ: DNUT) stock surged when it announced that its doughnuts would be sold in McDonald’s locations. However, shares sold off quickly afterward. The share price is down 3% for the past year, while the S&P 500 is 26% higher.
It is difficult to determine why Krispy Kreme shares do not perform better based on revenue performance. In the most recent quarter, revenue rose 11% to $450 million. The company had net income of $1.9 million, compared to a loss of $1.0 million in the same quarter the year before. However, Krispy Kreme lost $36 million in 2023, compared to a loss of $8.8 million in 2022.
CEO Josh Charlesworth gave a partial answer to the company’s problems: “Moving forward, we are modernizing the making and moving of doughnuts to ensure high-quality, profitable growth.” This implies that Krispy Kreme has a product cost problem and supply chain challenges. Certainly, the cost of sugar is a drawback. Its price has almost doubled since April 2020, and the price of cocoa has risen even more. (See six reasons to avoid Dunkin’ today.)
Krispy Kreme is an example of how businesses cannot outrun their basic costs by sharply raising product prices. Who wants to pay double what a doughnut cost at this time last year?
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