Krispy Kreme is pausing the expansion of its doughnut sales at McDonald’s

Krispy Kreme’s partnership with McDonald’s to sell its doughnuts at all of the burger chain’s US restaurants didn’t turn out as sweet as it thought.

The doughnut chain announced in its earnings release Thursday that it is “reassessing the deployment” of the rollout, temporarily stopping at 2,400 locations. The deal was intended to expand the reach of Krispy Kreme, which has far fewer locations than McDonald’s and relies on grocery and convenience stores for most of its sales.

The stock slumped 25% after the opening bell on Thursday.

Last year, Krispy Kreme and McDonald’s announced the unique arrangement, with the intention of the sweet treats being sold at all of McDonald’s roughly 13,000 US restaurants by the end of 2026.

Krispy Kreme said the hiatus will help the chain “achieve a profitable business model for all parties” and no additional McDonald’s will be added to the partnership in the second quarter of this year.

“Krispy Kreme continues to believe in the long-term opportunity of profitable growth through the US nationwide expansion including McDonald’s,” the company said.

Krispy Kreme first began testing the partnership in Kentucky in 2022 and gradually rolled it out to other states. McDonald’s said last year that the “consumer excitement and demand exceeded expectations” prompting the partnership to expand.

However, the economics of fast food has changed in the past year with both chains struggling. McDonald’s recently registered its worst quarter since the height of Covid-19 as customers rein in their spending.

Meanwhile, Krispy Kreme (DNUT) has seen its stock lose 73% of its value over the past year. The chain also announced Thursday it will discontinue paying out dividends to its shareholders, saving about $6 million per quarter.

“Our ability to become a bigger Krispy Kreme requires that we become better, and we are taking swift and decisive action to pay down debt, de-leverage the balance sheet and drive sustainable, profitable growth,” said Krispy Kreme CEO Josh Charlesworth.