Dive Brief:
- Krispy Kreme investor David Cameron filed a class action lawsuit against the doughnut chain Friday alleging it violated federal securities laws, according to court documents.
- The lawsuit alleges Krispy Kreme made false claims over the success of its partnership with McDonald's, which began in October 2022 with a market test in Kentucky. The lawsuit claims the chain didn't disclose that demand for its products declined after market launch, or that demand at McDonald’s locations drove declining average sales per location per week at Krispy Kreme and that the partnership was not profitable, among other allegations.
- The lawsuit comes almost two weeks after Krispy Kreme said it paused the McDonald’s rollout after reaching 2,400 restaurants to better assess “a profitable business model for all parties.”
Dive Insight:
The plaintiff claims that Krispy Kreme failed to disclose issues related to its McDonald’s partnership, citing statements from its fourth-quarter earnings that made it sound like things were going well. The plaintiff and others subsequently endured losses and damages following a 24%-plus decline in share prices on May 8, the day it shared Q1 earnings.
The doughnut chain reported a 15% decline in revenue and an increase in net losses to $33.4 million compared to a prior-year net loss of $6.7 million. It also pulled its full-year outlook and didn’t update it, partially because of the pause over the McDonald’s deployment schedule.
The chain is still leaning into the partnership for future growth, but doesn’t expect additional rollouts during the second quarter. While the rollout is on pause, the chains have worked well together to make sure that fresh doughnuts are available, Krispy Kreme CEO Josh Charlesworth said during a May earnings call.
Some of the new adjustments will be to ensure that doughnuts remain available, are prominently displayed and improve profitability at its current restaurants before moving forward.
“We continue to believe in the long-term opportunity of profitable growth through our U.S. nationwide expansion, including McDonald's,” Charlesworth said. “We're obviously also looking at the rephasing of McDonald's launch to take an opportunity to kind of reduce and adjust spend as we go throughout the year.”
Krispy Kreme declined to comment on pending litigation.
