Krispy Kreme's Post-McDonald's Turnaround Is Actually Working

When Krispy Kreme first announced its partnership with McDonald's in 2022, it looked like a masterstroke. Access to 13,500 McDonald's locations meant distribution at a scale the doughnut chain could never build on its own. Wall Street loved it. The stock jumped. Analysts called it transformative.

Then the pilot data came back. Sales per door underperformed expectations. McDonald's had more pressing priorities. By early 2025, both companies quietly agreed to scale the partnership back, and Krispy Kreme's stock lost roughly half its value over the following months as the market processed what a $515 million full-year 2025 loss looked like alongside a retreating flagship growth strategy.

That's the context you need to understand why Q4 2025 results, reported February 26, 2026, landed the way they did. DNUT shares surged 12% on earnings day. The company posted adjusted EBITDA of $55.6 million, up 21% year over year. Free cash flow came in at $27.9 million, improving by $34.8 million versus the prior year period. Revenue of $392.4 million was down 2.9%, but earnings per share of $0.09 crushed the $0.03 consensus forecast by a factor of three.

One quarter does not a turnaround make. But the underlying mechanics tell a more interesting story about where this business is actually headed.

From Company-Operated to Capital-Light

The strategic pivot Krispy Kreme is executing is not about finding a new McDonald's. It's about fundamentally changing what kind of company Krispy Kreme is.

For most of its modern history, the company generated roughly 75% of its sales through company-operated channels. That meant carrying the capital burden of production hubs, delivery infrastructure, and the labor that goes with all of it. The hub-and-spoke distribution model, where central production facilities serve dozens of points of access (grocery, convenience, and foodservice doors), requires significant upfront investment and ongoing operational overhead.

The target by 2027 is to flip that ratio: approximately 50% of sales coming through franchise channels, with company operations handling the rest. That's not an incremental adjustment. It's a restructuring of the revenue mix that changes how the business generates cash, how it deploys capital, and what its growth trajectory looks like.

The Japan deal illustrates the mechanics. Krispy Kreme agreed to refranchise its Japan operations to Unison Capital for approximately $65 million, with the transaction expected to close in Q1 2026. Japan has been a strong market for the brand, with genuine consumer enthusiasm and established locations. Selling it to a local franchise operator lets Krispy Kreme capture a lump sum, shed the operational complexity, and retain ongoing royalty income. The company is targeting two to three additional international refranchising transactions in 2026 using the same template.

This is a playbook that QSR investors have seen executed well before. Yum Brands spent years moving toward an asset-light model, divesting company-operated restaurants and building franchise income. McDonald's completed a similar transformation over the better part of a decade. The result in both cases was a business with lower revenue on a top-line basis but higher margins, more predictable cash flows, and better returns on invested capital.

Krispy Kreme is earlier in that journey than either of those companies. It is also smaller, carries more debt, and is executing the pivot while managing a brand that suffered genuine reputational and investor confidence damage from the McDonald's episode. The degree of difficulty is real.

What the Per-Door Numbers Actually Mean

One of the cleaner ways to evaluate the health of Krispy Kreme's underlying business, separate from the noise of corporate restructuring, is average revenue per door per week. This metric captures how productive each point of access is, regardless of whether that door is a franchise shop, a grocery partner, or a convenience stop.

In Q4 2025, average revenue per door per week reached $660. That's up 4.5% year over year and up 7.0% quarter over quarter. Both directional signals matter. The year-over-year comparison confirms the business is generating more from its existing footprint than it was twelve months ago. The sequential improvement suggests momentum rather than a one-quarter anomaly.

For operators thinking about this business analytically, the per-door metric serves as a proxy for demand intensity. If Krispy Kreme is pulling more revenue per access point while the overall door count is stable or slightly contracting (as the company continues to rationalize underperforming locations), that's a positive sign. It suggests the company is shedding low-productivity doors while the remaining footprint performs better.

The risk embedded in this picture is that a portion of the per-door improvement could reflect pricing rather than volume. The company has not provided a granular price/volume decomposition in the same way a pure-play restaurant operator might. If price is carrying more of the weight, it raises questions about consumer elasticity and how long doughnut buyers at retail and convenience channels will absorb higher prices in a still-elevated inflationary environment.

The Cash Flow Turn Is the Real Story

Revenue declining 2.9% year over year would normally be a bad headline. In Krispy Kreme's case, the market looked past it because the free cash flow trajectory tells a different story.

Improving free cash flow by $34.8 million in a single quarter, reaching a positive $27.9 million, is a meaningful shift for a company that burned cash consistently through 2024. The improvement comes from a combination of sources: reduced capital expenditure as the company scales back company-operated expansion, the deferral of spending while refranchising transactions are negotiated, and operational efficiencies within the hub-and-spoke model.

This matters for a practical reason. A company generating positive free cash flow is not in the same position as one burning through reserves. It has optionality. It can service debt, invest selectively, or accelerate refranchising without being forced to access capital markets from a position of weakness.

Krispy Kreme ended fiscal 2025 with a full-year net loss exceeding $515 million. That number reflects significant non-cash charges, goodwill impairments, and the accounting reality of a year that included the McDonald's writedown. It is a large, alarming figure in isolation. Understanding it requires separating cash economics from GAAP accounting, and the Q4 free cash flow data is the most direct window into the former.

The 2026 Outlook and What It Requires

Management's 2026 guidance framework points to system-wide sales of $2 billion in 2025 and 2-4% growth in 2026. The plan also calls for at least 100 new shops globally and entry into 3-4 new countries. The new country expansion will almost certainly be driven by franchise partners rather than company investment, which is consistent with the capital-light model.

Meeting those targets requires several things to go right simultaneously. The Japan deal needs to close on schedule. The additional refranchising transactions need to materialize. Per-door performance needs to hold up as the company manages through any macro softness in consumer spending. And the brand needs to maintain enough consumer relevance, absent the McDonald's partnership, to justify franchisee investment in new markets.

The brand relevance question is not trivial. Krispy Kreme occupies a distinct niche: it is a premium-feel, occasion-driven product in a category, packaged doughnuts, where most consumers' default frame of reference is a grocery bakery or a gas station case. The "hot light" experience of a fresh Krispy Kreme from a company shop is genuinely differentiated. Whether that brand equity translates cleanly to a franchise-led, distribution-heavy model across diverse international markets is a question the company will be answering over the next 18 months in real time.

Where the Risk Remains

Refranchising is not inherently a fix for everything. A poorly executed franchise transition can damage brand standards, reduce quality consistency, and create conflict between a franchisor that needs royalty income and franchisees who need unit economics to work. Krispy Kreme's ability to attract quality franchise partners at favorable terms depends on those unit economics being compelling.

The company's debt load also deserves attention. The interest expense burden from years of expansion and the McDonald's buildout does not disappear because the growth strategy changed. Positive free cash flow helps, but Krispy Kreme has to sustain that trajectory long enough to make meaningful debt paydown or refinancing progress.

The stock reaction on earnings day suggests investors have, at minimum, recalibrated their expectations for the downside. A 12% single-session gain on a company with a nine-figure full-year loss reflects the market pricing in the possibility that the worst is behind it rather than the certainty that everything is fine.

That's probably the right read. The Q4 numbers offer real evidence that the refranchising model can generate cash and improve EBITDA. The per-door improvement shows the core product still has demand. The Japan deal demonstrates there are buyers for the international assets at reasonable prices.

For investors watching DNUT, and for the broader QSR industry tracking the capital-light model's viability at a mid-scale branded company, 2026 will deliver the data that tells whether this is a genuine business model transformation or a story that sounds better in a press release than it performs in practice.

The early returns are better than the bears expected. Whether they're good enough will take another few quarters to know.