Krispy Kreme slides on news of cyberattack

Krispy Kreme reported that the cyberattack “has had and is reasonably likely to have a material impact on the company’s business operations.” / Photo: Unsplash/Nahima Aparicio

On Wednesday, December 11, shares of Krispy Kreme, a doughnut shop and coffeehouse chain, dropped after the company reported operational disruptions caused by a cyberattack. Hackers compromised its online ordering system in the U.S., and it might take months to recover, according to the FT. While Krispy Kreme expects insurance to cover part of the costs, it warned that the attack is likely to have a “material impact on the company’s business operations” until the issues are fully resolved.

Details

On Wednesday, shares of Krispy Kreme dropped 3% after the company reported the cyberattack to the U.S. SEC. By the end of the trading session, the stock had clawed back most of the losses to close at $10 per share, down 0.8% versus Tuesday’s closing price.

What happened

Krispy Kreme reported that it discovered “unauthorized activity” in its IT systems on November 29. Hackers disrupted its online ordering in parts of the U.S., according to the SEC filing. In addition, the disruptions have yet to be resolved.

The company noted that “the incident has had and is reasonably likely to have a material impact on the company’s business operations until recovery efforts are completed.” No timeline for those efforts was provided, however.

Although Krispy Kreme did not disclose the extent of the damage, it confirmed that insurance would cover part of the lost revenue from digital sales and cybersecurity consultant fees.

Context

The attack occurred weeks after the Retail & Hospitality Information Sharing and Analysis Center issued a warning about heightened risks of fraud and ransomware attacks during the holiday season, the FT reported.

Cybersecurity experts believe it might take months for Krispy Kreme to recover from the attack, according to the newspaper.

“Even if the system is back up and running, the issue is hackers will already have the [company’s] data and will be threatening to publish [it],” cybersecurity researcher Graham Cluley told the FT.

Krispy Kreme declined to comment on the situation.

Stock performance

Since the beginning of the year, Krispy Kreme stock is down 33.5%, with its market capitalization dropping to $1.7 billion. Still, Morgan Stanley believes that Krispy Kreme stock could rise to $14 per share in the long term, bolstered by the company’s partnership with McDonald’s. The investment bank gave Krispy Kreme a “neutral” rating in November. Meanwhile, the partnership with McDonald’s is expected to expand to include most of the burger chain’s locations over the next two years. Morgan Stanley analysts anticipate that this collaboration could boost Krispy Kreme’s “delivered fresh daily” segment and position the company for stronger earnings growth. If successful, it could add more than 20% to Krispy Kreme’s EBITDA by the end of next year and significantly improve current valuations, Morgan Stanley believes.

According to MarketWatch, out of the 10 analysts covering Krispy Kreme, six have a “buy” recommendation, while no one rates it a “sell.” The Wall Street consensus target price is $15 per share, 50% above current levels.