Krispy Kreme terminates McDonald’s partnership citing ‘unsustainable operating costs’ of $28.9 million

Krispy Kreme has officially terminated its much-hyped national partnership with McDonald’s, as CEO Josh Charlesworth said it created “unsustainable operating costs” and led to lease impairment and termination costs of $28.9 million. In other words, not enough donuts made enough dough. The fallout from the failed partnership was laid bare in Krispy Kreme’s latest earnings report, a sharp contrast from McDonald’s own resilient financial showing amid sector headwinds.

Krispy Kreme and McDonald’s mutually agreed to end their partnership, effective July 2, 2025, after an attempt to distribute Krispy Kreme doughnuts in approximately 2,400 McDonald’s U.S. locations. Initially hailed as a major growth opportunity, the collaboration floundered under operational pressure and insufficient returns.

“Our two companies partnered very closely, each supporting execution, marketing, and training, delivering a great consumer experience,” Charlesworth said in a public statement. “Ultimately, efforts to bring our costs in line with unit demand were unsuccessful, making the partnership unsustainable for us.”

Krispy Kreme’s Q2 2025 earnings statement details $28.9 million in lease impairment and termination costs directly attributed to the McDonald’s tie-up, on top of $22.1 million in asset charges. The company’s leadership made clear these losses forced a strategic retrenchment, ending what was once projected to be a coast-to-coast doughnut blitz by the end of 2026.

Krispy Kreme’s cringey earnings

The financial repercussions were a contributor to Krispy Kreme’s disappointing second-quarter earnings, which detailed a revenue decline and significant net loss for the period ending June 29, 2025. Revenue came in at $379.8 million, down 13.5% year-over-year and missing analyst projections. Adjusted earnings per share were -$0.15, below the estimated -$0.03. Organic revenue saw a slight dip of 0.8%, while the company took non-cash charges totaling $406.9 million, the overwhelming portion of a $441 million net loss.

Charlesworth said the poor results primarily reflect McDonald’s deal. “We are quickly removing our costs related to the McDonald’s partnership and growing fresh delivery through profitable, high-volume doors with major customers,” he added, saying the company expects to begin recouping profitability in the third quarter.

Krispy Kreme is now accelerating plans to exit unprofitable partnerships, refocus on profitable channels (including supermarket and convenience partnerships), and pursue international franchise expansion. It’s also selling its remaining stake in Insomnia Cookies and refranchising further markets, including in Australia, New Zealand, Mexico, and the U.K., with the aim of lightening its balance sheet and unlocking cash for future investments.

McDonald’s sees stability and growth

For McDonald’s, the Krispy Kreme partnership was a small experiment compared to the size of its regular business. The donut sales represented only a minor part of the breakfast menu, and their removal has not dented McDonald’s financial performance.

According to McDonald’s second-quarter earnings, the company has weathered economic uncertainty and changed consumer habits with surprising strength. Global comparable sales rose 3.8%, with U.S. same-store sales up 2.5%. Consolidated revenues came to $6.84 billion, up 5% year-over-year and beating analyst expectations. Net income increased 11% to $2.25 billion and adjusted earnings per share came in at $3.19.

CEO Chris Kempczinski emphasized that McDonald’s remains committed to delivering “delicious, affordable, and convenient options” and will continue to drive growth through digital investment and menu innovation, recently announcing the return of popular items and new promotions.

McDonald’s referred Fortune to a joint announcement with Krispy Kreme about the canceled partnership. Charlesworth said that the two companies “partnered very closely” on the venture in roughly 2,400 McDonald’s restaurants, but that it was unsustainable. The announcement also said that Krispy Kreme represented a small, non-material part of McDonald’s breakfast business, and breakfast remains a core pillar of McDonald’s business strategy. Krispy Kreme declined to comment.

The road ahead for Krispy Kreme

With the McDonald’s arrangement behind it, Krispy Kreme’s turnaround blueprint involves shifting focus toward higher-margin retail channels, franchise growth, and operational cost reduction. The company’s leadership suspended dividends and renegotiated credit agreements, raising fresh capital to stabilize operations.

Charlesworth acknowledged the hit but remains optimistic: “We are now moving decisively to eliminate costs tied to this partnership and expect to return to profitability by the third quarter, focusing on sustainable, profitable growth going forward”.

Krispy Kreme’s market reaction, however, was muted: the stock has fallen nearly 70% since January—benchmarking profound investor skepticism regarding the path to recovery. McDonald’s has gained slightly more than 5% over the same period.

This failed partnership highlights the risk and complexity of scaling niche products into the hyper-competitive world of fast food, especially as American consumers remain price- and convenience-driven. For McDonald’s, meanwhile, it’s business as usual—the golden arches shine on, donuts or not.

For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing. 

This story was originally featured on Fortune.com