Krispy Kreme Downgraded as Weight-Loss Drugs Trim Outlook for Food Stocks

Analysts are worried that people picking up weight-loss drugs will put down doughnuts.

Truist downgraded Krispy Kreme’s stock rating to "hold" from "buy" and cut its 12-month price target to $13 from $20 — a 35% decrease in its outlook, analyst Bill Chappell wrote in a report Monday provided to The Messenger. Chappell warned that the impact of GLP-1 semaglutide weight-loss drugs like Wegovy and Ozempic will hang over packaged food stocks for the next six to 12 months, if not longer.

He noted that it is still too early to come up with an accurate estimate, and that analysts have “no idea” what the impact will be on overall food consumption given how quickly the weight-loss drug boom has taken hold.  

“That, in our opinion, is the problem,” Chappell wrote. “Similar to what we witnessed 15+ years ago with the rise of Atkins diets, to low-carb diets, to ‘carb avoidance,’ investors largely avoided companies impacted by a mega trend until the impact was fully evident in the respective results.” 

Demand for obesity drugs has ballooned thanks to “miracle” GLP-1 medications. The injectable drugs work by mimicking people’s “appetite hormones” and making them feel full. Ozempic is only approved by the Food and Drug Administration to help manage type 2 diabetes in adults. Wegovy was FDA-approved for weight loss in 2021. 

Krispy Kreme, which trades under the ticker DNUT, will report its third-quarter earnings on Nov. 9. If weight-loss drug use impacts results in the following quarter, investors may be able to start more accurately forecasting the effects of the drugs in 2024 and 2025, Chappell said. Still, the analyst continues to “believe in the DNUT model.”

“We continue to believe that it can gain share in the worldwide Indulgent snack category over the next few years,” he wrote. “However, we have a difficult time recommending the name at least until the GLP-1 wave has started to form.”

Chappell also pointed to weaker-than-expected sales across the board and Krispy Kreme's partnership with McDonald's, which "doesn't perform up to management expectations."

Krispy Kreme’s net revenue grew 9% year-over-year to $408.9 million in its second quarter, and total organic revenue grew 11.4%, the company reported for the period ended July 2. Earlier this month, Krispy Kreme announced that it is considering a sale of Insomnia Cookies to focus on its doughnut business.

Krispy Kreme's shares were up 1% on Tuesday.

The weight-loss drug craze has become cause for concern among several food brands and retailers as they begin to factor the impact of the medications on sales of snacks. Nestlé said last week that it is working on products to supplement weight-loss drugs to compensate for any dips in its regular snack sales. 

Earlier this month, Walmart U.S. CEO John Furner said there has been a decline in customers’ demand for food since the boom in Wegovy, Ozempic and other weight-loss drugs.

Snack giant Conagra Brands said in a call with investors that it may consider slimming down its portions to keep up with evolving consumer patterns. The CEO of the parent company of Pringles and Cheez-It has said it is studying the effect these drugs could have on dietary behaviors.