When Pepsi (PEP) shares continued their downtrend in the last week, it suggested a shift in consumer behavior. Krispy Kreme Donuts (DNUT) and Wendy’s Company (WEN) are at the highest risk as inflation and tariffs hurt consumer spending.
In the first quarter, Wendy’s posted a 2.1% Y/Y drop in revenue, to $523.5 million. It required opening 68 net new restaurants to target a full-year net unit growth of 2% to 3%. For the year, Wendy’s expects global sales of between negative 2.0% and no growth (0%).
Krispy Kreme fared poorly, losing over 35% of its value last week. The company reported weak traffic as consumers shifted their discretionary spending away from unhealthy, sweet foods. In the quarter, the firm lost $0.05 a share. Adjusted EBITDA margin fell to 6.4%, down by 670 basis points from last year.
CEO Josh Charlesworth said that the dividend suspension, which previously yielded over 5%, enables Krispy Kreme to preserve its cash. It will pay down its debt and deleverage its balance sheet.
Shareholders sold the stock while bears held a 13.6% short interest against DNUT stock.
Krispy Kreme has an urgency to eliminate its unproductive stores. It cannot open more stores, exposing its supply to a shrinking customer base. Investors may consider McDonald’s (MCD) instead. Watch Starbucks (SBUX) and Chipotle (CMG) as shares trade lower.
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