Krispy Kreme Sees Profit Gains as Turnaround Gathers Momentum

Four quarters into a sweeping turnaround effort, Krispy Kreme is beginning to show tangible signs of progress—though not without continued pressure on the top line.

The company reported first-quarter net revenue of $367 million, down 2.2 percent year-over-year, a decline tied largely to its decision to close underperforming Delivered Fresh Daily (DFD) doors in 2025, including the now-ended McDonald’s partnership.

But beneath that headline figure, the company’s turnaround strategy is gaining traction in areas that matter more to leadership: profitability, cash flow, and balance sheet strength. Adjusted EBITDA rose 38 percent to $33.1 million in Q1, and free cash flow swung to a positive $11.4 million—marking the first time since its 2021 IPO that Krispy Kreme generated positive free cash flow in a first quarter. Net leverage improved to 5.5x, down significantly from prior periods, as the company leans heavily into a capital-light model built around refranchising and operational efficiency.

CEO Josh Charlesworth said Q1 was a validation of the company’s strategic reset.

Refranchising efforts

Refranchising is a major part, especially in international markets. The company entered 2026 with roughly 25 percent of systemwide sales coming from franchisees. Following deals in Japan and the Western U.S., that figure has already climbed to about 42 percent, putting Krispy Kreme on pace to reach its 50 percent target.

While the company is taking a measured approach to ensure it partners with the right operators, leadership made clear that most international markets will eventually transition to franchise ownership.

That shift is designed to reduce capital intensity, improve returns on invested capital, and accelerate global development without overextending the balance sheet. The company expects to open more than 100 shops in 2026, nearly all of them franchised, entering new markets such as the Netherlands.

US market strategy

Krispy Kreme is taking a different approach in the U.S., where the focus has shifted from expansion at all costs to what Charlesworth describes as “sustainable, profitable growth.”

After exiting lower-performing locations last year, the company has spent the past two quarters rebuilding its domestic footprint with higher-volume, higher-margin DFD doors tied to strategic retail partners. That strategy is beginning to show results. Average weekly sales per fresh delivery door rose to $685, up 16.7 percent year-over-year, and the company added more than 250 higher-quality doors in the first quarter alone.

That strategy is supported by a major operational shift: the full outsourcing of U.S. logistics, completed in April ahead of schedule. The move simplifies a historically complex part of the business—managing thousands of daily deliveries—and allows Krispy Kreme to focus on production and brand-building.

The company is also layering in technology to improve efficiency across its fresh delivery network, including AI-driven demand planning and route optimization. The goal is to ensure the right product reaches the right location at the right time, a challenge that becomes increasingly complex as the network scales.

Operational improvements

Those operational improvements are feeding directly into margin expansion. In the U.S. segment, adjusted EBITDA jumped 61 percent year-over-year to $25.5 million, with margins improving 4.8 percent. The gains were driven by cost controls, labor optimization, and the elimination of expenses tied to the McDonald’s partnership.

Even amid a volatile macroeconomic environment, demand for Krispy Kreme’s core products has remained resilient, according to Charlesworth. That demand is being fueled by a combination of value-driven promotions, cultural relevance, and product innovation. Original Glazed dozens, often sold with second-dozen discounts, continue to perform well, and limited-time offerings tied to events like Valentine’s Day and the Artemis II mission have driven record sales and extended promotional runs.

Digital is also playing an increasingly important role, accounting for 23 percent of U.S. retail sales in the quarter, supported by a loyalty program with more than 17 million members.

Other industry headwinds, including the rise of GLP-1 weight loss medications, have had limited impact so far. Leadership attributes that resilience to the brand’s positioning as an occasional, shareable indulgence rather than a daily purchase. The company estimates most customers purchase its products just two to three times per year, often for group occasions or gifting, which insulates demand from some of the pressures facing more frequency-driven concepts.

“People aren’t coming to us every day or even weekly. They’re coming to us for those special moments, for those sharing occasions,” Charlesworth says.

Ultimately, the turnaround effort is as much about financial discipline as it is about growth. The company has reduced capital expenditures, improved working capital management, and used refranchising proceeds to pay down debt. At the same time, it’s maintaining a pipeline for expansion.

“We need good financial status, and so we identified that as something that we really wanted to address in the turnaround. And that’s why we focused on improving profits, driving the positive cash flow, and leveraging the refranchising opportunities to pay down debt and reduce that leverage, and all around strengthen our financial standing and strengthen the balance sheet,” Charlesworth says.

Krispy Kreme expects systemwide sales to grow 2 percent to 4 percent in 2026, with net revenue projected between $1.25 billion and $1.35 billion and adjusted EBITDA in the range of $140 million to $150 million. The company also plans to keep deleveraging, targeting a net leverage ratio below 5.5x.