JPMorgan believes shares of Krispy Kreme are now floundering in "survivor mode." In a Wednesday note, the bank downgraded the donut chain to an underweight rating from neutral. Analyst Rahul Krotthapalli did not provide a price target for the stock. Shares of Krispy Kreme have plunged 62% this year. Krotthapalli noted that the stock has "vastly underperformed" since going public at $17 per share in July 2021. DNUT YTD mountain DNUT YTD chart Krotthapalli noted that Krispy Kreme's recent profitability hit was from the now-canceled partnership with McDonald's . Krispy Kreme CEO Josh Charlesworth cited unsustainable costs as a major reason for the partnership ending. "This disruption led to the company being in survivor mode, including the sale of various store assets around the world and an attempted shift to 3P delivery to reduce costs and operational complexity," Krotthapalli wrote. "The reality is this donut has nearly all of its appeal when eaten freshly fried & glazed within minutes of being made. Finding a sustainable off-premise model that supports broad coverage of relatively small drops of 7-day deliveries has been an elusive challenge all these years." Meanwhile, underlying business trends in the U.S. limit the visibility of Krispy Kreme's proposed turnaround plan, the analyst said. "After reviewing the proposed turnaround plan, we believe the execution risk — specifically the duration risk to refranchise multiple international assets — remains high as underlying business trends continue to decline," Krotthapalli wrote. "In addition to uncertain macro, underlying U.S. business trends continued to decline (organic revenue growth) as accumulated pricing and growing category competition add to execution risk of proposed turnaround." The analyst also criticized Krispy Kreme's focus on its "delivered fresh daily" business, which "comes with a significant daily last-mile delivery cost." He added that the company may have overestimated its product demand, falsely assuming accessibility as a barrier, when in reality, Krispy Kreme's product and brand novelty may be diminishing due to competition and the current macro backdrop.
