Is $DNUT a buy?

Krispy Kreme is one of those companies that I like as a consumer, but not as a business. It operates in too much of a niche space for my liking and is bound to take a beating from any health trends.

Like another comment mentions, the debt is there but it’s being paid down gradually (check latest developments, including stake sale of insommia cookies), and franchise sales, which means also royalties, are increasing. These will be at higher margins…+ I wouldn’t understimate the purchasing power of for European Standards European fat kids. We don’t do weight loss pills here - parents shout too much at some point and fat shaming is a thing haha

KK penetration will increase outside the US. Potential for rerating with gradual debt paydown and margin improvements….won’t go to 6x sales like McD but 2x sales long-term i see on the cards…for the rerating alone. Will take longer than 12 months of course …

Trademates shows this as HIGH RISK - negative P/E of -1.2, -33.4% net margin, and analysts split 2 buys vs 3 sells. The catalyst is the insider purchase by Bernardo Hees ($2.89M) and improving adjusted EBITDA, but that goodwill impairment charge is a red flag for underlying business quality. Action plan: 0.4x sales looks cheap, but with debt-to-equity at 201 and negative margins, this is a turnaround bet not a value play. I'd wait for operating profitability before touching it. If you want the Buffett cigar butt play, size tiny and expect a long hold.

Short version: it's a real turnaround, but the cheapness is mostly an illusion of the price-to-sales ratio. I'd call it fairly priced with some real optionality, not a slam-dunk buy.

On 0.4x sales: that's the trap. Price-to-sales ignores debt, and debt is the whole story here. There's about $817M of net debt sitting on top of the \~$565M equity, so enterprise value is \~$1.4B. On that basis it trades around 9x EBITDA, which is not cheap for a doughnut chain whose organic sales (ex the dead McDonald's deal) are basically flat.

You're right that the $356M goodwill charge is non-cash and basically noise. The cash item that matters is the debt, and that's where I'd push back on the "leverage is improving" read. Net leverage fell from 6.7x to 5.5x mostly because they sold Japan (\~$70M) and cut the Western U.S. JV stake (\~$90M) and threw the cash at debt. Organic free cash flow in Q1 was only \~$11M, and full-year guidance is just over $15M. Real progress, but front-loaded by asset sales that don't repeat.

The thing I'd actually watch: the term loan matures March 2028 under a 5.00x leverage covenant. How they refinance that is what decides whether this thin equity re-rates or gets squeezed. That's the binary, more than any single quarter's EBITDA.

Hees buying is a genuine signal and I take it seriously. Worth knowing he's the Kraft Heinz / 3G guy, though. The same playbook (cut costs, refranchise, delever) can re-rate the equity or hollow the brand. Both happened on his last big food project, so it cuts both ways.

A fuller write-up on DNUT and 100 others is available at: sparkyscoffeefund.com

Not financial advice.

Ran this through my boardroom and honestly, the verdict is brutal. Only Buffett sees value here, everyone else is screaming sell.

Buffett goes against the grain. He sees the brand loyalty and sub-1.0 P/B as a classic cigar butt with a moat. Hot original glazed has real pricing power, even if the balance sheet is a mess.

Graham says no margin of safety with that PE and debt-to-equity of 201.

Lynch calls it a diworsification, not a turnaround. Negative ROE, negative margins, he's out.

Greenblatt says magic formula spits this out. EV/EBITDA of 21.4 is too rich for a company with no ROIC.

Munger is the most colorful. He calls it a lollapalooza of bad incentives and says invert, what would make this fail? Everything.

Fisher sees poor execution and red flag debt.

Smith says not a wonderful business at any price.

Even the skeptic called out Buffett directly: "You claim brand loyalty gives a moat, but with 201 D/E and negative margins, isn't that moat more like a ditch they're drowning in?"

The insider buy is interesting, and that adjusted EBITDA improvement is real. But 6 out of 7 say sell. The bull case rests entirely on brand value being worth more than the debt. I think that's a stretch at 65 PE.

(runs on a tool I built, so grain of salt, methodology is documented)